Where Does State Street Lead Us? Bilski Refines the Legal Standard for Patentable Subject Matter in Business Method Patents
Recently, the Court of Appeals for the Federal Circuit (“Federal Circuit”) decided a much anticipated patent law case, In re Bilski, which clarifies the standard for determining whether a business method invention is patentable subject matter. In Bilski, the Federal Circuit affirmed a Board of Patent Appeals and Interferences (“Board”) final decision holding that Bilski’s claimed business method invention is not patentable subject matter because it was neither “tied to a particular machine or apparatus” nor did it “transform a particular article into a different state or thing.” This is the Federal Circuit’s first major decision on business method patents in a decade, and it has already caused a stir as the Court announced a return to the “machine-or-transformation” test for patentability of business methods – jettisoning the “useful, concrete and tangible result” test that has been used for the past ten years. In doing so, the Federal Circuit may have placed some business method patent claims at risk of being invalid or non-patentable.
Following Bilski, patent practitioners, in-house counsel, and inventors should consider the following takeaway points:
- Business method patents have not been eliminated; instead, the legal standard for determining whether a business method is patentable subject matter has been refined.
- Bilski may have no immediate impact because the U.S. Patent & Trademark Office’s (“USPTO”) current practice largely comports with Bilski’s refined standard. For the past several years, the USPTO has generally required some tie to technology for a business method to be patentable.
- This is a good time to reevaluate the strength of current or pending business method patent claims in light of Bilski.
Bilski attempted to patent a method of hedging risk in the field of commodities trading. The patent examiner rejected Bilski’s claims on the basis that the invention essentially is a mere manipulation of an abstract idea, and thus is not patentable subject matter. The Board affirmed this decision, relying on State Street Bank & Trust Co. v Signature Financial Group, Inc., a 1998 Federal Circuit decision that pronounced the “useful, concrete and tangible result” test for business methods.
Before State Street, it was unclear whether business methods were patentable in the first instance. Consequently, when the Federal Circuit issued State Street, many said the “cloud of doubt” was lifted and the “floodgates” opened for business method patents. Some of these patents garnered negative attention, including a method for restroom-reservation on an airplane and a method of swinging sideways on a swing invented by a five-year old. Such “inventions” were deemed patentable under the sometimes-loosely-applied State Street standard because they produced a “useful, concrete and tangible result.” In an effort to stem this tide, the USPTO tightened its own examination guidelines for determining patentable subject matter by requiring at least some tie to technology. Those examination guidelines, criticized by some practitioners as not comporting with the broad language in State Street, were instrumental in reducing the number of questionable business method patents that issued. Consequently, Bilski had been much anticipated to see whether the Federal Circuit would sanction the broad approach suggested in State Street, or whether it would pull the reigns back and adopt the USPTO’s examination guidelines, which narrows the scope of patentable business methods.
In Bilski, the en banc Federal Circuit first reaffirmed the bedrock principle that patent protection does not exist for fundamental principles, such as laws of nature, natural phenomena, or abstract ideas, or for the processes of human thinking. The Court then articulated the underlying legal issue as, “whether a process claim is tailored narrowly enough to encompass only a particular application of a fundamental principle [or mental process] rather than to pre-empt the principle itself.” Ultimately, the Federal Circuit determined that the State Street "useful, concrete and tangible result” test was inadequate to fully address that issue because that test was never intended to supplant the “machine-or-transformation” test for patentable subject matter articulated by the Supreme Court in Gottschalk v. Benson (1972). Accordingly, the Federal Circuit reaffirmed that a process is “surely patent-eligible” if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.
The Federal Circuit then applied the “machine-or-transformation” test to Bilski’s patent application. It found that Bilski’s claimed process did not require the use of any particular machine or achieve any eligible transformation, noting that the claim was essentially directed to the mental processes of identifying transactions that would hedge risk. Accordingly, the Federal Circuit affirmed the Board’s decision that Bilski’s method for managing risk costs of a commodity was not patentable subject matter.
Application of the “machine-or-transformation” test is far from straightforward after Bilski. On the one hand, the machine portion of the test turns largely on a question posed, but not addressed, by the Federal Circuit: whether the mere recitation of a machine (e.g., a computer) in patent claims is sufficient to make a process claim patentable. Because Bilski’s business method was not tied to any machine at all, the Federal Circuit deferred that issue for another day, stating “[w]e leave to future cases the elaboration of the precise contours of machine implementation, as well as answers to particular questions, such as whether or when recitation of a computer suffices to tie a process claim to a particular machine.” The Federal Circuit recognized that some may resort to clever claims-drafting (i.e., merely reciting a computer as part of a claimed process) in an attempt to comply with Bilski.
The Federal Circuit did, on the other hand, offer some guidance for the transformation part of the test, providing an example of what constitutes an acceptable transformation: the electronic processing of data, such as a medical x-ray that represented physical and tangible objects, from one state into a visual depiction of a physical object on a display. The Federal Circuit also discussed two further-limiting “corollaries” that do not satisfy the transformation test of Bilski: the addition of “mere field-of-use limitations” to restrict use of the invention to a particular technological environment, and the addition of “insignificant post solution activity” that incorporates a non-essential final step, such as data-recording or data-gathering. Instead, the Federal Circuit stated that the “transformation must be central to the purpose of the claimed process.”
How does Bilski affect your business?
The Federal Circuit did not overrule State Street in full, making plain that business methods are still patentable subject matter. Further, there may be little immediate impact from Bilski because the USPTO previously construed State Street narrowly in the formulation and implementation of its own examination guidelines. In the future, however, Bilski could have implications for the patentability of business methods, including inventions directed to financial services, e-commerce websites, insurance, and software, which frequently involve new ways of processing information or analyzing data. Such business method claims are now subject to the same legal requirements for patentability as applied to any other process or method, and the Federal Circuit has asked, but not answered, some key questions in the application of Bilski.
Post-Bilski, the patentability of any particular business method invention will depend upon the form of the claim as drafted, and whether the Bilski standard is clarified in future litigation. For now, any software and business method patent holders should examine their portfolios to determine the scope of their patent protection in light of this refined standard. A given method or process claim may not pass muster under Bilski if the claimed invention is not tied to a particular machine or if it does not involve transforming a particular article into a different state. In the end, a Bilski review of such patent claims may be warranted.