• New Supreme Court Decision Does Little to Clarify Patent Eligibility for Software and Business Method Claims
  • July 21, 2010 | Author: Sean C. Crandall
  • Law Firm: Jackson Walker L.L.P. - San Antonio Office
  • On June 28, 2010, the United States Supreme Court issued its long-awaited decision in Bilski v. Kappos. In Bilski, the Court rejected a bright-line test for patent eligibility that had been adopted by the Court of Appeals for the Federal Circuit, and instead adopted a more flexible analysis. The result is that software and business method inventions cannot categorically be excluded from patent eligibility, and the “machine-or-transformation” test cannot be used as the sole test for whether method claims are patent-eligible. Instead, claims to software and business methods are not drawn to patentable subject matter if they recite only “abstract ideas.” Unfortunately, the Court provided little or no guidance on what constitutes an abstract idea, leaving many practical questions unanswered.

    The patent claims at issue in Bilski were drawn to a method of hedging risks while trading. The claims recited steps like “initiating a series of transactions” and “identifying market participants.” In reviewing Mr. Bilski’s claims, the Federal Circuit, the appellate court responsible for patent appeals, held that a claimed method is patentable subject matter only if it is either tied to a “particular machine” or transforms matter. Because Bilski’s claims failed to pass this test, they were deemed patent-ineligible. The Supreme Court then agreed to review the case.

    In a fractured decision, with three separate opinions spanning more than 70 pages, the Court unanimously agreed on two points: first, that Bilski’s claims were not drawn to patentable subject matter, and second, that the machine-or-transformation test is not the sole test for patent eligibility for method claims. In an opinion by Justice Kennedy, a bare majority rejected any categorical exclusion, including for business method claims, and held that the proper threshold for eligibility is whether a method claim merely recites an “abstract idea.” Unfortunately, the Court gave no objective criteria for distinguishing a patent-ineligible abstract idea from a patent-eligible concrete method. And Justice Scalia, who joined in only part of Justice Kennedy’s opinion, also joined a separate opinion that emphasized the importance of the machine-or-transformation test as “the clue” (emphasis in the original) to patent-eligible methods, even though it is not the sole test. This implies that the machine-or-transformation test will continue to be important. A method claim that passes the test will almost always be patent-eligible, while a claim that fails the test (possibly including many business method claims) will have an uphill battle.

    While the Supreme Court declined to further refine what constitutes an abstract idea, it invited the Federal Circuit to do so. This is sure to cause a spate of new litigation as those with different interests advocate their preferred standards. In the meantime, prudent patent applicants should continue to include concrete physical objects (“particular machines”) in their method claims, or ensure that those claims transform matter. Those involved in litigation over software and business method patents will need to review their claim constructions carefully to decide how Bilski affects them.