• Business Method and Software Patents Following In Re Bilski
  • April 1, 2009 | Author: Jeremy J. Klobucar
  • Law Firm: Dickinson Wright PLLC - Bloomfield Hills Office
  • In a recent en banc decision, the Federal Circuit Court of Appeals clarified the law regarding the requirements for patentability of an invention directed towards business methods and software. In the Bilski(1) decision, the Federal Circuit rejected the previous requirement that to qualify for patent protection a method need only produce a "useful, concrete, and tangible result." Instead, the Court held that to satisfy the statutory requirements for patentability, a business method must: (1) be tied to a particular machine or apparatus, or (2) transform a particular article into a different state or thing.

    Historically, methods of doing business, which often rely on the use of computers and software, did not to rise to the level of patentable subject matter. This changed in 1998, when the Federal Circuit in State Street Bank & Trust v. Signature Financial Group(2), held that a business method was indeed patentable. In State Street Bank, the patent at issue involved a system for pooling the assets of mutual funds in an investment portfolio through the use of a computer program. The district court concluded that the method claims directed to this invention were invalid as directed to non-patentable subject matter. The Federal Circuit reversed and held that the transformation of data, representing discrete dollar amounts, by a machine through a series of mathematical calculations into a final share price, constitutes a practical application of a mathematical algorithm, formula, or calculation, and was therefore patentable because it produced "a useful, concrete and tangible result."

    The Court's decision in State Street Bank effectively opened the door to an explosion of patent filings on a variety of different business methods that produced "useful, concrete, and tangible results." This explosion of patent filings created a back log in the Patent Office that still exists today. An unintended consequence of State Street Bank was an increase in the amount of patent applications and patents that were extremely broad, vague and unsupported by any structure. The Federal Circuit thus reexamined the test for patentability of a business method.

    The Bilski case involved an appeal of an Examiner's rejection of claims directed to a method for managing the consumption risk costs of a commodity as unpatentable since they were not directed to patentable subject matter. More specifically, the claims at issue related to a computerized method for using weather data to predict commodities prices. In affirming the Examiner's rejections, the Bilski Court rejected the "useful, concrete, and tangible result" test of State Street Bank. The Court held that a business method identifying and facilitating transactions between two business entities, without any manipulation of data, does not constitute patentable subject matter.

    The Bilski decision held that the test for patentable subject matter is whether the claimed process is tied to a machine or apparatus(3) or whether it transforms a particular article into a different state or thing. This "machine-or-transformation" test requires the machine or transformation to impose meaningful limits on the claims scope, i.e. it must be central to the purpose of the claimed method. The claims in Bilski were not limited to a particular apparatus. The claims in Bilski also failed to involve the transformation of a physical substance. The Court thus held that they were directed to mental and mathematical methods which would not suffice for patent eligibility under section 101 of the Patent Laws. While the Bilski decision will have a significant impact on the patentability of business method and software patents, there will remain the ability to retain patent protection in these areas with properly drafted patents.

    In view of Bilski, the Patent Office is now using a heightened standard and a large number of business method and software patents that would have been previously allowed are being rejected as unpatentable. Companies should review their business methods to determine whether or not they satisfy the new "machine-or-transformation" test. If not, procedures such as reexamination can help these patents satisfy the new standard. Moreover, a competitor's patents that were once viewed as a barrier to entry into a particular product line or industry may be invalid. This has the potential to free up a particular technology that would otherwise have been unavailable absent this change in the law.

    On January 28, 2009, a Petition for a writ of certiorari was filed with the U.S. Supreme Court, which is still awaiting a decision. We will continue to monitor the progress of this case and keep you informed of updates as they become available.


    (1). In re Bilski, 545 F.3d 943 (Fed. Cir. 2008) (en banc).

    (2). 149 F.3d 1368 (Fed. Cir. 1998).

    (3). The Court deferred the question as what constitutes a machine to future cases.