In a long-awaited decision, the United States Supreme Court's recent decision in Bilski v. Kappos does not immediately render invalid thousands of issued business method patents as well as business method patent applications pending before the US Patent and Trademark Office. The ruling essentially maintains the status quo that business methods are not per se unpatentable if certain established standards under the Patent Act are satisfied. However, the Supreme Court's decision evidences that the Court is split as to whether business method patents are entitled to patent protection at all and could be read as an invitation to Congress to resolve the split through Patent Reform.

Ultimately the Court analyzed Bernard Bilski and Rand Warsaw's patent application, which claimed an allegedly novel method for balancing risk for consumers or producers of consumable commodities, under the well-established precedents that laws of nature, abstract ideas and physical phenomenon are not patentable subject matters. Bilski et al. v. Kappos, 561 US ___, ___ (2010) (slip op. at 13-16). Under this analysis, there was unanimous agreement that the patent application at issue was not patent eligible because it claimed an unpatentable abstract idea. Id. The Court refrained from further defining what constitutes a patentable "process," beyond pointing to its existing precedent, and "decline[d] to impose limitations on the Patent Act that are inconsistent with the Act's text." Id. at 16. It also indicated its decision would not preclude the Federal Circuit from developing a standard that furthers the purposes of the Patent Act and is not inconsistent with its text. Id.

A majority of the justices rejected an exclusive machine-or-transformation test for determining whether a process fell within patentable subject matter of 35 USC Section 101 because it stated "the term 'process' means process, art or method" and there is no ordinary, contemporary, common meaning" of the terms "process, art or method" that would require them to be tied to a machine or to transform an article. Id. at 7 (citation omitted). Justice Kennedy signaled a concern that in today's Information Age, application of the machine-or-transformation test would potentially exclude certain patentable inventions: "the machine-or-transformation test would create uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression and the manipulation of digital signals." Id. at 9. The Court did recognize that the machine-or-transformation test is a "useful and important clue, an investigative tool" for deciding whether an invention is a patent-eligible "process" but did not elaborate on what is the proper test. Id. at 8.

Justice Kennedy did not rule out all business method patents from patent eligibility. He explained that 35 USC Section 101 does not categorically preclude business method patents and noted that the existence of the term "method" within Section 100 (b)'s definition of "process" suggests it may include some methods of doing business. Id. at 10. Also, Justice Kennedy wrote that at least some business patents are explicitly contemplated by federal law because 35 USC Section 273(b)(1) provides that a defense of prior use can be asserted by an alleged infringer when a patent-holder claims infringement based on "a method in [a] patent." Id. at 11. 35 USC Section 273 (a)(3) defines "method" for purposes of this defense as "a method of doing or conducting business." Id. However, in a concurring opinion authored by Justice Stevens, four justices took the position that business methods are not patentable and stated "[a]lthough it may be difficult to define with precision what is a patentable 'process' under Section 101, the historical clues converge on one conclusion: A business method is not a 'process.'" Bilski, slip op. at 2, 33 (Stevens, J., concurring). Justice Breyer's concurring opinion similarly makes this point.

The Supreme Court's decision allows business method patents to survive for the time being. In the pharmaceutical and biotechnology sectors, patents and applications on methods of diagnosis and treatment also remain viable. Similarly, the decision does not negate the patentability of software-related inventions. However, it has left open the question of what is required for a business method to be considered patentable subject matter. An answer to this will become increasingly important as business method patents have become, and will continue to be, key assets for both independent inventors and major corporations. Congress through Patent Reform could be the ultimate arbiter of whether business methods are proper subject matter for patents.

While we wait on Congress, patent applicants should be mindful of drafting claims that are less abstract and directed to a definitive work piece, transformation and/or result. In addition, applicants should make sure that the established conditions for patentability provided by the Patent Act, and especially the machine-or-transformation test which to date has been the best enunciation of a meaningful test, are met to increase the likelihood that a patent application for a business method will be patent eligible.

A link to the Supreme Court's decision is provided below: http://www.supremecourt.gov/opinions/09pdf/08-964.pdf

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