Business (Methods) As Usual: Bilski v. Kappos

The Supreme Court recently decided Bilski v. Kappos, a case that revisited the question of whether business methods are – or should be – patentable subject matter. In a 5-4 majority ruling, the Supreme Court affirmed the patentability of business methods, but rejected Bilski’s patent claims as “attempts to patent abstract ideas.”1

Business Method Patents

Protecting inventive processes with a method patent is unquestionably acceptable under U.S. patent law.2 The question with business method patents, such as e-commerce methods, banking methods, etc., has historically been whether they would provide patent rights to mere ideas. However, since 1998, business methods have been considered patentable so long as they produce a “useful, concrete and tangible result.”3

“Business method patents are favored by startup companies, for whom such patents may form the initial core of their value, thus allowing them to acquire funding,” says Boyle Fredrickson shareholder Mollie Newcomb. As such, business method patents can be considered critical to incentivizing entrepreneurship, thus fulfilling the constitutional goal of U.S. patent law: “To promote the Progress of Science…by securing for limited Times to…Inventors the exclusive Right to their…Discoveries.”4

However, many large companies, and especially established online businesses, such as L.L. Bean and Overstock.com, argue that the existence of business method patents gives rise to a multitude of claims that these companies at least partially infringe the rights of parties holding patents to various internet-related technologies.

Newcomb continues, “These parties are often ‘non-practicing entities’ – sometimes known as ‘patent trolls’ – who acquire patent rights but do not actually use the patented methods, instead seeking revenue from nuisance license fees and costly litigation.”

Bilski Decision

The test for determining whether a method patent claim rises above the level of mere abstraction has been the “machine or transformation” test, which inquires whether the method requires the use of a machine or has some transformative effect. The Supreme Court has not abandoned that test, and in fact agreed that it provides “a useful and important clue” to patent eligibility.5 However, the majority opinion also found that the machine or transformation test” is not the sole test for deciding whether an invention is a patent-eligible ‘process’.”6

Implications for Inventors

The United States Patent and Trademark Office reacted to the Bilski decision immediately, sending a memo to the patent examining corps with general guidance on how to examine business method claims in compliance with the decision.

“Essentially, the USPTO will continue to use the machine or transformation test to ensure patent eligibility and reject method claims that fail the test,” says Newcomb. “However, failure to meet that test will not be considered the final word. Rather, the applicant will have the opportunity to argue that the claims are not simply directed to an abstract idea.”

When applying for a patent on broad concepts that might be considered abstract, inventors and attorneys will need to consider the tests that will be applied during examination, and often, the manner in which the process will actually be implemented and be sure to claim the physical or technological components required.

Newcomb concludes “Our recent experience tells us that business method claims that are directed to a computer implemented method – one reciting computer hardware in the body of the claim and producing output of some sort – are not being rejected for lack of patentable subject matter.”

Be sure to consult your Boyle Fredrickson attorney for additional insight into Bilski v. Kappos and ask how the court’s latest ruling regarding business method patents may impact your business.

1 Bilski et al. v. Kappos, 561 U. S. ____, ____ (2010) (slip op., at 13).
2 “Whoever invents or discovers any new and useful process…may obtain a patent therefor…” 35 U.S.C. § 101.
3 State Street Bank v. Signature Financial Group, 149 F.3d 1368, 1375 (Fed. Cir. 1998).
4 U.S. Const. art. VIII, cl. 8.
5 561 U.S. ____, ____ (2010) (slip op. at 8).
6 Id.