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SC Rules on Bilski, Spares Biz Process Patents Tough Test

SC Rules on Bilski, Spares Biz Process Patents Tough Test

Although the U.S. Supreme Court upheld a lower court's decision to deny a patent for Bernard Bilski's business process, it reject that court's notion that business process patents must be put through a so-called machine-or-transformation test. Such a requirement could have undermined patents across the software industry, but the Supreme Court ruled that other tests may be sufficient.

By Erika Morphy
06/28/10 3:01 PM PT

The U.S. Supreme Court has ruled in a patent case that has held the software industry and patent attorneys in suspense for much of the last year.

However, the decision, which came down on the last day of the court's term, was worth the wait for advocates in favor of the patentability of business processes.

In Bilski v. Kappos, the Supreme Court struck down a lower court's decision that would have put business processes through an onerous test of eligibility.

For these firms, the status quo in patent law remains the same -- the only hurdles to patentability of processes are such factors as novelty and nonobviousness, Washington, D.C., technology attorney Raymond Van Dyke told the E-Commerce Times.

The decision has "spared major upheavals of the patent laws," he said. "The Court wisely steered clear of undermining millions of patents and patent applications and chastised the Federal Circuit for their irrational exuberance."

Worst Nightmare

Bilski v. Kappos has been making its way through the legal system for more than 10 years -- and along the way, it morphed into a nightmare for certain parts of the computer software industry.

In 1997, Bernard Bilski and Rand Warsaw applied for a patent on a process to hedge risk in commodities. The Patent Office denied the claim on the grounds that it was too abstract.

The U.S. Circuit Court of Appeals for the Federal Circuit upheld that decision in 2008. Then, however, it went one step further: It ruled that a process is only eligible for a patent if it is "tied to a particular machine or apparatus" or if it "transforms a particular article into a different state or thing."

The Federal Court's decision effectively barred so-called business methods from meaningful patent protection. These patents could range from financial strategies, risk management techniques, teaching methods -- or even novel ideas such as speed dating. Such ideas are the lifeblood of many parts of the software industry.

By the time the case reached the Supreme Court last year, there were two issues at stake: 1) whether a process must be tied to a particular machine or apparatus, or transform a particular article into something different -- the so-called machine-or-transformation test -- in order to be patentable; and 2) whether the Federal Circuit's machine-or-transformation test for patent eligibility contradicts clear Congressional intent that patents should protect methods of doing or conducting business.

The Supreme Court, however, did not as far as some business process patent advocates would have liked.

While the Supreme Court rejected the idea that the machine-or-transformation test should be the sole test for patentability, it unanimously agreed with the lower court ruling that threw out Bilski's and Warsaw's patent, judging the patent too abstract. That meant "the court, therefore, need not define further what constitutes a patentable process," Justice Anthony Kennedy wrote.

There was dissent, however, on criteria for business processes patents, leaving open the possibility that other tests could be developed by the courts to determine their eligibility.

Big Picture

For the plaintiff's counsel, the decision was a bittersweet victory. Finnegan Partner J. Michael Jakes, who argued the case before the Court, said he was disappointed that the court decided the Bilski/Warsaw claims were not patentable under the broad language of the Patent Act. He added, however, that he was pleased it rejected the Federal Circuit's machine-or-transformation test. Most importantly, he told the E-Commerce Times, "it decided that business processes are still eligible for patents."

The court rejected the Bilski/Warsaw claims on the grounds that they were too abstract, but Jakes said he believes the decision gives them a good shot at amending the patent office's decision with the new guidance.

Claims that are too abstract are still not eligible for business process patents, Brad Wright, shareholder at Banner & Witcoff, told the E-Commerce Times. There is still some room for further litigation with this category, he said, as the court did not fully define what it meant by an abstract idea.


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