Client Alert - In re Bilski: Business Method Patents

The Federal Circuit in In re: Bernard L. Bilski and Rand A. Warsaw, No. 2007-1130, significantly narrowed the ability to obtain and enforce business methods patents. In a high-profile and long-awaited en banc decision that was rendered on Thursday, October 30, 2008, the Bilski court held (9-3) that the patent application at issue failed to meet the appropriate test, which requires that a process be tied to a particular machine or that it physically transform an article into something different. The Federal Circuit found that the U.S. Supreme Court's machine-or-transformation test for a process should be the governing test for finding patent eligibility, and rejected other proposed tests, including whether a process claim creates a "useful, concrete and tangible result." The Federal Circuit also added, however, that the U.S. Supreme Court may "ultimately decide" to alter or set aside its "machine-or-transformation test" in order "to accommodate emerging technologies. . . And we certainly do not rule out the possibility that this court may in the future refine or augment the test or how it is applied."

The Federal Circuit did not overrule the State Street & Trust Co. decision, which first legitimized business methods patents, but its decision significantly narrows State Street's holding and subsequent case law emanating from the decision. Note that one Bilski dissenter, Judge Haldane Robert Mayer, expressed a desire to have the Federal Circuit overrule the State Street decision, stating that: "The patent system is intended to protect and promote advances in science and technology, not ideas about how to structure commercial transactions. . . Affording patent protection to business methods lacks constitutional and statutory support, serves to hinder rather than promote innovation and usurps that which rightfully belongs in the public domain."

The Bilski decision could have two significant effects: 1) it may cause many existing business method patents to be declared invalid; and 2) it may cause some business method patents to become more difficult to obtain. In this regard, the decision particularly may affect software patents, which form a large segment of business methods patents. At the very least, the decision strongly implies that such patent applications may need to demonstrate how the computer implements the claimed invention. The patent at issue related to a method for hedging risks in commodities trading. As a result of the decision, many software patents may face a more stringent analysis, both at the application and enforcement stages. A representative for the U.S. Patent and Trademark Office praised the Federal Circuit's decision as applying the "correct test" to patent eligibility for process claims.

Related Attorney: Barbara Anderson Wald