Articles

Client Alert - Landmark Ruling Affecting Business Method Patents

By Eugene Flanagan

Nov. 3, 2008

Is it really possible to get a valid patent on a process of exchanging options on commodities to hedge risk? The U.S. Court of Appeals for the Federal Circuit has just held that it is not.

Its ruling, In re Bilski, may well become the definitive precedent for assessing the patentability of so-called “business methods”, a category of inventions of indeterminate extent, but clearly including business transactions of the kind claimed in Bilski.

The real issue in cases like Bilski is not whether the invention is or is not a business method. Rather, the question is whether the particular business method as claimed is the kind of “process” that can be patented. This is the key to the practical application of such precedents: in most cases, it is possible to fashion patent claims that clearly recite the kind of process that can be patented, and the goal is to draft such claims having the broadest scope consistent with the conditions for patentability.   Bilski adopts a test for determining whether a claimed process recites patentable subject matter that is carefully grounded in long-standing precedents of the US Supreme Court.

This test deems a claimed process to be patentable subject matter if it either (1) is tied to a particular machine or apparatus, or (2) transforms a particular article into a different state or thing. Since the claim did not recite any kind of machine or apparatus, the first part of the test was not applied by the Court and its opinion provides virtually no guidance in this regard.

The focus of the Court’s analysis was the application of the second leg of the test: Did the inventor, Bernard Bilski, claim a process that entailed a transformation of a particular article? Like all legal principles, this requires interpretation. The Court observed that electronic signals and electronically manipulated data are the “raw materials” of many information-age processes and cited with approval precedent that had held the electronic transformation of data representing a physical object into a visual depiction, to be patentable subject matter.

But the process claimed by Bilski was qualitatively different in a way that doomed its validity. Since Bilski’s claimed process encompassed only an exchange of options, merely legal rights, it did not involve a transformation of a physical thing or an electronic signal representing a physical thing. Since it also did not recite the use of a particular machine or apparatus, it could not satisfy either leg of the test.

Clearly, the test adopted by In re Bilski does not provide a bright line for separating patentable from unpatentable processes. But it does demonstrate the existence of multiple options for securing patent coverage for processes that encompass or are encompassed by business methods. One apparent option is to recite the use of devices such as data processing systems and data networks, in performing the process recited in the claim. Another is to explicitly recite data transformation, something that Bilski’s claim completely omitted.

There is one caveat. The US Supreme Court has demonstrated a keen interest in patent law issues in recent years, and In re Bilski could find its way there. Given the careful attention to Supreme Court precedent exercised by the Court of Appeals, this seems unlikely.

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