Is Your Invention Patent-Eligible?

By Jonathan Muskin

gavelEarlier this year the Supreme Court delivered its long awaited ruling in Bilski v. Kappos, 561 U.S. ___ (2010), offering hope for those seeking software and so-called business-method patents, yet offering little in the way of clarity.

It’s unusual for the Supreme Court to decide to hear a patent case, and that rarity typically lends such rulings no small degree of gravitas.

Bilski is no exception. Some commentators worried that the wrong decision in this case would kill the already ailing U.S. economy. At stake was what types of methods are eligible for patent protection. The patentability of “nonphysical” inventions including business methods, surgical methods, diagnostic methods and even the patentability of software itself was in question.

In addition to affecting patent applications, existing patents could have been retroactively invalidated by the decision, potentially wiping out billions of dollars worth of intellectual property assets.

Section 101 of the Patent Act of 1952 (35 U.S.C. § 101) defines what types of inventions are eligible for patent protection and states, “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.”

The big question: Does “process” include inventions such as business methods and other nonphysical inventions? One would think that after more than 50 years since enactment, the issue of what is patentable subject matter would be well-settled.  Yet this issue has never been fully resolved by the courts or clarified by Congress. Rapid advancements in technology have only further clouded the picture.

Those in favor of a broad interpretation of Section 101 argue that patents encourage innovation and if patent-eligible subject matter was restricted then companies would not spend as much money on research and development, thereby causing the United States to lose its technological prowess. They also argue that restricting patent-eligible subject matter would make it more difficult for startups to get patents and hence venture capital.

Those who oppose patents on business methods and software argue that such patents stifle fair competition by requiring large and small companies to pay royalties to patent owners for things that should naturally be in the public domain.  Many groups were calling for the Supreme Court to eliminate patents on software altogether.

History Lesson

In 1998, the Court of Appeals for the Federal Circuit (CAFC) decided State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), which held that anything that produces a “useful, concrete, and tangible result” is patentable under Section 101. This was a very easy standard to meet and meant that most types of inventions could be patented. The Supreme Court declined to review this decision and this issue was thought to have been put to rest.

In 1997, an inventor by the name of Bernard Bilski filed a patent application for a computerized business method for managing energy hedge funds. The U.S. Patent and Trademark Office rejected Bilski’s application under Section 101 as not being patent eligible.

Bilski appealed to the CAFC, and on Oct. 30, 2008, the CAFC decided In re Bilski, 545 F.3d 943 (Fed. Cir. 2008), and issued a bombshell opinion.

The CAFC affirmed the USPTO’s decision that Bilski’s patent was not patentable under Section 101 and went so far as to partially overrule State Street Bank & Trust Co. by repudiating the “useful, concrete, and tangible result” test.

The CAFC in Bilski held that in order for a method to be patentable, it must either be tied to a particular machine/apparatus or transform a particular article into a different state or thing, the so-called machine or transformation test. This test meant that pure business methods, as well as other kinds of inventions, were no longer patent eligible under Section 101. The CAFC ruling had, in effect, changed the rules of the game – patents that did not satisfy the “machine or transformation” test were now invalid.

When Bilski appealed his case to the U.S. Supreme Court, it obliged. The issue was whether the “machine or transformation test” is the sole test for determining patent eligibility under Section 101.  Fortunately for those who favor strong patent protection, the Supreme Court ruled this year that the machine or transformation test is not the sole criteria for determining patent eligibility.

The Supreme Court stated, “This Court’s precedents establish that the machine-or-transformation test is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101. The machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible ‘process’.”

The Supreme Court ruled that, notwithstanding the fact that Bilski’s business method did not satisfy the machine or transformation test, Bilski’s business method was not patent-eligible because it was directed to an abstract idea.

Good News, Bad News

So the good news for patentees is that the Supreme Court decided not to limit method patents to only those that satisfy the machine or transformation test. The bad news is that the Supreme Court did not clearly state what the current test is. In other words, the Supreme Court punted.

There is now more uncertainty than ever over what is currently patent eligible subject matter.

So what does all of this mean for inventors? If your invention is a physical product itself (not its use), then this issue should not affect you and your invention is patent-eligible.

If your invention is a method that satisfies the machine or transformation test, then your method should be patent-eligible. It seems unlikely that in view of the Bilski decision, a method that satisfies the machine or transformation test would not be patent eligible.

If your invention is a method that does not satisfy the machine or transformation test, then your invention may or may not be patent eligible depending on whether it is considered an “abstract idea.”

However, the Supreme Court in Bilski left us little guidance for determining what is an “abstract idea.” Therefore, patent applications falling into the latter category should be drafted and claimed with as much physical structure as possible to reduce the potential to be considered an abstract idea.

Inventors and patent lawyers can only hope that the courts and/or Congress will soon clarify this issue once and for all.

Editor’s note: This article appears in the November 2010 print edition.

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