Bilski - Patentability of Business Methods in the US

The US Supreme Court has issued its decision on the long-awaited Bilski case, confirming the broad range of patentable subject matter in the US.

After one of the longest waits in the history of US Supreme Court patent cases, the appeal decision was finally issued by the Supreme Court in the case of Bilski v. Kappos on 28 June 2010. The decision considers the patenting of method claims in the US, particularly relating to business methods.

The Supreme Court has confirmed that lower courts were correct in holding the Bilski application to be non-patentable subject matter. However, it applied precedent from earlier decisions to conclude that the application was not patentable because it related to an abstract idea rather than using the "machine-or-transformation" test of the Federal Circuit.

Although the decision is only binding for patent applications in the US, the conclusions drawn are important for companies across the globe, particularly those that regularly file patent applications containing method claims in the US.

Background – The Application

In 1997, Bernard L. Bilski and Rand Warsaw filed a patent application for a method of hedging risks in commodities trading. The application describes providing a fixed bill energy contract to consumers such that consumers pay a fixed monthly fee in advance of the winter period based on their past energy use and irrespective of how much energy they subsequently use. Consumers can save money relative to others if a winter is particularly cold and a large amount of energy is used.

The Bilski "invention" lies in a three-step method for a broker to hedge risks for consumers of a commodity. The three essential steps of the method are:

initiating a series of transactions between a broker and consumers in which the consumers buy a commodity at a fixed rate based on past prices; identifying sellers of the commodity having a risk position with regard to the commodity contrary to that of the consumers; and initiating transactions between the broker and sellers at a fixed rate so that the risks of the consumers and sellers balance. This is an example of what is known as a "business method" patent application. The extent to which business methods are patentable varies around the world. In some countries a method must be associated with some kind of physical technology to be patentable. In others, it is sufficient that the process leads to some commercial advantage. The situation in New Zealand and Australia is...