In the courts. After Bilski

• Author: Randall R. Rader
• Position: Chief Judge of the United States Court of Appeals for the Federal Circuit
• Pages: 23-24

In this article,

Chief Judge Randall R. Rader

of the

United States Court of Appeals for the Federal

Circuit, explains the implications of the recent

Bilski

decision by the U.S. Supreme Court on the

patentability of business methods.

Introduction

Patent-eligible subject matter, and in particular the

eligibility of business methods, has been a promi-

nent international topic since at least

State Street

Bank

, the famous last case of the even more famous

Circuit Judge Giles Rich. A recent U.S. Supreme

Court Case,

Bilski v. Kappos

, squarely addressed this

issue. The Court provided guidance that will shape

the debate for years to come.

Patentable subject

matter:

historical background

Section 101 of the Patent Act states that “any new

and useful process, machine, manufacture, or com-

position of matter, or any new and useful improve-

ment thereof, may be eligible for patent protec-

tion.” The four broad categories in the statute admit

almost no limit on eligible subject matter. Indeed,

U.S. law contains no categorical exclusion from

patent protection.

Although the statute contains no narrowing exclu-

sions, the Supreme Court has articulated three ex-

ceptions to the Patent Act’s broad patent-eligibility

principles: “laws of nature, physical phenomena,

and abstract ideas.”

In Diamond v. Chakrabart y

, 447

U.S. 303, 309 (1980), the Supreme Court reasoned

that laws of nature and natural phenomena fall out-

side the statutory categories because those subject

matters “are the basic tools of scientific and techno-

logical work.” In

Gottschalk v. Benson

, 409 U.S. 63, 67

(1972), abstractness, akin to disclosure problems di-

rectly addressed in Section 112 of the U.S. Patent

Act, also places subject matter outside the statuto-

ry categories. In the context of business methods,

the primary inquiry involves ascer taining the ab-

stractness of the claimed process.

Bilski

in the Federal

Circuit

In an atmosphere of patent reform, h owever, the

Federal C ircuit decided to address the patent-

eligibilit y issue

en banc.

1

The Bilski

case became

the vehicle fo r that reconsiderati on. The claimed

invention invo lved a method for managing the

consumpti on risk cos ts of a co mmodity sold by a

commodit y provide r at a fixed pr ice – in simple

terms, the familiar concept of hedging. The U.S.

Patent and Tradema rk Office (US PTO) examiner

rejected the claims under Sect ion 101, find ing

that the claimed invention was a pure business

method witho ut any attachment to a machine.

The Board o f Patent Appeals an d Interference s

(the B oard) at th e USPTO affi rmed the e xaminer’s

rejection . Sp ecifically, the Board conclude d th at

the claimed inventio n wa s an abst ract idea. On

appeal, the Federa l Circu it, le d by then -Chief

Judge Mi chel, affirmed t hat decision, w ith Judges

Newman, Mayer and my self dissentin g.

In its very lengthy opinion, the Federal Circuit aban-

doned the “useful, concrete and tangible result” test

from

State Street Bank

. Instead, the court fashioned a

“machine-or-transformation” test based on several

decades-old Supreme Court cases. Under this test,

a process is patent-eligible if:

the process is “tied to a particular machine or ap-

paratus”; or

the process “transforms a particular article into a

different state or thing.”

The Federal Ci rcuit did not categoricall y exclude

either business method patents or sof tware

patents, explaining that suc h patents are subjec t

to the same legal requiremen ts as any other

process or method.

Unique among the Federal Circuit judges, Judge

Newman would have found the

Bilski

patent eligi-

ble. In her view, the machine-or-transformation test

AFTER BILSKI

>>>

1 en banc – where all

judges of a court hear

the case (an entire

“bench” ), rather than

a panel of them.

This often applies in

unusually complex

cases or those

considered to be of

unusual si gnificance.

23

Photo: iStockphoto/Christian Rummel

IN THE COURTS