Bilski v. Kappos: Business methods are patentable (probably)

Stuart Freen is a JD candidate at Osgoode Hall Law School.

The Supreme Court of the United States last week released what was likely the most highly anticipated patent case of the year: Bilski v. Kappos. It was the decision that many had hoped would settle once and for all the nagging issue of whether business methods are patentable in the United States. Perhaps predictably, the majority came down firmly on the side of “maybe”. Though the entire Court concurred that the claimant’s invention was not patentable subject matter, they split on the crucial issue of whether business methods as a category are patentable. The ratio of the judgment was further muddied by a majority opinion that was not entirely decisive.

Business method patents have been a hot issue in patent law for some years now. At the risk of over-simplifying, business method patents describe methods of organizing human behavior, as opposed to processes for manufacturing or transforming goods or other processes relating to technology in some way. Some famous examples of business methods are Priceline’s Name Your Own Price system (US patent 5794207) and Amazon’s one-click checkout system (US patent 5960411).  The problem is that since business methods don’t necessarily involve a physical component they tend to look a lot like a series of mental steps, which are axiomatically unpatentable. On the other hand, supporters argue that good business methods take considerable resources to develop and creators should be entitled to patent protection as a reward/incentive for innovation.

At issue in Bilski was a patent application for a method of hedging risks in commodities trading. Basically, the inventors had devised a way for energy traders to alleviate the adverse effects of commodity price fluctuations by selling consumers energy at fixed rates. The first of the two main claims disclosed the main steps of how to hedge risk according to the scheme. The other main claim put the steps into a simple mathematical formula. The remaining claims applied specifically to the energy market.

The recent decision was, of course, an appeal from the well known 2008 decision of the United States Court of Appeals for the Federal Circuit In re Bilski. In that case, the Court of Appeals rejected their earlier “useful, concrete, and tangible result” test from State Street Bank & Trust Co. v. Signature Financial Group, Inc. In its place, the Court reverted to a stricter “machine-or-transformation” test for processes. Under that test, abstract processes had to either a) be tied to a particular machine or apparatus, or b) transform a particular article into a different state or thing. The machine-or-transformation test basically rendered business methods and some types of computer programs unpatentable subject matter.

In Bilski v. Kappos, the SCOTUS affirmed the Court of Appeals’ decision in result but overturned it on all of the important parts. The Supreme Court was unanimous in its finding that the machine-or-transformation test is only a “useful clue” as to whether or not a process is patentable. All members of the Court also agreed that the claimed invention was unpatentable since it was really just an abstract idea.

That, however, was where the agreement between the Supreme Court justices ended.

Justice Kennedy wrote the opinion of the Court which held that the term “process” should be interpreted in its ordinary, contemporary, common meaning.  Notably, Justice Kennedy refused to restrict the scope of the term “process” to categorically rule out business method patents.  To do so, Justice Kennedy wrote, could potentially preclude future inventions that are worthy of patents but have not yet been conceptualized. Rather, he held that the categories of patentable subject matter in Section 101 should be given their full, modern interpretation and the only ‘inventions’ that should be categorically excluded are those relating to laws of nature, physical phenomena and abstract ideas. Nevertheless, he held that the claimed patent was an abstract idea and therefore non-statutory.

In a vigorous ‘concurring’ judgment, Justice Stevens (in one of his final decisions released before his retirement) was highly critical of the majority opinion and would have held that all business methods are unpatentable. In a long, thorough and frequently brilliant opinion, he argued that business methods have never been contemplated as patentable, either by the original U.S. Framers or by Congress. He went on to criticize the majority opinion for leaving the doors open to business method patents without providing any substantive guidance on how to sort patentable business methods from abstract ideas.

So, where does that leave prospective patentees? Well, probably very confused.

The final result seems to be that business methods are patentable, but the test for when a business method is a true “process” (compared with an abstract idea) is somewhat undefined. The machine-or-transformation test is still a useful analytical tool in most cases. However, it is not the sole test to be used and some method claims (notably computer programs) will be patentable. The standard for process claims does however appear to be higher than the old “useful, concrete, and tangible result” test from State Street Bank, which the entire Supreme Court agreed was too expansive.

Overall, Bilski v. Kappos does not provide the definitive answer to the business method patent issue that many were hoping for, though doubtless it will serve as fodder for plenty of future debate.