Bilski v. Kappos

Brief Fact Summary.

Petitioners submitted an application to patent a business method using a mathematical algorithm to hedge against price changes in the energy market.  The patent examiner rejected the application because it was related to an abstract idea with no relationship to a specific apparatus.

Synopsis of Rule of Law.

The machine-or-transformation test is not the only test for patent eligibility under § 101 of the Patent Act.

Facts.

Petitioners developed a method to hedge against price fluctuations in the energy market, which included a simple mathematical concept and familiar statistical approaches.  Petitioners applied for a patent on their claimed invention, but the patent examiner rejected the application, claiming it involved an abstract idea and was not implemented on a specific apparatus.  Petitioners appealed and the Federal Circuit affirmed.  The Federal Circuit held the test for patentability under § 101 was the machine-or-transformation test: (1) the claimed process was tied to a particular machine; or (2) the process transformed an article into something else.  One of the dissenting judges argued it failed because it was a method of conduction business.  A second dissenting judge argued the invention was an abstract idea and therefore unpatentable.  A third dissenter would have remanded to determine patentability under other provisions.  Petitioners appealed and the United States Supreme Court granted certiorari.

Issue.

Is the machine-or-transformation test the only test for patent eligibility under § 101 of the Patent Act?

Held.

(Kennedy, J.)  No.  The machine-or-transformation test is not the only test for patent eligibility under § 101 of the Patent Act.  The Patent Act § 101 defines patent eligibility with exceptions for “laws of nature, physical phenomena, and abstract ideas.â€Â  Section 101 is a threshold test and the claimed invention must also be novel, nonobvious, and fully described.  The invention here is claimed to be a “process†under § 101.  “Process†is defined within the Patent Act at § 101(b).  The Federal Circuit adopted the machine-or-transformation test as the sole test for what constitutes a “process.â€Â  Section 100(b) explicitly defines “process,†so the Federal Circuit’s further definition and limitation is unnecessary and does not apply here.  Adopting such an exclusionary rule creates uncertainty for the patentability of computer software and other emerging technologies.  Similarly, the definition of “process†does not exclude business methods.  Federal law explicitly contemplates at least some business method patents as a “method†eligible for a patent under § 101.  The limitations of novelty, nonobviousness, and full description protects against unjustified patents.  Petitioners’ process, however, may not be a “process†under § 101 because it claims an abstract idea.  The Court’s precedent supports this limitation.  Affirmed.

Concurrence.

(Stevens, J.)  While the majority is correct that the machine-or-transformation test is not the only test for what constitutes a patentable process and that this test provides a critical clue to patentability, the majority wrongly suggests that any series of steps that is not itself an abstract idea or law of nature may constitute a “process†within the meaning of § 101.  The Court’s holding should have been that the method at issue is not a “process†because it describes only a general method of engaging in business transactions.  Because business methods are not patentable, the method here is not eligible for patent.  The Court’s opinion requires some clarifications.  First, the Court’s opinion should not be read literally to mean that the terms in the Patent Act must be read as lay speakers use those terms, and not as they have been understood traditionally in the context of patent law.  To do otherwise would lead to ridiculous results.  In addition, the opinion should not be interpreted to mean that the machine-or-transformation test cannot be applied to digital technologies.  Rather, it should be read as holding that few, if any, processes cannot effectively be evaluated using the test’s criteria.  Plus, the Court does not provide a clear account of what constitutes an unpatentable abstract idea.  Instead, the Court artificially limits the claims at bar to hedging, and then concludes that hedging is an abstract idea rather than a term that describes a category of processes including the claims.  Therefore, the Court fails to show how its conclusion follows clearly from precedents in this area.  Consequently, one might conclude that the Court’s analysis means that any process that utilizes an abstract idea is itself an unpatentable, abstract idea, but such a rule has never been suggested; if this were the rule, it would undermine a host of patentable processes.  Looking to the language of § 101, clearly it should not be interpreted to mean, in a lay sense, that the word “process†constitutes any series of steps.  Instead, “process†has a distinctive, term-of-art meaning in patent law that does not encompass any series of steps or any way to do any thing.  Therefore, the Court makes a serious interpretive error by its willingness to exclude general principles from the provision’ reach while apparently willing to include steps for conducting business.  The history of patent law contains strong norms against patenting either of these two categories of subject matter, and such history provides a much clear resolution to the issue presented here.  That history strongly supports the conclusion that a method of doing business is not a “process†under § 101. Early on, patents were used to protect industrial innovations, not those in business or finance, and by the early 20th century, it was established that a series of steps for conducting business could not be patented.  This understanding was carried into the 1952 Patent Act.  Also, the legislative history does not support an interpretation of the 1952 Act that means that anything created by man is patentable.  To the contrary, the legislative history should be understood to mean that not everything created by man is patentable.  Even though people have been developing better and better ways to conduct business throughout history, it has never been understood that these ways of conducting business were patentable.  Although it may be hard to define what exactly a patentable “process†is under § 101, the historical clues unite on one conclusion: A business method is not a “process.â€Â  The constitutionally mandated purpose and function of the patent laws also support this conclusion.  One of the purposes of patents, through the grant of a limited monopoly, is to promote innovation that would be stifled without the grant of the patent.  It is generally agreed that when innovation is expensive, risky, and easily copied, inventors are less likely to undertake the guaranteed costs of innovation in order to obtain the mere possibility of an invention that others can copy.  These dynamics of cost, risk, and reward vary the type of thing being patented.  Concerning business, it is doubtful patents are necessary to encourage business innovation, due to the fact that the competitive marketplace rewards companies that use more efficient business methods.  If business methods could be patented, then many business decisions, regardless of how small, could be potential patent violations.  Businesses would either live in constant fear of litigation or would need to undertake the costs of searching through patents that describe methods of doing business, attempting to decide whether their innovation is one that remains in the public domain.  This would greatly inhibit business innovation and competition.  For these and other reasons, the Court should have clearly stated that the claims at issue were not patentable because business methods are not patentable.

(Breyer, J.)  Justice Stevens is correct that this case should have been decided on the grounds that business methods are not patentable.  With that being said, it is also important to clarify the patent law principles on which the majority of Justices agree.  First, although the text of § 101 is broad, it is not without limit.  Second, the transformation and reduction of an article to a different state or thing is the clue to the patentability of a process claim that does not include particular machines.  Third, although the machine-or-transformation test has always been a useful and important clue that helps in determining whether a process is patentable, this test has never been the “sole test†for determining patentability.  Finally, although the machine-or-transformation test is not the only test for patentability, this by no means indicates that anything that produces a useful, concrete, and tangible result is patentable.  Therefore, in reemphasizing that the “machine-or-transformation†test is not necessarily the only test of patentability, the court does not intend to deemphasize the test’s usefulness or to suggest that many patentable processes lie beyond its reach.

Discussion.

The Federal Circuit tried to create a strict test for patent eligibility but the Supreme Court maintained the fairly broad intent of Congress.  Some approved the Bilski decision because it left open the door for business method claimed inventions that did not strictly meet the “machine-or-transformation†test.  Others regretted the opinion, however, due to the flood of “process†claims that followed involving services such as legal counseling and arbitration.  The supporters wanted more flexibility for patent applications and the detractors had hoped for greater insight into what constitutes an appropriate business method. &nbsp.