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In re Bilski

Case No. 2007-1130 (Fed. Cir., October 30, 2008)

In a 132 page decision containing three lengthy dissents and a concurrence, the Federal Circuit Court of Appeals sharply limited the patentability of ‘business method’ patents.  Bilski sought to patent a business method for hedging risks in the field of commodity trading.  His method involved the application of mathematical algorithms to data, and subsequent purchase of appropriately identified option contracts. 

Machine or Transformation Test

The Federal Circuit held that business methods could be patentable as a ‘process.’  Said the Court:

We rejected [a categorical] exclusion in State Street, noting that the so-called ‘business method exception’ was unlawful and that business method claims (and indeed all process claims) are subject to the same legal requirements for patentability as applied to any other process or method.”  We reaffirm that conclusion. …  [A]lthough invited to do so by several amici, we decline to adopt a broad exclusion over software or any other such category of subject matter beyond the exclusion of claims drawn to fundamental principles set forth by the Supreme Court.

However, to do so, it must involve a ‘process’ that “is tied to a particular machine or apparatus or … transforms a particular article into a different state or thing.”  To be ‘transformative’ the process must transform either a “physical object or substance or an electronic signal representative of any physical object or substance.”  Moreover, “the involvement of the machine or transformation in the claimed process must not merely be insignificant extra-solution activity.”  Because Bilski’s process only resulted in the purchase or sale of legal obligations – option contracts - and was not tied to any particular machine, it did not pass muster under this ‘machine or transformation’ test, and hence was not patentable. 

We hold that the Applicants’ process as claimed does not transform any article to a different state or thing.  Purported transformations or manipulations simply of public or private legal obligations or relationships, business risks or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances.  Applicants’ process at most incorporates only such ineligible transformations.

The Federal Circuit urged that in applying this ‘machine or transformation’ test, it was following past United States Supreme Court precedent. 

State Street Rejected

The Court further rejected the test it had adopted ten years prior for the determination of patentability of processes such as business methods in State Street Bank and Trust Co. v. Signature Financial Group, 149 F.3d 1368 (Fed. Cir.  1998).  In that case the Federal Circuit affirmed the patentability of a business method for computerized mutual funds pooling. 

Under section 101 of the Patent Act, ‘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 therefore, subject to the conditions and requirements of this title.”  In State Street Bank, the court relied on Section 101’s language that the inventor of a ‘useful process’ was entitled to a patent.  A mere mathematical algorithm is not patentable, however, because it is a fundamental principle.  The Court held that if a process, such as a mathematical algorithm, produced ‘a useful, concrete and tangible result,’ it was patentable.  Finding that the invention at issue met this test, the State Street court held that it was patentable (“Today we hold that the transformation of data, representing discrete dollar amounts, by a machine through a series of mathematical calculations into a final share price, constitutes a [patent eligible invention] because it produces ‘a useful, concrete and tangible result’ …”) and the business method patent was born.

The Bilski Court rejected this test.  Said the Court:

But while looking for ‘a useful, concrete and tangible result’ may in many instances provide useful indications of whether a claim is drawn to a fundamental principle or a practical application of such a principle, that inquiry is insufficient to determine whether a claim is patent eligible under Section 101.  And it was certainly never intended to supplant the Supreme Court’s test.  Therefore, we also conclude that the ‘useful, concrete and tangible result’ inquiry is inadequate and reaffirm that the machine or transformation test outlined by the Supreme Court is the proper test to apply.




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