Dear Friends and Colleagues,

Here is my latest newsletter covering another topic of general interest in the intellectual property field. If you missed my last newsletter from Spring 2010, "How to establish an effective patent program in a company that does not currently have a program or does not regularly seek patents," send me a return email and I will forward it to you.

Title: Supreme Court Rules that Machine-Implemented Business Methods Are Still Patentable

Since a significant portion of my practice relates to procuring business method patents for our firm clients, this newsletter addresses the long-awaited Supreme Court decision rendered today in Bilski v. Kappos regarding patentability of business methods. This case arose from a rejection of a patent application filed by Bilski for being directed to non-statutory subject matter, which was affirmed last year at the Federal Circuit in In re Bilski and then appealed by Bilksi to the Supreme Court. (Kappos is the Director of the U.S. Patent & Trademark Office (USPTO) which was required to defend the rejection, and is not a company sued by Bilski for allegedly infringing an issued patent.)

Bilski's invention is often referred to as a "pure business method" in that it was not limited to any specific machine or apparatus (not limited to operation on a computer). In fact, no computer implementation of the invention was even described in the patent application or illustrated in the figures.

The Court ruled that business methods are eligible subject matter under the law but declined to accept the test advanced by the Federal Circuit (machine-transformation test) as the exclusive test for eligibility. The Court further ruled that Bilski's invention, which was directed to the concept of hedging risk and the application of that concept to energy markets, is merely an abstract idea, and thus is not eligible for patent protection based on prior Court precedent that abstract ideas are not patentable. Thus, while the Court affirmed the Federal Circuit's ruling that Bilski's invention is not patentable, the Court's ruling did not tighten the reins on the pool of potential inventions that may be patentable under existing case law. In fact, by ruling that the Federal Circuit's machine-transformation test is not the exclusive test of eligibility for a patent, the Court may have potentially expanded the pool of eligible inventions to include inventions that may not pass the machine-transformation test but are also not merely abstract ideas or otherwise non-statutory under prior Court precedent in Gottschalk v. Benson (1972), Parker v. Flook (1978) and Diamond v. Diehr (1981). The Court did not provide any detailed explanations to assist in this determination, other than to point to guideposts in these three prior decisions.

In addition to the business community and the software industry, the biotechnology industry has closely watched this case because it has been asserted that many types of biotech inventions do not pass the machine-transformation test, yet were presumed until recently to be statutory. This decision will provide some breathing room for this industry to advance additional arguments for the patentability of biotech inventions if challenged on this basis before the USPTO during the examination process or in Court-related litigation proceeding.

Even though the Supreme Court declined to accept the Federal Circuit's machine-transformation test as the exclusive test for eligibility, the Court accepted this test as a "useful and important clue" for determining patentability. In fact, the machine-transformation test actually came directly out of previous Supreme Court cases, so the Supreme Court was merely reaffirming past decisions. Accordingly, the machine-transformation test can now be seen as a "safe-harbor" test for determining whether claims in a business method patent application and/or issued patent meet the requirements for statutory subject matter. A brief review of this test from In re Bilski is thus provided.

A claimed process is patent-eligible under § 101 if:

(1) it is tied to a particular machine or apparatus, or

(2) it transforms a particular article into a different state or thing

To ensure compliance with these tests when filing a patent application for a business method or for any type of software process, it is recommended to include as many computer elements as possible (e.g., data-level flowcharts, software code, hardware diagrams, data structures) in the specification. Also, multiple computer elements should be recited in the claims (e.g., processor(s), memory, database).

For companies defending themselves against lawsuits filed by owners of business method patents, the Court decision will probably not provide much relief since the ruling failed to provide any new guidelines on what constitutes patent-eligible subject matter. Also, the vast majority of issued U.S. patents already comply with the "safe-harbor" machine-transformation test since the USPTO has been using various permutations of this test for the past 20 years in examining patent applications. However, nothing in the Court decision affects the ability for defendants to challenge liability for infringing a business process patent on other more conventional grounds, such as invalidity based on other statutory grounds (e.g., lack of novelty, obviousness, inadequate disclosure, indefiniteness) or based on non-infringement.

This is a summary of the majority opinion of the Court. There is a voluminous concurring opinion written by Justice Stevens that is beyond the scope of this newsletter. The full opinion is available at: http://www.supremecourt.gov/opinions/09pdf/08-964.pdf

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Best Regards,

Clark

Firm website biography: http://www.panitchlaw.com/Clark_Jablon.aspx