Supreme Court Finds That Some Business Methods May Be Patentable

In a much anticipated decision, the U.S. Supreme Court today affirmed the Federal Circuit’s In Re Bilski decision in a narrow ruling that the concept of hedging risk is an abstract idea, and abstract ideas have never been patentable. However, importantly, the Supreme Court refused to categorically exclude business methods from patentable processes and disapproved the Federal Circuit’s machine-or-transformation test as the sole test for patent eligibility (while useful, “the test was never intended to be exhaustive or exclusive”). In so doing, the Supreme Court eschewed breaking new ground to define once-and-for-all what constitutes a patentable process. Instead, the Court was content to rely on its long-established precedent that abstract ideas are not patentable — leaving it to the lower courts to develop other “limiting criteria.”

As reported in our October 30, 2008 KLIP Alert, the Federal Circuit held in the Bilski case that a method or process is patentable only if it (i) is tied to a particular machine or apparatus or (ii) transforms a particular article into a different state or thing. This decision was an about-face for the Federal Circuit, which had held a decade earlier in the State Street Bank case that business methods are patentable so long as they yield a “useful, concrete and tangible result.” With today’s decision, the Supreme Court spun the Federal Circuit back around. This should stem the tide of recent court decisions invalidating business method patents, which have upset the expectations of patent owners and licensing entities. With respect to patent applicants, it remains to be seen how the U.S. Patent and Trademark Office will interpret and apply today’s decision.

Surprisingly, Justice Kennedy issued today’s decision. The odds makers were calling for Justice Stevens to issue the opinion on his last day on the Court. Justice Stevens did write a strong concurrence, however, over twice as long as the majority opinion, arguing that business methods should never be patentable.

Also, interestingly, the decision comes on the first day of Senate confirmation hearings for Supreme Court nominee and former U.S. Solicitor General Elena Kagan. As Solicitor General, Ms. Kagan submitted the Government’s brief in opposition to Bilski’s petition for a writ of certiorari — arguing, inter alia, that the Federal Circuit’s machine-or-transformation test is a correct restatement of prior Supreme Court precedent. The affirmance of the Federal Circuit decision today might be a good omen for her.