In re Bilski

In re Bilski (545 F.3d 943)

FACTS: On April 10, 1997, Bernard Bilski and Rand Warsaw filed a patent application containing 11 claims, including a claim that is, in essence, for a method of hedging risk in the field of commodities trading. Importantly, however, the claim is not limited to transactions involving actual commodities; the application discloses that the recited transactions may simply involve options, which are rights to purchase or sell a commodity at a particular price within a particular time frame.

The application was drafted to establish Bilski’s claim as a “useful process” under the “business-method patent” exception carved out by the 1998 case State St. Bank & Trust Co. v. Signature Fin. Group, 149 F.3d 1368.

PROCEDURAL POSTURE: Applicants filed their patent application on April 10, 1997. The patent examiner, noting that the claims were not limited to operation on a computer, ultimately rejected all 11 claims under 35 U.S.C. § 101, stating: “the invention is not implemented on a specific apparatus and merely manipulates an abstract idea and solves a purely mathematical problem without any limitation to a practical application; therefore, the invention is not directed to the technological arts.”

On appeal, the PTO Board upheld the rejection, finding that the application is not for patent-eligible subject matter because it: 1) claims the transformation of “non-physical financial risks and legal liabilities of the commodity provider, the consumer, and the market participants”; 2) claims an abstract idea that “preempts any and every possible way of performing the steps of the claimed process, by human or by any kind of machine or by any combination thereof; and 3) does not produce a “useful, concrete and tangible result.”

The decision was then reviewed en banc by the Federal Circuit Court of Appeals.

HOLDING: Rather than asking whether the claim applied in any manner to physical elements or processes or would result in “useful, concrete and tangible” benefits (the main approaches taken by the PTO Board), the Court instead focuses on the “machine-or-transformation” test, which states that a claimed process is patent-eligible under 35 § 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. Gottschalk v. Benson, 409 U.S. 70 (1972). Under this test, the Court finds that the claim was not drawn to patent-eligible subject matter.

UNANSWERED QUESTION AND ITS IMPORTANCE: The 1998 State Street decision opened the door to business method patents, which are considered relatively “weak” because the statutory basis for such patents is questionable. Thus, financial services companies hoping to enforce these patents over the past decade have frequently been forced into expensive litigation to protect and enforce their rights. If the ruling of In re Bilski stands, will these efforts to enforce business method patents be for naught? More specifically, will cut-rate competitors declare open season on the business method patents issued over the past decade?

CRITICAL ANALYSIS: The court’s holding seems to place too broad of a practical restriction on what is deemed patentable subject matter under 35 U.S.C. § 101. As Judge Rader and Judge Newman express in their dissents, present and future technology (such as computer software and information systems technology) relying on algorithms may be precluded from patent protection under the “machine or transformation” test because 1) they are not rooted in strictly physical anchors, and 2) software algorithms that manipulate electromagnetic pulses as data may not qualify as a transformation under the “machine-or-transformation” test. Thus, the holding seems to ensure future litigation to flesh out the exact contours of patentable subject matter.



Portions © 2006-2019 by Michael Risch, Some Rights Reserved | Copyright Notice| Legal Disclaimer