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"Machine-or-Transformation Test" Rejected as Sole Test for Process Patents

By Kristine L. Roberts, Litigation News Associate Editor – August 13, 2010

The U.S. Supreme Court has unanimously rejected the machine-or-transformation test as the sole test for process patent eligibility. Bilski v. Kappos [PDF]. However, the Court declined to offer an alternative, leaving to the U.S. Court of Appeals for the Federal Circuit the task of developing new criteria for patentability.


What Test Should Apply?
At issue in Bilski was a claimed invention that explains how commodities traders can hedge against risk in the energy market. The U.S. Patent and Trademark Office (PTO) denied the application, concluding that it was an unpatentable abstract idea.


The Federal Circuit heard the case en banc and affirmed. The court rejected its prior test for “process” patents—whether the invention produces a “useful, concrete, and tangible result.” State Street Bank & Trust Co. v. Signature Financial Group, Inc.


Instead, according to the Federal Circuit’s Bilski decision, a process is patentable if it is “tied to a particular machine or apparatus” or “transforms a particular article into a different state or thing.” The court ruled that the machine-or-transformation test is the “sole test” to determine the patent eligibility of a process under the Patent Act, 35 U.S.C. § 101.


A unanimous Supreme Court agreed that the concept of hedging risk and its application to the energy market was not patentable. Yet all nine justices refused to recognize the machine-or-transformation test as the sole test to determine patentability. Instead, the Court held that test is simply a “useful and important clue or investigative tool.”


Court Divided over Business Method Patents
Where the justices parted company, however, was on the question of business method patents. Justice Kennedy’s majority opinion noted that the word “method” is within Section 100(b)’s definition of “process.” “Process” appears to include at least some business methods, though the majority declined to endorse broad patentability for business methods.


The majority chose not to adopt any categorical rules for process patentability. Rather, the Court decided the case narrowly under Section 100(b) and prior decisions involving the unpatentability of abstract ideas.


Justice Stevens, writing a 47-page concurring opinion joined by three other justices, argued that business methods should not be patentable. Justice Stevens was sharply critical of the majority’s analysis, opining that the Court “never provides a satisfying account of what constitutes an unpatentable abstract idea.”


Causing More Uncertainty?
Many commentators share this criticism. “The Supreme Court held that ‘abstract ideas’ are not patentable, but did an inadequate job of explaining what would be considered an ‘abstract idea,’” says Robert M. Asher, Boston, cochair of the Patent Subcommittee of the ABA Section of Litigation’s Intellectual Property Litigation Committee.


“Whereas the Federal Circuit had tried to bring a level of certainty to the question of patentable subject matter with the machine-or-transformation test, the Supreme Court eliminated the test and sent the Federal Circuit back to the drawing board with a clean slate,” says Asher.


Coke Morgan Stewart, Washington, D.C., former cochair of the Intellectual Property Litigation Committee, agrees. “The Federal Circuit crafted a rule, rightly or wrongly, which provided much-needed guidance to patent examiners in the area of business method patents. That rule has effectively been overturned,” adds Stewart.


Impact on Litigators
What does the decision mean for patent litigators? “The decision seems likely to increase litigation over the question of whether business method patents are too abstract,” says Stewart.


“There were a number of invalidity challenges in district courts around the country after the Federal Circuit’s decision in Bilski, which were based on that decision,” agrees Joseph P. Esposito, Washington, D.C., Asher’s cochair. “These types of validity challenges will likely continue,” he adds.


“The net effect will be to embolden defense counsel to raise the ‘abstract idea’ defense in many more patent cases,” Asher says, “while the courts struggle to come to terms with what is an unpatentable abstract idea.”


The decision also gives litigants an opportunity to shape the law, notes Asher. “The Federal Circuit will be looking to craft a new rule for process patents, and lawyers’ arguments may be more interesting and creative,” he says.


It is important to note that four justices voted to invalidate business method patents. “With one more vote, the liberal justices, led by Justice Stevens, could have done away with business method patents altogether,” observes Stewart. “One of the most interesting aspects of the decision is that it highlights the divide between the conservative and liberal wings of the Court—with the conservatives in favor of a liberal patent system that takes into account the changing needs of business, and the liberal justices in favor of a conservative patent system that limits the role of patents in business,” says Stewart.


Esposito also notes that the Supreme Court’s narrow ruling did not invalidate software patents. “Bilski does not preclude arguing that software patents satisfy the machine-or-transformation test and are not abstract ideas,” he says.


Keywords: Litigation, intellectual property, business method patents, Supreme Court, Bilski v. Kappos


 

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