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Federal Circuit Creates New Test for Business Method Patents

By Matthew A. Goldberg, Litigation News Associate Editor – December 18, 2008

After considerable anticipation by the patent bar, the U.S. Court of Appeals for the Federal Circuit has announced its ruling on business-method patents in In re Bilski [PDF]. The en banc decision, by what has been touted as the most influential patent-law court in the country, formally rejected the prevailing test for business-method-patent eligibility, under 35 U.S.C.§ 101, that had been set forth in its 1998 State Street Bank & Trust Co. decision.

BMPs and State Street
State Street, decided a decade ago, sparked a proliferation of business-method patents (BMPs) in fields ranging from banking and finance to biotechnology and software. In the year before State Street was decided, the Patent and Trademark Office reviewed less than 1,000 BMP applications; since State Street, 40,000 BMPs applications have been filed—almost 11,000 of them in 2007 alone.

While the recent Bilski opinion neither directly overruled State Street nor categorically invalidated BMPs, it did throw out the BMP test as defined in State Street.

Machine-or-Transformation Test
In its recent opinion, the Federal Circuit has now rejected the “useful, concrete and tangible result” test along with another well-known formulation—the “technological arts” test—in favor of the so-called “machine-or-transformation test,” gleaned from a series of U.S. Supreme Court cases, including the 1972 Benson case and the 1981 Diehr case.

Bilski imported the Supreme Court’s Nixon- and Reagan-era patent law jurisprudence into the twenty-first century by holding that patentable BMP subject matter must either (1) be tied to a particular machine or apparatus or (2) transform a particular article into a different state or thing.

While the Bilski court intended to announce a bright-line rule, patent lawyers say the test, in practice, is anything but.

Machine Implementation
Perhaps the greatest uncertainty stemming from Bilski is “whether it will lead to more rejections of claims directed to business methods or software using a general-purpose computer,” says Joseph P. Esposito, Washington, D.C., cochair of the Patent subcommittee of the ABA Section of Litigation’s Intellectual Property Committee. A key question Bilski intentionally left unanswered concerns what the court called the “precise contours of machine implementation,” he says.

When the Supreme Court precedent relied on by the Bilski court was decided, the computer was a much more rarified “machine” than it is today. This raises the issue of whether a claimed business method or piece of software can pass the Bilski test if it is tied only to a general-purpose computer, or whether some other kind of “particular machine” is necessary.

Patent and Trademark Office records show it had been rejecting pure software patents for failing to satisfy the “machine” prong even before the Bilski decision was issued.

Clarity and the Courts
The lack of clarity on this point is perhaps the main reason so many lawyers and their clients want further explication of Bilski’s test. Where that clarification will come from, though, is another controversial aspect of Bilski, according to patent commentators. 

The Federal Circuit has been rebuked by the Supreme Court at least four times in the past few years on patent cases, leading some to speculate that the Federal Circuit may have intentionally structured the Bilski opinion—by relying on longstanding Supreme Court precedent—to discourage the Supremes from granting certiorari.

“The Federal Circuit seeks to regain its position as the nation’s final authority on patent law,” opines Robert M. Asher, cochair of the Patent subcommittee of the Section’s Intellectual Property Committee, “and is thus proceeding more cautiously as it refines the definition of patentable subject matter.”

However, Esposito notes, because “the Supreme Court has demonstrated a real interest in patent-law issues in recent years, Bilski may provide the opportunity for the Court to choose to take the lead on defining the rules of patentability.”

Keywords: Patent law, In re Bilski, business method patents, State Street, Federal Circuit, Patent and Trademark Office.

  • December 22, 2008 – "The en banc decision, by what has been touted as the most influential patent-law court in the country..." Given that since 1982 the Federal Circuit has been the only court that can decide appeals of patent cases (other than the Supreme Court), saying that it's "touted" to be the most influential court in the country is quite an understatement.


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