Supreme test for Bilski

The US Supreme Court has seized the attention of America's IP industry by launching a review of a Federal ruling on a key business method case. In a 1 June announcement, the highest US court revealed that it is preparing to inspect the decision in Bilski v Doll, which ruled business methods unpatentable.

Federal judges in the case – which has its roots in a patent application of 1997 – rejected subject matter concerning a means of hedging risks on commodities deals. Issued by the authoritative Federal Appeal Court in 2008, the ruling bound lower courts to follow the Bilski example. The conduct and outcome of the Supreme Court's review are sure to be examined by IP holders, who will be hoping for clarity on a contentious issue.

Submitted by Bernard Bilski and Rand Warsaw to the US Patent and Trademark Office (USPTO) 12 years ago, the application that began the saga described a technique for setting a secondary hedge price based on the price of a primary trade. This facility would lessen the risks on each side of a commodities deal.

Bilski and Warsaw's bid for a patent was rejected on the grounds that the technique was not carried out on any specific apparatus and, therefore, had no technical effect: a view that – after years of legal wrangling – was echoed in the Federal Circuit's 9-3 en banc ruling.

Bilski's importance has stemmed from its apparent clash with previous caselaw – particularly the example of State Street Bank v Signature Financial Group, Inc (1998), in which the Federal Circuit upheld the patentability of a financial model. Finding that Signature's means of moving funds achieved a ‘useful, concrete and tangible result', the Federal ruling drew on a central Supreme Court tenet that ‘anything under the sun made by man' was patentable. Unlike the European Patent Convention (EPC), the US does not automatically exclude business method patents. For the US IP industry, unease over Bilski has reached a critical stage, as holders of patents spawned by State Street grow concerned for their rights.

The two questions before the Supreme Court refer, respectively, to clauses 101 and 273 of the US Patent Act. In order to test the validity of the Federal Court's Bilski ruling, the Supreme Justices must decide:

• 'Whether the Federal Circuit erred by holding that a "process" must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing ("machine-or-transformation" test), to be eligible for patenting.'
• 'Whether the Federal Circuit's "machine-or-transformation" test for patent eligibility, which effectively forecloses meaningful patent protection to many business methods, contradicts the clear Congressional intent that patents protect "method[s] of doing or conducting business."'

In its opposition to Bilski and Warsaw's petition for review, the US government highlighted the non-technological and mathematical aspects of their method, arguing that the 'petitioners' patent application involves none of the frontier technologies on which the petition dwells'. It went on to say, 'Indeed, the abstract market-hedging scheme that petitioners seek to patent is ineligible under any conventional understanding of Section 101.'

The impact of the Supreme Court's decision in Bilski will play out across industry sectors, but is likely to be felt most in online, software and financial IP.