Debate over the patentability of business methods has stepped up a pace with the US Supreme Court recently issuing its highly anticipated decision in Bilski v Kappos. The ruling clarified the tests for patentability that were previously proposed by the Court of Appeal of the Federal Circuit (CAFC) in ReBilski and reinforced the possibility of patenting business method and computer software inventions, although the US Supreme Court did not rule definitively in which circumstances this could occur.

The patent application behind both these cases related to a business process for hedging risk. Bilski claimed as an invention the intellectual and mental acts that it carried out during financial transactions, such as initiating transactions between a provider and a consumer.However, this invention was found to be lacking by the CAFC in Re: Bilski.

On appeal, three arguments were advanced before the US Supreme Court as to why the invention was not patentable:
i) It fails the ‘machine-or-transformation’ test;
ii) It involves a method of conducting business; and
iii) It is merely an abstract idea.

Clarifying the tests

The CAFC derived the machine-or-transformation test from the 1972 US Supreme Court ruling in Gottschalk v Benson. According to the test, patentable processes must: [1] be tied to a particular machine or apparatus, or [2] operate to change articles or materials to a different state or thing.

In Re Bilski, the CAFC considered the machine-or-transformation test to be the sole indicator of whether subject matter was patentable or not. In Bilski v Kappos, the US Supreme Court ruled that this was not the case, but commented that ‘the machine-or-transformation test is a useful and important clue... for determining whether some claimed inventions are processes [and therefore potentially patentable in the US]’. The court did not go on to suggest a different test, but did encourage the CAFC to develop one.

Of the second argument, the opinion of the US Supreme Court was clear: not all business methods are to be excluded from patent protection. This is the first time that the court has categorically stated that business methods can be protected by patents, but it is interesting to note that the judges did not all agree on this point, with four of the nine judges arguing that business methods should not be patentable.

Bilski’s claim to patentability fell at the third hurdle. The US Supreme Court drew on earlier decisions, such as Benson, Flook, and Diehr, to rule that the invention was nothing more than an abstract idea, and thereby inadmissible. This allowed the court to avoid the need to reject the application on the grounds that the invention was an unpatentable business method. Indeed, it appears as if the court was seeking a path that would allow it, as Justice Anthony Kennedy put it, to refuse the application without having to adopt ‘categorical rules that might have wide-ranging and unforeseen impacts’.

In fact, while the US Supreme Court’s decision confirms that business methods are protectable as patents, it also makes clear that this will not apply in every case. Furthermore, the court offered little guidance as to what was required of a business method to make it worthy of patent protection, other than that it should not be an abstract idea and that the machine-or-transformation test may give a hint or clue.

Business impact

In reality, however, this will probably make little difference to applicants prosecuting US patent applications. On the day that the US Supreme Court’s decision was published, the US Patent and Trademark Office (USPTO) issued a memorandum to its examiners, instructing them to continue to apply the machine-or-transformation test and to reject applications based on its outcome, unless the applications clearly failed as relating to abstract ideas.

Despite this, there are actions that businesses can take to improve their chances of success with borderline applications to the USPTO. For example, applicants should take advantage of the ability to make multiple independent claims of varying scope in patent applications; thereby covering the invention with different claim formulations should the business method claim fail. It is also advisable to tie the claim into machine hardware of some form or description. A business method claiming computer-related implementation should put the applicant well on their way to passing the machine-or-transformation test, although it would be prudent to include a number of additional claims, introducing sequentially more and more hardware. The presence of a physical structure in a claim also should help to avoid an objection on the grounds that the claimed invention relates to an abstract idea.

Undoubtedly, Bilski v Kappos will not be the final word on patentable subject matter in the US. There is still considerable uncertainty in this area that needs to be resolved. In particular, the US Supreme Court has, on the one hand, confirmed that some business methods are protectable, but, on the other hand, has indicated the existence of a threshold of patentability and ruled that not all business methods should be allowed. The development of exactly what criteria should be used to decide and test for that threshold has been passed back to the CAFC. We will have to wait and see exactly which tests the CAFC decides to introduce and just how it seeks to develop the law.


Nick Reeve is a partner and Pete Sadler is an associate at trademark and patent attorney firm Reddie & Grose. Both are based in London