Expert Commentary

Business Method Patents in the Wake of

Business method patents are heavily relied on by some companies as a means to protect their intellectual property. The viability of business method patents faced a serious threat in the Supreme Court's recent Bilski v. Kappos decision. While the Supreme Court's decision in Bilski left many questions unanswered, it did affirm the viability of business method patents.


Intellectual Property
August 2010

On June 28, 2010, the Supreme Court issued a ruling on Bilski v. Kappos addressing the viability of business method patents. At issue was the patent application filed by Bernard Bilski and Rand Warsaw that in essence, attempted to patent a method of hedging risk in the field of commodities. The inventors outlined a method, which they claimed would allow both consumers and sellers of commodities to insulate themselves from the risks of price fluctuations in the marketplace.

In the majority opinion authored by Justice Anthony Kennedy, the Supreme Court rejected the Federal Circuit's holding that a process is only eligible for a patent if it is "tied to a particular machine or apparatus" or if it "transforms a particular article into a different state or thing."

Bilski's Limited Holding

Instead of relying on the Federal Circuit's machine-or-transformation test to affirm the rejection of the Bilski patent application, all nine justices agreed, "the patent application here can be rejected under our precedents on the unpatentability of abstract ideas …  looking to the guideposts in Benson, Flook, and Diehr."

In sum, the Bilski holding stands for the idea that there is no single test for the patentability of business methods. The holding also maintains that business methods and software patents remain patentable. Lastly, while the machine-or-transformation test is no longer recognized as the exclusive test to determine patentability of a business method, the test can be an important clue for determining whether a business method is patentable.

Are Business Methods Still Patentable?

In upholding the decision of the U.S. Patent and Trademark Office (PTO) that Bilski's "process" was actually an abstract idea, and thus not patentable subject matter, the Court refused to further define what constitutes a patentable "process" beyond the definition provided by 35 U.S.C. § 100(b). The Court did, however, reject the notion that there was a "business method exception" to patentability much like there is for abstract ideas, natural phenomena, and mathematical algorithms. Thus, business methods remain patentable subject matter.

While the Court did affirm the patentability of business methods, its failure to articulate a test leaves it unclear as to whether a particular business method will be patentable. The decision leaves open to future interpretation what exactly is required for a business method to be considered patentable subject matter. If the attitude of the four justices in the concurring opinion, who claimed that the "potential vagueness [of business method patents] also invites a particularly pernicious use of patents that we have long criticized," is any indication, the breadth of patentable subject matter for business method patents may be greatly limited in the future.

Are Previously Patented Business Methods Still Valid?

Because the Bilski decision affirmed the patentability of business method patents and rejected the machine-or-transformation test as the sole indicator of business method patentability, the status quo for business methods has more or less been preserved. That is, existing business method patents, like all patents, are presumed valid. Nothing in Bilski indicates that an existing business method patent is now invalid. In fact, existing business method patents that may have failed the more stringent machine-or-transformation test might still be valid under the Supreme Court's holding. Additionally, the validity of an existing business patent is reinforced if it is tied to a machine, or transforms an article.

Are Business Methods Worth Patenting?

While Bilski upheld the PTO's rejection of a business method patent application, it also affirmed the idea of business method patents. Accordingly, considerations regarding whether or not to patent a business method remain as they were before the Federal Circuit's ruling in In re Bilski. However, the rejection of Bilski's business method application should reiterate to applicants seeking business method patents that not all ideas are patentable, and that the decision might represent the PTO beginning to define limits to business method patents.

Additionally, since "business method patents raise special problems in terms of vagueness and suspect validity," the PTO may be more reluctant to allow business method patents. Therefore, before deciding whether or not to seek patent protection, potential patentees should understand that applications for business method patents may face a reduced success rate. Furthermore, patentees should realize that any business method patent applications that are filed should, where possible, be catered to satisfy the machine-or-transformation test to give their business method claims the best chance for patent protection.

Is It Worth It To License an Existing Business Method Patent?

The Bilski decision does not reject the idea that business method patents are patentable. Therefore, Bilski should not affect the decision of whether to license a business method patent. Ultimately, the decision to license a business method patent is based on a variety of variables specific to the licensee.

One factor companies should always weigh, however, is how important the practiced method is to them or if there is an alternative. Sometimes companies may save money by transitioning to a non-infringing method of doing business and thereby avoid licensing fees. Also, potential litigation costs versus the cost of licensing should be weighed. As we have said before, patent litigation is not cheap. If a licensor has a strong patent and is willing to license it cheaply, then licensing may be a viable option.

Conclusion

The bottom line is that business method patents continue to be patentable after the Bilski decision. No specific test exists for determining the patentability of a business method. In the interim, companies should continue to treat their business methods as they always have while keeping in mind the various costs associated with patenting or licensing a method. If a company does decide to seek patent protection, it would be prudent to attempt to tie business methods to a machine or the transformation of an article. Lastly, the continued validity of business method patents means companies should be prepared for the possibility of licensing a business method patent.


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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