Communications - November 2009

the CAFC characterized the so-called business method exception to patentable subject matter as “ill-conceived.” The CAFC said that “anything under the sun made by man” was patentable subject matter, and any process could be patented as long as it yielded a “ useful, concrete and tangible result,” as Signature’s did.

The State Street ruling has been controversial for years, in part because it contradicted numerous previous decisions, which critics of State Street thought had properly rejected business method patents. Yet, because the Supreme Court decided not to review the State Street ruling, some inferred that the Court had acquiesced in the CAFC’s expansive interpretation of patent subject matter.

Tens of thousands of business method and other nontechnological patent applications were filed in reliance on State Street, and many were granted.

signals from the supreme court

Starting in 2006, the Supreme Court began signaling its dissatisfaction with the CAFC’s conception of patentable subject matter. One opinion criticized business method patents as vague and poor in quality. A second pointed out that the Court had never endorsed the State Street test for patent subject matter and questioned the patentability of methods that could be infringed by thinking (i.e., mental processes). During oral argument in a third case that involved a software patent, several Justices asked questions about the patentability of software, even though that issue was not really before the Court.

The U.S. Patent and Trademark Office (PTO) inferred from these signals that the Court did not agree with the State Street test. The PTO then began denying applications for business methods and other nontechnological patents, including Bilski’s application for a patent for a three-step method of hedging risks of price fluctuations as to commodities.

the In Re Bilski case The CAFC decided to hear Bilski’s appeal en banc (that is, before the full court, not just the usual three-judge panel). It also invited interested parties to submit briefs about whether

tens of thousands of
business methods and
other nontechnological
patent applications
were filed in reliance
on State Street, and
many were granted.

the court should reconsider the State Street test.

In October 2008, nine of the 12 CAFC judges agreed that Bilski’s method was unpatentable because it was neither “tied to a machine,” nor did it “ transform” anything from one state to another, as they thought Supreme Court precedents required.

Yet, two of the nine judges, along with another colleague, wrote separately to say that business methods are ineligible for patents. Two other judges dissented, objecting to the majority’s restrictive interpretation of patent subject matter.

Business method Patents critics

The CAFC critics of business method patents asserted that the historical record showed that business methods such as Bilski’s were not patentable subject matter. Prior to 1793, a well-established English practice restricted patents to manufacturing processes. This “reflects the understanding that only processes related to manufacturing or ‘manufactures’ were within the statute.”

This rule was carried over into U.S. law in the 1793 patent act. During the 19th and all but the last two years of the 20th century, U.S. patents were consistently limited to technological processes. There being no evidence that Congress ever decided to expand patent subject matter to include business methods, there was no basis on which to award Bilski or anyone else a patent on a business method, no matter how innovative it might be.

There was, moreover, an unbroken—until State Street—line of prec-

edents going back to the 19th century that considered business methods to be unpatentable.

Judge Mayer’s opinion in Bilski took the strongest position against business method patents. In his view, “[t]he patent system is intended to protect and promote advances in science and technology, not ideas about how to structure commercial transactions.” Patents on business methods such as Bilski’s “lack[ ] constitutional and statutory support, serve[ ] to hinder rather than promote innovation, and usurp[ ] that which rightfully belongs in the public domain.”

Nor are patents necessary to bring about innovative business methods, for “by their very nature, [such new methods] provide a competitive advantage and thus generate their own incentives.” The PTO was being distracted from examining technology patents because State Street had led to a flood of applications for nontechnological processes. In the heyday of the Internet bubble, many entrepreneurs sought patents on methods of conducting business on the Internet.

Proponents of Broad
subject matter

The dissenting CAFC judges thought it was a mistake to freeze the concept of patentable subject matter to that which was appropriate to the “age of iron and steel,” as they thought the majority’s “machine-or-transformation” test would do. This test might exclude innovative processes involving “ subatomic particles and terabytes.”

The dissenters also worried that the majority’s restrictive view of patentable processes would undermine incentives to invest in innovation in new fields and would put at risk the position that the U.S. has enjoyed as “the world’s innovation leader.” Many investments had, moreover, been made in reliance on State Street’s test, so it was troubling to “disrupt the settled expectations of those who relied on the la w as it existed” under State Street. Only one of the dissenters, however, stood up for the State Street “useful, concrete, and tangible result” test, saying that it had proven workable and should be retained.