Federal Circuit's Bilski Decision - Impact on Software and Business Methods

UPDATE (July 12, 2010):

On June 28, 2010 the U.S. Supreme Court rejected the Federal Circuit’s holding that the machine or transformation test was the sole test for determining patent eligibility of a process under 35 USC §101. 

The Court indicated that business methods, per se are not unpatentable but it went far enough to note “…while §273 appears to leave open the possibility of some business method patents, it does not suggest broad patentability of such claimed inventions.” 

The Court was also somewhat courteous to the Federal Circuit inviting it to “try again” with other formulaic tests to determine patent eligibility under 35 USC §101.  It is also interesting to note the number of references to Judge Rader’s dissent (at the Federal Circuit).  Does this suggest deference to Chief Judge Rader specifically?  If Rader dissents will that automatically be a strike against a Supreme Court affirmation? 

Going forward, it seems abundantly clear that the Federal Circuit’s machine-or-transformation test is still enormously useful but not completely dispositive to the issue of patentability.  If your claims fail the machine-or-transformation test, expect substantial resistance from the PTO, Board of Appeals and Federal Circuit. 

By: Anton Hopen

October 31, 2008

The Federal Circuit decided In Re Bilski yesterday (October 30, 2008) and immediately made some sweeping changes to statutory subject matter analysis. 35 U.S.C. Section 101 recites four categories of patent-eligible subject matter: processes, machines, manufactures and compositions of matter. Bilski only addresses “processes.”  More specifically, patents involving business methods, tax shelters, financial models and software processes may be impacted. 

The Bilski patent claims were directed to hedging risk in the field of commodities trading.  The claims did not include any combination of machine or apparatus.  Bilski relied on the 1998 Federal Circuit decision in State Street Bank which set out patentability for claims that produced a "useful, concrete and tangible result." The Federal Circuit discarded this test in favor of the machine-or-transformation test. Thus, a process claim must either recite a particular machine or apparatus or transform an article into a different state or thing. The Federal Circuit also warned against “mere insignificant post solution activity.” For example, claiming Pythagorean Theorem could be usefully applied to existing surveying techniques would not be patentable. 

• DO: specify the particular type or nature of data claimed (i.e., bit, string, integer, float);
• DO: specify how or from where the data was obtained (i.e., received from database SQL query, intercepted from HTTP stream, read from text file);
• DO: indicate what the data represents (i.e., “a numerical value less than 7 indicating an acidic solution,” “a latency value of greater than 100 millisecond indicating a packet error”);
• DO: claim the transformation of raw data into a new visual depiction of a physical object on a display;
• DON’T: claim undefined “complex systems”;
• DON’T: claim indeterminate “factors” drawn from unspecified “testing”;
• DON’T: assume that adding a “data gathering” step alone will make an algorithm claim patentable;
• DO: claim unique “data gathering” steps applied to an algorithm;
• DON’T: assume that adding a “data recording” step alone will make an algorithm claim patentable (In re. Schrader, 22 F.3d 290).