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Friday, October 1, 2010

Patent-Eligibility of Process Claims Under Section 101 of the Patent Act: Bilski v. Kappos

Brian T. Yeh
Legislative Attorney

The source of federal patent law originates with the Patent Clause of the U.S. Constitution, which authorizes Congress: “To promote the Progress of ... useful Arts, by securing for limited Times to ... Inventors the exclusive Right to their respective ... Discoveries.” Section 101 of the Patent Act describes the subject matter that is eligible for patent protection, which may be divided into four categories: processes, machines, manufactures, and compositions of matter. The U.S. Court of Appeals for the Federal Circuit issued two decisions in the 1990s, In re Alappat and State Street Bank & Trust Co. v. Signature Financial Group, that had expanded the scope of patent-eligible subject matter to include any process that produces a “useful, concrete and tangible result.” In October 2008, the Federal Circuit issued an en banc opinion, In re Bilski, that expressly overruled those earlier decisions. The Federal Circuit’s Bilski opinion articulated a new legal standard governing the eligibility of process claims for patent protection under § 101 of the Patent Act: if the process is tied to a particular machine or apparatus, or if it transforms a particular article into a different state or thing. Some observers and patent practitioners criticized this “machine-ortransformation” standard as being too rigid and not in compliance with Supreme Court precedent concerning patentable subject matter eligibility. They raised concerns that the test potentially restricts patent protection for new innovations in business methods and software, and that it called into question the validity of already-issued patents that claim information-based and computermanaged processes.

On June 28, 2010, the Supreme Court issued its opinion in Bilski v. Kappos, representing the first time that the Court has ruled on the scope of patentable subject matter since its last decision on this topic, the 1981 decision Diamond v. Diehr. At the outset of the opinion, the Court emphasized that its precedents already provide limits to patent eligibility under § 101—laws of nature, physical phenomena, and abstract ideas may not be patented. Indeed, the Supreme Court rejected Bilski’s patent application (regarding a commodities trading risk-hedging method) without using any “test” that may have been developed by the Federal Circuit; rather, the Court relied on its precedents in declaring that the processes that were claimed in Bilski’s patent application are unpatentable abstract ideas.

The Court ruled that the Federal Circuit was incorrect in holding that the “machine-ortransformation” standard is the sole test for showing patent eligibility of process claims; however, the Court acknowledged that the test is a “useful and important clue, an investigative tool,” for determining whether a particular process is patentable. Thus, the Court did not invalidate the test, but rather rejected the Federal Circuit’s conclusion that the test is the exclusive one that governs the analysis for process patent eligibility under § 101 of the Patent Act. However, the Court did not articulate a different test or adopt new categorical rules for process patent eligibility, nor did it provide much guidance to the lower courts on this matter. Instead, the Court invited the Federal Circuit to develop additional tests and other limiting criteria regarding what constitutes a patentable process.

The Bilski Court also ruled that some business methods may be patentable, because (1) the Patent Act’s definition of “process” does not categorically exclude business methods; and (2) § 273 of the Patent Act contemplates the possibility that some business methods, at least in some circumstances, may be eligible for patenting.

Date of Report: September 17, 2010
Number of Pages: 20
Order Number: R40803
Price: $29.95

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