Divided Supreme Court Holds "Machine or Transformation" Is Not the Only Test for Patentable Subject Matter, Re-Opens the Door to Business Method Patents

June.28.2010

In the Bilski v. Kappos decision on June 28, 2010, the Court rejected the Federal Circuit's "machine or transformation" test as the only test for determining whether an invention is drawn to patentable subject matter. The Court, however, affirmed the rejection of Bilski's patent application based on its own earlier precedent which held "abstract ideas" unpatentable. The Court further rejected the Federal Circuit's holding that all business methods are categorically unpatentable, yet declined to articulate a test for the patentability of business methods.

In affirming the Federal Circuit holding that the particular claim under review failed to satisfy the Patent Act's definition of patentable subject matter, the Court specifically rejected the Federal Circuit's "machine-or-transformation" test as the exclusive analysis for what is, and what is not, patentable subject matter. The Supreme Court reasoned that the test is useful for determining what is a patentable process in some circumstances, particularly for inventions "grounded in physical or other tangible form." The Court further found that business methods can satisfy the conditions for patentable subject matter under proper application of its own precedent. After a historical analysis of such prior precedent, the Court concluded that business methods cannot be categorically rejected as patentable subject matter, though it cautions they do raise significant problems that should still be addressed in future opinions by the Courts. The Supreme Court thus concluded the particular claim under review is nothing more than an abstract idea under its own prior precedent in Benson, Flook and Diehr, so that the Federal Circuit was correct to reject it as patentable subject matter.

In the end, the Court declined to set forth any particular test for what is patentable subject matter, suggesting its prior analysis in earlier opinions suffices for the time being. The Court, however, specifically rejected the Federal Circuit's prior "useful, concrete and tangible result " test announced in State Street and AT&T. The Court thus seemingly invited the lower courts to fashion new standards for the patentability of business methods within the broader scheme of the Supreme Court's precedent on patentable subject matter. It should be noted that four justices, including retiring Justice Stevens, argued in a concurrence opinion that the Court should have ruled business methods unpatentable altogether.

The decision effectively removes the constraints on patentable subject matter introduced by the Federal Circuit's Bilski decision, which is likely to result in more software and e-commerce patents being awarded. In addition, it opens ever so slightly the door to the patentability of business methods, but strongly suggests these patents should be subject to a higher standard of scrutiny to be further defined by the lower courts. Finally, by failing to announce a new test to replace the Federal Circuit's "machine or transformation" test, the decision will likely generate a wealth of further litigation in this area, particularly with respect to business methods.