In re Bilski:
The Federal Circuit Narrows the Patentability of Software and Business Methods

October 31, 2008

In the case of In re Bilski (Fed. Cir. No. 2007-1130, decided October 30, 2008), the Federal Circuit considered the issue of what inventions are eligible for patent protection under United States law.

Previously, based on the case of State Street Bank and Trust v. Signature Financial Co., practitioners had argued that patent protection was available for any invention which achieved a “useful, concrete, and tangible result.” In practice, this led to many patents being issued claiming inventions in areas which had not traditionally been viewed as subject to patent law, such as computer software, tax strategies and business methods.

In this ruling, the Federal Circuit repudiated the “useful, concrete, and tangible result” test, and stated that, to be eligible for patent protection, an invention must be claimed as a machine, article of manufacture, composition of matter, or a process which is either tied to a particular machine or apparatus, or which transforms a particular article into a different state or thing. The Federal Circuit applied this standard to hold that the patent application at issue in Bilski, which was directed to a method for hedging risk in commodities trading, was not eligible for patent protection. The reason, the Court explained, was that the invention was not tied to any machine or apparatus, and it (at most) resulted in manipulation of abstractions, such as legal obligations or relationships and business risks. However, while the Federal Circuit held that the method at issue was not patentable, it specifically rejected the contention that broad categories of inventions, such as software and business methods, were not eligible for patent protection. The Federal Circuit also provided some examples showing how software implemented inventions could be claimed so as to be eligible for patent protection.

The practical result of the Federal Circuit’s decision is to call into question the validity of process patents, particularly software or business method patents, which were granted under the previous “useful, concrete, and tangible result” analysis. Patent holders may want to review their portfolios to determine if any of their patents may be affected by the new test. If any potentially suspect patents are discovered, it may be possible to mitigate the effect of this decision by filing continuations or other follow-on applications that include claims modeled on the examples provided by the Court. Similarly, for any patent applications which are currently pending in the Patent Office, the applicants should consider whether any of their currently pending claims might benefit from being amended in light of the decision.

For further information, please contact William Morriss at wmorriss@fbtlaw.com, or Ria Schalnat at rschalnat@fbtlaw.com.

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