Supreme Court SealJune 28, 2010 — In an a unanimous opinion on the result, though fractured on the reasoning, the Supreme Court issued its long-awaited decision today on patentable subject matter.  The Bilski v Kappos decision is important for inventors and owners of software, Internet and particularly business method patents.

Under the law, even if an invention is novel, un-obvious, has utility, and meets all of the technical requirements for a patent, a patent cannot issue unless the invention addresses patentable subject matter.  Patentable subject matter includes “any new and useful process, machine, manufacture, or composition of matter….”  The concept is very broad and under Supreme Court precedent includes everything EXCEPT laws of nature, physical phenomena and abstract ideas.

The Bilski case involved whether a business method was the proper subject for patent protection.  The Bilski method was for hedging risk relating to the energy supply business.  The Federal Circuit Court of Appeals, which was the lower court, held that the Bilski method was not patentable subject matter since it was not tied to any particular machine and did not transform an article into another state or thing.  The Federal Circuit further held that this “machine or transformation” test was the exclusive test to determine whether a method can be patentable subject matter.

The Supreme Court affirmed the Federal Circuit’s determination that the Bilski hedging method is unpatentable, but rejected the reasons given by the Federal Circuit.  The Supreme Court expressly held that the “machine or transformation” test is not the only way to determine that a method is patentable subject matter and is instead only ‘the clue’ to be considered. The Court did not flesh out what other ‘clues’ might point to whether a method addresses patentable subject matter.

The Supreme Court also held that business methods are not categorically excluded from patent protection, declining to read non-existent limitations into the patent statute.  The Court noted the uncertainty as to how the term ‘business method’ is defined and the unintended consequences that such a categorical exclusion likely would have.

The Court concluded that the Bilski invention was not patentable since it attempted to patent a prohibited abstract idea under Supreme Court precedent.  The decision creates hope, but also substantial uncertainty, for inventors of business methods and owners of business method patents.

— Robert J. Yarbrough, Esq.