Patent News 3

What Does the Bilski Decision Mean?

Patent News 3 - The Bilski Decision

in re Bilski

I will only occasionaly comment on significant decisions from the Court of Appeals of the Federal Circuit (CAFC). There are many of these but most are only of interest to patent prosecutors and patent litigators. Some, however, are of significance to inventors and small businesses

One about which you may or may not have heard is the recent decision now often referred to as re:Bilski.

The CAFC on October 30, 2008 handed down a rather long awaited decision in a 9-3 decision. There was an expectation that the decision might cause dramatic changes in patent law but it now appears that the court took a rather conservative approach and in my view did not shake things up that much.


The Bilski decision was about a part of patent law from 35 USC § 101. This section of patent law has to do with what things are patentable. It states:

35 U.S.C. 101 Inventions patentable.

    Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

In it decision the court stated that a process is eligible for patent protection under 35 USC § 101 if:

    (1) it is tied to a particular machine or apparatus, or

(2) it transforms a particular article into a different state or thing.

So What Was This All About?

The invention in Bilski was a method of hedging risk in commodities trading. The critical independent claim was:

    A method of managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of:(a) initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said consumer;

(b) identifying market participants for said commodity having a counter-risk position to said consumers; and

(c) initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions.

So we are talking about what is commonly called a business method patent. Years ago this type of claim was never considered patentable, but as it became increasingly clear that business methods were becoming extremely valuable in the marketplace, the United States Patent Office gradually began allowing more and more business method patents.

The Initial USPTO Decision

In this particular case the USPTO examiner had rejected the claim on the basis that the claimed invention was just a manipulation of an abstract idea and was not directed to the technological arts. It then went to the USPTO Board of Patent Appeals and Interferences. The board disagreed with the examiner’s view that there was a separate “technological arts” test for patent eligibility, but held that since the claimed invention related to an abstract idea and did not produce any “useful, concrete and tangible result” it did not relate to patent-eligible subject matter.

Eventually the case came to the CAFC. The CAFC did not disagree with the conclusion of the USPTO Board of Patent Appeals and Interferences but most of the 12 member panel did not agree the reasoning used. In rendering their decision they reviewed a number of past tests that had been used to determine whether such inventions were patent eligible. these were:

The Freeman-Walter-Abele Test

This test required a two step analysis:

    (1) determining whether the claim recites an algorithm and then;

    (2) determining whether the algorithm is "applied in any manner to physical elements or process steps".

This test was deemed to be too limited.

The State Street Test

This test argued that patent eligibility required an examination of whether the process produced a "useful, concrete, and tangible" result. THE CAFC felt this was an inadequate means of reaching a final determination.

The Technological Arts Test

This was the test suggested by the language of the original examiner decision. The CAFC rejected this test, noting that “no such test has ever been explicitly adopted by the Supreme Court”.

What Tests Had the Supreme Court Adopted?

According to the CAFC decision the Supreme had made the following rulings:

In Gottschalk v. Benson(1972), the Supreme Court had held:

    Phenomena of nature, though just discovered, mental processes and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work.and:the transformation and reduction of an article to a different state or thing is the clue to the patentability of a process claim that does not include particular machines.

In Parker v. Flook (1978) the Supreme Court pointed out that:

    The notion that post-solution activity [i.e. activity after solution of the equation or algorithm set out in the claim], no matter how conventional or obvious in itself, can transform an unpatentable principle into a patentable process exalts form over substance.

In Diamond v. Diehr (1981), the Supreme Court held that:

    an application of a law of nature or a mathematical formula to a known structure of process may well be deserving of patent protection.

Putting all of this together, the majority concluded that the Supreme Court opinions define that a process is eligible for patent protection if:

    (1) it is tied to a particular machine or apparatus, or

    (2) it transforms a particular article into a different state or thing.

The majority also extracted additional requirements from the Benson and Flook cases that use of a specific machine or transformation of an article must impose meaningful limits on the claim’s scope and that use of such machine or transformation must not be merely an “insignificant extra-solution activity”.

Since the claims in Bilski did not relate to any particular machine, the CAFC felt that the USPTO decision that the subject matter was not patent eligible was correct - but for different reasons. Importantly the CAFC did not elaborate on what the definition of "a particular machine or apparatus" is.

The court also did not opine on another point of interest among practitioners - whether a general purpose computer when programmed could become “a particular machine or apparatus”.On the second option, the majority did attempt to define what it meant by “articles” that were to be the subject of transformation. They noted that “it is virtually self-evident that a process for a chemical or physical transformation of physical objects or substances is patent-eligible subject matter”.

The CAFC commented that:

    The raw materials of many information-age processes are electronic signals and electronically-manipulated data. And some so-called business methods, such as that claimed in the present case, involve the manipulation of even more abstract constructs such as legal obligations, organizational relationships, and business risks. Which, if any, of these processes qualify as a transformation or reduction of an article into a different state or thing constituting patent-eligible subject matter? … we see no reason to expand the boundaries of what constitutes patent eligible transformations of articles.

The CAFC also gave an example from Abele (1982). In that case, transformation of X-ray attenuation data into a particular visual depiction of a physical object was found sufficient for patent eligibility.

Furthermore, the court expressly upheld that part of the State Street decision that had held that there was no bar on the grant of patent protection for business methods as such. They pointed out however that “a claimed process wherein all of the process steps may be performed entirely in the human mind is obviously not tied to any machine and does not transform any article into a different state or thing”. Consequently, such a process would not be patent-eligible.

So Where Are We?

The CAFC has made it clear that there is no need for an invention to be “technological” in order to be patentable. And it appears that the CAFC has also made it clear that the process must either involve a machine or actually do something to articles or data rather than just move them around in order to be patentable.

Also the principle that business methods may be patentable survives. There is still some ambiguity about what type of manipulation of what type of articles will be needed to meet the test now set out.

Most of the reviews of this decision I have seen seem to be disappointed that we are still so uncertain about some of these key ideas, particularly regarding what constitutes an article and exactly what a transformation is. I, however was relieved when I reviewed the decision. Yes - it means I have to carefully draft claims that meet the guidelines of "transforming a particular article to a different state". But that is a discipline I welcome. There have been business method patents that were in my view dubious. I just need to be sure I don't write any of them in the future.


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Mike Ervin
Mike Ervin - Cost Effective Small Business Patent Protection.

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