The Future of Business Method Patents

Posted on August 4, 2010


In 1997, Bernard L. Bilski and Rand Warsaw filed a business method patent application. The two had created a system for hedging risks in commodities trading and sought sole ownership of the concept. The patent application was denied, and a legal battle ensued that reached all the way to the U.S. Supreme Court.

On June 28 of this year, the Supreme Court upheld the decision of the lower courts in deciding that Bilski and Warsaw’s commodities trading method was not eligible for patenting.   Prior to this ruling, processes or method were considered eligible for patenting if they satisfied the machine or transformation test. This test requires that a patentable process or method be tied to a machine or apparatus or that it transform something into a different state or thing.

In the Bilski case, the Supreme Court did not base its ruling on the machine or transformation test.  Instead, the patent was rejected because it is an “abstract idea” and is therefore not patentable.  According to Mass High Tech: The Journal of New England Technology, the high court ruled that the machine or transformation test “cannot be the sole test for determining whether a process or method constitutes patentable subject matter.”

“It is important to recognize that the Supreme Court did not bar future use of the machine or transformation test. Instead, the court disallowed the use of this test as the exclusive arbiter of patent eligibility for processes and methods,” says Mass High Tech.

Additionally, of note is that of the nine justices on the Supreme Court, four concurred in this result.  These four, led by Justice John Paul Stevens, said methods of doing business should never be patentable.

Despite the fact that many questions were left unanswered by this decision, (such as what exactly would be required for a business method to be patentable), some people still see signs of hope.  The Supreme Court did expand upon the previously held tenet that only “machines and transformations” would make the cut. According to patentability, a weblog for the intellectual property law community, “this decision is a win for financial institutions. It is also a win for e-commerce and software companies, especially start-ups, who often rely heavily on business method and software patents to attract investors,” says the weblog.

Stay tuned as the future of business method patents is determined by additional litigation.

Elizabeth Ritter
Ritter Law Firm, LLC