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In re Bilski - A Change in U.S. Business Method Patents?

James Larson
comments on the Bilski case which could have a major impact on U.S Patent Law.

On May 8, 2008, the United States Court of Appeals for the Federal Circuit (CAFC), sitting en banc, heard oral arguments in a case, In re Bilski (Fed. Cir. 2008), that could redefine the standards for what is considered patentable subject matter in the United States, particularly as it relates to inventions popularly called business method patents.  

Since the decision in State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), there has been a large increase in the number of U.S. patent application filings and subsequent granting of U.S. patents directed to business method patents and other business-related patents.  The U.S. Patent and Trademark Office currently takes the position that such claims are patentable if the process is tied to a machine, or matter is transformed.

The Bilskipatent application, which was filed before the State Street Bank decision, claims the following method:  

A method for 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 the said commodity wherein the said consumers purchase said commodity at a fixed rate based upon historical averages, and a fixed rate corresponding to a risk position of the said consumer;

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

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

The U.S. Patent Examiner rejected the claim as not defining patent eligible subject matter under U.S. law.  The rejection was affirmed by the Board of Patent Appeals and Interferences.  Bilski then appealed to the CAFC.

In what could be a signal that the CAFC is looking to clarify the law relating to business method patents, the CAFC decided to hear the case en banc, invited amici to submit briefs, and ultimately allowed two amici from the financial services sector to participate in oral arguments.

Prior to the hearing, the CAFC posed the following five questions that were to be considered and briefed by the parties:

(1) Whether claim 1 of the Bilski patent application claims patent-eligible subject matter under 35 U.S.C. § 101?

(2) What standard should govern in determining whether a process is patent-eligible subject matter under section 101?

(3) Whether the claimed subject matter is not patent-eligible because it constitutes an abstract idea or mental process; when does a claim that contains both mental and physical steps create patent-eligible subject matter?

(4) Whether a method or process must result in a physical transformation of an article or be tied to a machine to be patent-eligible subject matter under section 101?

(5) Whether it is appropriate to reconsider State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999), in this case and, if so, whether those cases should be overruled in any respect?

In questioning during the hearing, the CAFC appeared to struggle with how best to establish guidelines for what constitutes patentable subject matter, and what those guidelines should be.  The CAFC clearly recognized that establishing such guidelines and defining the line between patentable and unpatentable subject matter for inventions that fall outside of traditional boundaries will be difficult if not impossible.  The CAFC seemed especially concerned with providing sufficient guidance to U.S. Patent and Trademark Office examiners when conducting examination of business method patent applications.

It is believed that the CAFC will attempt to preserve the patent-eligibility of business method patents in the U.S.  The unknown question is where they will establish the line between what is patent-eligible and what is not patent-eligible, and what needs to be recited in such claims in order to make them patent-eligible.  For granted U.S. patents with such claims, the final ruling could impact the validity of those patents.  For applicants with pending U.S. applications, they may want to consider delaying examination until the CAFC renders their decision so they can adjust their claims if necessary.

JAMES LARSON is a partner in Hamre, Schumann, Mueller & Larson, P.C. in Minneapolis, United States of America

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