Client Alert

The US Court of Appeals for the Federal Circuit Renders a Much-Anticipated Decision Regarding the Patentability of Business Methods, Computer Software & Financial Services

October 31, 2008

In a much-anticipated decision, the United States Court of Appeals for the Federal Circuit (the “Court”) handed down its findings in In Re Bilski that will have far-reaching ramifications for those pursuing software and business method patents.

In 2006, the US Patent & Trademark Office ("USPTO") denied a patent application directed to a financial services “hedging” process. Yesterday, the Court affirmed this denial and, in the process, established a new test for patentability under 35 U.S.C. § 101: the “machine-or-transformation” test. Under the test, for a process to be patentable subject matter, the process must either be bound to a particular machine and/or be transformative. While the Court opted not to discuss the “machine” portion of the test, it noted that for an invention to qualify as patentable subject matter, there must be a “transformation…central to the purpose of the claimed process.” Although the new “machine-or-transformation” test may impact and narrow what is patentable subject matter, the Court did not hold that software or business methods are per se unpatentable. Furthermore, the Court recognized “that the Supreme Court may ultimately decide to alter or perhaps even set aside this test to accommodate emerging technologies.”

In establishing the new test, the Court found various older tests to be insufficient to determine patentability. Among these older tests, the Court determined that the historic Freeman-Walter-Abele test of “determining whether the claim recites an ‘algorithm’…[and] whether that algorithm is ‘applied in any manner to physical elements or process steps’” is inadequate. Then the Court further noted that the patentability tests set out in its Alappat and State Street cases, to inquire if an invention brought about “a useful, concrete and tangible result” “is insufficient to determine whether a claim is patent-eligible under § 101” in and of itself, although it may be a useful indication to determine if “a claim is drawn to a fundamental principle or practical application of such a principle.” Finally, the Court rejected the “technological arts test” as the terms “technological arts” are “ambiguous and ever-changing.” Then the Court also clarified that under its decision in Comisky, the § 101 test does not bar a claim reciting a mental process that lacks significant “physical steps.”

Intellectual property owners will likely find it necessary to evaluate and/or reassess their patent portfolios and strategies in view of this new holding.