Supreme Court Decides: Business Processes May Not Be Patentable

Back in June 2009, I blogged about Bilski v. Doll, a Supreme Court case to determine whether an abstract business process can be patented. In 1997, Bilski and Warsaw applied for a patent on a process to hedge risks in the sale of commodities. The patent examiner rejected the patent application on the grounds that “the invention is not implemented on a specific apparatus and merely manipulates [an] abstract idea and solves a purely mathematical problem without any limitation to a practical application, therefore, the invention is not directed to the technological arts.” Bilski and Warsaw appealed; the appeals court affirmed the rejection, because the process failed to transform a physical substance into another state. In other words, the patent was an application for an abstract process, not a machine or a transformation, and thus was ineligible for patent protection.

On June 28, 2010, the Supreme Court upheld the rejection 9 to 3. Their decision stated that patent-eligible processes do not include “laws of nature, natural phenomena, [or] abstract ideas.” The method was not eligible for patent protection because it didn’t “transform any article to a different state or thing.” Options, futures contracts, and business risks “cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances.”

Can You Patent a Process?

The Supreme Court has recently agreed to hear a case questioning whether a “business process” can be patented.  Thousands of patents now cover business processes, including the famous (or infamous) patent on ordering with “one click”.  But there’s been a lot of debate about whether a novel process should even be patentable at all.

The case is known as Bilski v. Doll.  And the Supreme Court rarely agrees to hear patent-related cases, so everyone is paying close attention.  The patent request, for a method for hedging risks in the sale of commodities, was filed by Bernard L. Bilski and Rand A. Warsaw in 1997.  The patent examiner rejected the application because it failed to meet a test laid out by the U.S. Court of Appeals for the Federal Circuit, which limited business process patents as follows: a process must be tied to a particular machine or apparatus, or it must transform a particular article into a different state or thing.  This has become known as the “machine-or-transformation” test, and the hedging risk process did not meet that test. The applicants appealed the rejection, which was upheld by the Federal Circuit (not surprising, because they came up with the test in the first place!).  Bilski further appealed to the Supreme Court, which is now considering whether or not this test is too restrictive.

Whatever the outcome, the issue of business process patents is complex and unlikely to be settled by the Supreme Court this time around.  The consensus in the business community is that process patenting has gotten out of hand.  Even IBM, which year after year is granted the most patents of any company, is against process patents.  IBM lawyer David Kappos says “In the industrial age, innovation primarily was the result of work by individuals or small groups within enterprise.  The nature of innovation has changed. Today, we benefit from innovations made possible through highly collaborative and interconnected technologies.” (quoted in L. Gordon Crovitz’s WSJ editorial on June 15, 2009, p. A13).  This is exactly the message of my book, GROUP GENIUS.