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Sep 11, 2010Science and Technology
Bilski v. Kappos: Patentability of Business Methods
On June 28 2010, the US Supreme Court issued its opinion in Bilski v. Kappos, which is an important opinion on the issue of the patentability of business methods. In the decision, the Supreme Court more or less affirmed the Federal Circuit Court's decision that Bilski's risk-management business method could not be patented. While the ultimate conclusion of the Supreme Court and Federal Circuit Court's rulings may have been the same, the Supreme Court's decision has more than subtly changed the applicable framework of analysis for determining the patentability of a business method. 

Prior to Bilski, courts relied upon the “machine-or-transformation” test to determine whether a business method patent is valid. Under the machine-or-transformation test, a business process may be patented if it is: (1) implemented along with a a particular machine specifically devised and adapted to carry out the process in a manner that is not conventional and trivial; or otherwise (2) takes an article and transforms it from one thing or state to another thing or state. However, in Bilski, the Supreme Court  explained that the machine-or-transformation test is not the sole and exclusive test for determining the patentability of a business method patent. The Supreme Court then agreed that Bilski had attempted to patent an abstract idea and held that abstract ideas were unpatentable. 

As a result of the Supreme Court's decision, the door of speculation has been opened as to what other tests can be used to determine whether or not a business method can be patented. The decision does not offer concrete guidance on how to determine when a business method is patentable and implicitly expands the realm of business methods eligible for patent protection. The net effect of Bilski is that the issue of patenting business methods has even become more confusing than when the Federal Circuit in 1998 in State Street Bank & Trust Co. v. Signature Financial Group attempted to establish a clear basis on which to evaluate the patent eligibility of business methods. The resulting confusion has even prompted the USPTO to prepare an interim guide for determining subject matter eligibility for a business process patent. According to the interim guide, factors that weigh in favor of patent-eligibility for a business method are  factors that satisfy the criteria of the machine-or-transformation test or which can be supported by evidence that the abstract idea has been applied in a practical way.

After Bilski, courts presiding over litigation involving business method patents will have to adjust to using a "weakened" machine-or-transformation test. A recent example of this adjustment is Ultramercial, LLC v. Hulu, LLC, in which Ultramercial LLC brought a lawsuit against Hulu and Wild Tangent. I am sure that most of us are familiar with the defendants - Hulu, a popular internet platform offering commercially endorsed online streams of shows and movies from a variety of US television networks and studios, and Wild Tangent, an immensely popular game network that powers games for several PC manufacturers. In the suit, Ultramercial claimed that Hulu and Wild Tangent had infringed their patented invention which allowed internet users to view copyrighted material online for free in exchange for watching commercial advertisements.

On August 13 2010, the United States District Court for the Central District of California dismissed the case because it determined the patent to be invalid. In its reasoning the court applied the machine-or-transformation test and then the court looked generally at whether the patent claimed was an abstract idea. In the opinion, Judge R. Gary Klausner explained that while the machine-or-transformation test may not be the exclusive test for the patentability of a business method, it remains an important indicator of whether a business method is patentable.  However, in what appears to be attempt to cover all bases, the judge also found that Ultramercial's patent's core concept was abstract, like in Bilski, and so it was not eligible for patent protection. The approach by the court in Ultramercial,  is indicative of the likely trend to occur in decisions regarding business method patents. Courts will probably continue to be primarily influenced by the machine-or-transformation test but will instead of referring to the test as definitive will refer to it as “an important indicator”. A trend which will likely continue until the Supreme Court or the Federal Circuit Court provide more concrete grounds as to what other factors/tests demonstrate that a business method contains subject-matter that is patentable.
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