Business Methods and Unpatentable Subject Matter
July 2010

The United States Supreme Court on June 28, 2010, issued its opinion in Bilski et al. v. Kappos. This case was on appeal from the Federal Circuit which had held that the claims for managing hedging risk in Bilski’s patent application were not statutory subject matter under 35 United States Code(“USC”) §101. Rather, they were deemed to be unpatentable as an abstract idea.

The lower appellate court had held that the sole basis to determine whether a claimed process was patentable subject matter was the “machine-or-transformation test.” This test requires that (1) that the claims are tied to a particular machine or apparatus, or (2) the claims transform a particular article into a different state or thing.

A unanimous Supreme Court affirmed the Federal Circuit’s decision but then held that the “machine-or transformation test” is not the exclusive test to determine patentable subject matter for claimed process applications. The development of future tests regarding statutory subject matter was left to the lower courts. The justices were divided in their reasoning.

A majority of the Court went on to say that business methods are not per se unpatentable. In the Bilski case, the court held that the rejected claims were non-statutory because they were directed to an abstract idea. The result of this decision is that business method patent claims are not statutory if they merely claim abstract ideas. While the “machine
or transformation” test is not the only test to determine eligible statutory subject matter, if the claims pass that test, they likely to be considered to be directed to subject
matter that is subject to patenting.

Part of the reason that this case has gained so much notoriety is that it had the potential for invalidating thousands of patents in other areas, notably those involving gaming and software. The issue of software patents was the subject of many of the 90+ briefs filed with the Supreme Court. The Court never addressed the issue of software patents directly.
Because the “machine or transformation” test is no longer the sole test for determining the question of statutory subject matter, there is a substantial argument that claims involving the manipulation of other physical things, including playing cards or other gaming tokens, in games including wagering, are statutory subject matter for patents. Careful claim drafting of software patent claims should overcome most nonstatutory subject matter rejections

Earlier this year, the United States Patent and Trademark Office (“USPTO”), relying on the Bilski decision by the Federal Circuit, had extended non-statutory subject matter rejections to gaming, including card games and other games played without the use of machines. Most card games should not be considered business methods unless a “house” is involved, since they do not involve any form of business even if wagers are a part of the game. Even though the first prong of the “machine or transformation” test requires a tie to a “particular machine”, there is a substantial argument that “machinery” actually encompasses other physical things, including playing cards, card tables, wagering chips, and the like.

Throughout the last year, patent examiners became increasingly zealous in applying the “machine or transformation” test to determine patent eligibility. Software, business method, and even card game claims were being increasingly rejected when they failed to claim sufficient connection to a machine or apparatus. The Supreme Court’s determination that this test is not the only test available for determining statutory subject matter eligibility is likely to reduce the frequency and severity of this type of patent claim rejections. With the Bilski decision, in addition to patent claims that are writable to involve sufficient connection to a machine or apparatus, we now have the alternative available of showing that patent claims do not claim abstract ideas and do not attempt to preempt the use of such abstract ideas.

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This Client Alert has been prepared by Lewis and Roca LLP for informational purposes only and is not legal advice. Readers should seek professional legal advice on matters involving these issues.