SAN JOSE, Calif. -- In a slim 5-4 majority, the Supreme Court decided not to endorse or define a test of what can be patented. Instead, it issued Monday (June 28) a narrow decision in the case of Bernard Bilski vs. the U.S. Patent Office.
The Supreme Court affirmed the Patent Office's rejection of a patent application on a business method for hedging financial trades submitted in 1997 by Bernard Bilski. But the high court did not settle the issue of what should be the limits for patents on processes defined in software and business-method patents.
Previously, a Federal court upheld the Patent Office's decision against Bilski. It also laid down a controversial test for any patent: it has to be tied to a device or transform something physical.
In a decision written by Justice Kennedy, the Supreme Court said the so-called machine-or-transformation test was one test that could be used. However it said the test was not exclusive and lower courts could set other tests as needed as long as they are in harmony with the existing Patent Act.
"It is clear that petitioners’ application is not a patentable process," said Justice Kennedy in his majority decision. "Today, the Court once again declines to impose limitations on the Patent Act [but] on disapproving an exclusive machine-or-transformation test, we by no means foreclose the Federal Circuit’s development of other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text," he added.
"Essentially, the Supreme Court realized how hard a subject this is and how fast technology is evolving and more or less punted the ball back to the Federal Circuit," said Edward Reines, a partner at Weil, Gotshal & Manges (New York, NY). "They said future rules will need to be developed to limit process patenting, and the machine-and-transformation test is too narrow," he said.
A broad range of electronics and biotech companies submitted briefs to the court arguing against a narrow definition of what is patentable. They included Dolby, Google, the IEEE-USA, Medtronic, Microsoft, Philips, Pitney Bowes, Red Hat and Yahoo.
"In general it was a pro-patenting ruling, and that collective sigh of relief you hear is from the software and biotech communities," said Reines. "A vote for the transformation test would have narrowed patents substantially for the software and biotech industries," he said.
Observers were split on their opinions of the ruling.
“After waiting more than seven months on Bilski, the Supreme Court’s decision is likely seen as a disappointment and let down," said Tom Chen a partner at Haynes and Boone
"The decision is green light with an accompanying flashing yellow," said Chen. "The good out of this decision is that the Court affirmed the viability of business methods, which is very important in today's economy with so many online businesses having innovations to protect, but the mixed signal comes by requiring lower courts to do a balancing test which gives no practical guidance to the PTO, patent attorneys and agents, and technology companies," he said.
Others praised the court's restraint.
"The opinion allows for a more flexible approach that will now better accommodate patent applications for diverse kinds of inventions, including software technologies and business methods, while pushing the U.S. Court of Appeals for the Federal Circuit to reconsider how it approaches tests for such patent claims," said Meredith Addy, chair of the appeals group at Brinks Hofer Gilson & Lione in Chicago, who wrote briefs for the case for parties including consulting firm Accenture.
Reines noted the 5-4 decision split the high court along ideological lines with the court decision backed by conservative Justices Alito, Roberts and Thomas with Scalia agreeing only to part of the decision. Justice Stevens wrote an opinion agreeing with the decision about the Bilski patent but providing a different rationale about the larger questions.
In the Steven's statement "four of the justices said that business methods should not be patentable at all," said Steve Baik, a partner at Orrick, Herrington & Sutcliffe LLP (Menlo park, Calif.).
"While business method patents won't be subjected to the rigid machine-or-transformation test, their continued viability is still precarious at best," Baik said. "At the very least, companies should attempt to draft patent claims that are likely to pass the still viable machine-or-transformation test to the extent possible," he said.
The split decision highlights the complexity and the need for greater clarity in the area. "Everyone knew this wasn’t a good patent application to raise the issue," said Reines.
Observers had predicted the court might take such a stance during oral arguments of the case in November.
Scotusblog provides references and a history of the case online.