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Supreme Court Rejects Sole Use of Machine-or-Transformation Test and Refuses to Exclude Business Method Patents from Protection

June 28, 2010 -- Earlier this morning, the Supreme Court issued its highly anticipated opinion in Bilski v. Kappos, 561 U.S. ___ (2010). In its opinion, the Supreme Court held that the machine-or-transformation test is not the exclusive test for determining whether a process is patent-eligible under 35 U.S.C. § 101. The Supreme Court also refused to categorically exclude business methods from being patent-eligible.

A prerequisite to receiving a patent on an invention is that it must be aimed at patent-eligible subject matter. According to 35 U.S.C. § 101, “Whoever invents . . . any new and useful process, machine, manufacture, or composition of matter . . . may obtain a patent therefor, subject to the conditions and requirements of this title.”

Before the Supreme Court decision, the Court of Appeals for the Federal Circuit, when deciding In re Bilski, 545 F.3d 943 (Fed. Cir. 2008), applied the machine-or-transformation test to determine whether a method for hedging risks in commodity trading was patent-eligible subject matter. The Federal Circuit stated that a claimed process is patent-eligible under 35 U.S.C. § 101 if: “(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” The Federal Circuit concluded that the machine-or-transformation test is “the sole test governing § 101 analyses.”

Today, the Supreme Court rejected the Federal Circuit’s approach, which “incorrectly concluded that this Court has endorsed the machine-or-transformation test as the exclusive test” for determining patent eligibility. While the Supreme Court did not define a simple, specific test, the Court stated that its precedents (e.g., Gottschalk v. Benson, 409 U.S. 63 (1972); Parker v. Flook, 437 U.S. 584 (1978); and Diamond v. Diehr, 450 U.S. 175 (1981)) established a number of guideposts. In light of these guideposts, the Court concluded that the machine-or-transformation test is one “useful and important clue, an investigative tool,” but it is “not the sole test for deciding whether an invention is a patent-eligible process.”

Because business methods, software, and methods of administering diagnostic and therapeutic techniques are frequently claimed as processes (in addition to being claimed as machines and manufactures), this decision is particularly important to a large number of patents and patent applications. The Supreme Court specifically refused to categorically exclude business methods from being patent-eligible. Justice Kennedy, writing for the majority, stated that this is consistent with the language in § 101, where “Congress took this permissive approach to patent eligibility to ensure that ‘ingenuity should receive a liberal encouragement.’ ” Moreover, Justice Kennedy pointed out that the Supreme Court has “more than once cautioned that courts ‘should not read into the patent laws limitations and conditions which the legislature has not expressed.’ ”

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