Patentable subject matter in Bilski v. Kappos.

• Author: Mills, Jad

The scope of patentable subject matter has continued to generate fierce debate even after Congress created the Federal Circuit in 1982 to promote uniformity and predictability in the nation's patent laws. (1) Section 101 of the Patent Act of 1952 (Section 101) defines patentable subject matter as "any new and useful process, machine, manufacture, or composition of matter." (2) In 1972, the Supreme Court explained in Gottschalk v. Benson that "[the t]ransformation and reduction of an article 'to a different state or thing' is the clue to the patentability of a process claim that does not include particular machines." (3) In 2008, the Federal Circuit held that Benson's "machine-or-transformation test," was "the sole test governing [section] 101 analyses." (4) Last Term, in Bilski v. Kappos, (5) the Supreme Court rejected both the Federal Circuit's "machine-or-transformation" holding and the suggestion of an alternative categorical ban on business method patents. (6) Instead, the Court denied Bilski's application on the finding that it was an unpatentable abstract idea. (7) Although the Court purported to decide the case narrowly to avoid "impos[ing] limitations on the Patent Act that are inconsistent with the Act's text," (8) the Court's interpretation of Section 101 all but guarantees increased uncertainty in an already convoluted area of patent law because it denies the Federal Circuit the ability to create a clear and predictable patentable subject matter standard and encourages the Federal Circuit to experiment with the doctrine through case-by-case analysis.

In the initial patent application Bernard Bilski and Rand Warsaw filed on April 10, 1997 they described "how buyers and sellers of commodities in the energy market can protect, or hedge, against the risk of price changes." (9) Bilski's invention required only three steps: first, selling commodities to consumers at a fixed rate based on historical averages and corresponding to the risk position of the consumers; second, identifying market participants for that commodity having a counter-risk position to the consumers; and third, initiating a series of transactions between the commodity seller and the market participants at a second fixed rate that balances the risk position of the series of consumer transactions. (10) Bilski's application focused on using this process in energy markets. (11) The patent examiner rejected Bilski's application, stating that because it was not limited to a practical application of the abstract idea of hedging risk, it was not directed to the technological arts. (12) In 2006, the Board of Patent Appeals and Interferences affirmed the rejection, concluding that Bilski's application "involved only mental steps that do not transform physical matter and was directed to an abstract idea." (13)

In 2008, the United States Court of Appeals for the Federal Circuit heard the case en banc and affirmed. (14) The majority opinion rejected the "useful, concrete and tangible result" test that had governed patentable subject matter since Slate Street Bank (15) in 1998. (16) The court held that, "[a] claimed process is surely patent eligible under Section 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." (17) According to the court, this "machine-or-transformation test" was "the sole test governing [section] 101 analyses" of patentable processes. (18) Applying the machine-or-transformation test, the court held that Bilski's method claimed nonpatentable subject matter. (19) The Federal Circuit hearing also produced four other opinions, (20) but only one judge concluded that the application claimed only patentable subject matter. (21)

The Supreme Court affirmed the judgment (22) in an opinion by Justice Kennedy. (23) Justice Kennedy's opinion purported to defend the plain meaning of Section 101 from efforts to restrict the reach of the patent laws by reading new limitations into the statute. (24) He began with Section 101's definition of patentable subject matter as including "any new and useful process, machine, manufacture, or composition of matter," (25) and relied on Diamond v. Chakrabarty, (26) to read those subject matter categories broadly. (27) Although he recognized that Supreme Court precedent established the machine-or-transformation test as "a useful and important clue," he held that it "is not the sole test for deciding whether an invention is a patent-eligible 'process."' (28) Justice Kennedy explained that adopting the machine-or-transformation test as the sole test would "read into the patent laws limitations and conditions which the legislature has not expressed," (29) and would ignore the "ordinary meaning" of the word "process," (30) thus violating two important principles of statutory interpretation. (31) Because Congress defined the word "process" without any additional limitations, (32) and because the ordinary meaning of the word would not require satisfaction of the machine-or-transformation test, (33) the Court refused to treat it as a term of art and rejected the Federal Circuit's imposition of a rigid subject matter limitation into the text of Section 101's definition of patentable subject matter.

The Court similarly refused to accept a categorical business method exception proposed by some amici. (34) The Court held that the language of Section 101 "precludes the broad contention that the term 'process' categorically excludes business methods." (35) In addition to relying on the absence of a "business method" limitation in the language of Section 101, the Court also reasoned that 35 U.S.C. [section] 273 explicitly recognized the patentability of business methods because it creates a "prior use defense" against their enforcement, (36) "A conclusion that business methods are not patentable in any circumstances would render Section 273 meaningless." (37) Finding that the text of Section 101 was clear and unambiguous, the Court refused to recognize a business methods exception.

Despite Justice Kennedy's fierce advocacy of the plain meaning of the statute, his majority opinion acknowledged and reaffirmed a limited set of patentable subject matter exceptions, (38) He explained that "[a]ny suggestion in this Court's case law that the Patent Act's terms deviate from their ordinary meaning has only been an explanation for the exceptions for laws of nature, physical phenomena, and abstract ideas." (39) Although these exceptions do not appear in the text of Section 101, Justice Kennedy justified them as consistent with the meaning of Section 101 as a whole, (40) as supported by long-standing precedent, (41) and as potentially outside the power granted to Congress by the Intellectual Property Clause of the Constitution. (42) He refused, however, to extend such reasoning to the machine-or-transformation test or to a categorical business methods exclusion. (43)

Although the Court was eager to reject new categorical limitations on patentable subject matter, it decided the case on the basis of a nonstatutory, but well-known, exception to patentable subject rnatter: the abstract idea exception. (44) The Court held that the Bilski application claimed "the basic concept of hedging, or protecting against risk." (45) Justice Kennedy explained that the concept of hedging is a fundamental and "long prevalent" economic practice (46) and that it "is an unpatentable abstract idea, just like the algorithms at issue in Benson and Flook." (47) He concluded that "[a]llowing petitioners to patent risk hedging would preempt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea." (48) The Court then held that Bilski's focus on hedging in the commodities and energy markets did not sufficiently distinguish the claim from one covering the abstract idea of hedging risk." (49) Because the Court concluded that all of the claims in the Bilski application were directed to the unpatentable abstract idea of hedging risk, it affirmed the rejection of the Bilski application under Section 101. (50)

Justice Stevens concurred in the judgment, (51) but wrote a lengthy opinion criticizing the majority and suggesting an alternate holding. Justice Stevens agreed with the majority that the machine-or-transformation test "is not the exclusive test" (52) and that the Bilski claims "seek to patent an abstract idea." (53) However, he would have decided the case on broader grounds by imposing a categorical restriction on business method patents. (54) Because he found that Section 101's definition of process was circular, he concluded that the text of Section 101 "does not on its face convey the scope of patentable processes." (55) Contrary to the Court, he would have rejected the common meaning of the word "process" in favor of the way the word has "traditionally been understood in the context of patent law." (56) Relying in part on an originalist analysis, (57) Justice Stevens concluded that Congress did not have the power to protect business method patents under the Constitution and had never intended patentable subject matter to extend to business method patents. (58) Rather, Congress intended the judiciary to be the guardian of patentability. (59) Justice Stevens would have exercised this discretion to hold that "a claim that merely describes a method of doing business" is not patentable. (60)

Justice Stevens also criticized the majority's imprecise explication of the abstract ideas test. Contrary to Justice Kennedy's characterization of the invention, Justice Stevens argued that Bilski did not claim an abstract principle. (61) Instead, he argued, Bilski's claims limited the idea of hedging to "specific applications" in the particular field of energy and "as a means of enabling suppliers and consumers to minimize the risks resulting from fluctuations in demand during specified periods." (62) Justice Stevens accused the...