By Kenneth Choy, Partner, Intellectual Property, King & Wood – Hong Kong

Last month, the United States Supreme Court heard oral arguments in the closely followed case of Bilski v. Kappos, 08-964. The case concerns a patent application for hedging risk in commodities trading. Both the U.S. Patent and Trademark Office and the United States Court of Appeals for the Federal Circuit rejected the claims. In reaching its decision, the Federal Circuit ruled that to be eligible for a patent, a process claim must be tied to a particular machine or it must transform an article into a different state or thing. The court said that this ‘machine or transformation’ test is the only test for determining patent eligibility of process claims.

By so ruling, the Federal Circuit effectively overruled its own “useful, concrete and tangible result” test formulated in State Street Bank & Trust Co. v. Signature Financial Group, Inc., 143 F.3d 1368 (Fed. Cir. 1998). This test focused on practical applications of the invention to determine if it is patent worthy. That decision was said to have led to the boom of business method and software patents in the past decade. The rejection of the useful, concrete and tangible result test raises questions about the validity of many existing business method and software patents. Because of the high stakes, dozens of interested parties filed a total of 44 amicus or ‘friends of the court’ briefs to express their viewpoints and concerns.

Few observers believe Mr. Bilski’s claims can survive either the useful, concrete and tangible result or the machine or transformation test. It is also unlikely that the Bilski claims will meet the standard ultimately adopted by the Supreme Court.

However, there is no consensus on whether the Supreme Court will come out with a new test or even if it will fully addressing the harder question of what the proper test for patent eligibility of business method or software claims. Indeed, the issues are complex and from the questions asked during oral argument, the high court seemed to lack confidence in dealing with the complexity of this area of patent law.

The questions of the justices reflect their concerns about broadly worded business method patents that may foreclose use of business processes by other parties. They peppered Mr. Bilski’s lawyer with hypothetical questions on the patentability. They asked about patentability of claims relating to estate plan, tax avoidance, resisting corporate takeovers, choosing juries (Ginsburg, p. 5); processes that help business succeed (Breyer, p. 6); speed dating (Sotomayor, p. 7); teaching antitrust law without students falling asleep (Breyer, p. 9); compiling actuarial tables and their application to risks (Kennedy, p. 11); horse whispering (Scalia, p. 16); and alphabet as a process of forming words (Roberts, p. 22). Transcript of the oral argument is available at

Section 101 of the U.S. Patent Act provides that new and useful processes, machines, manufacture and composition of matters are patent eligible. This is very broad language. So under a Section 101 analysis, these extreme examples are patent eligible. In fact, the justices may be surprised that patents actually have been granted for the extreme examples they cited.

Although concerned about the broadness of Section 101, they were also clearly uncomfortable with the rigidity of the machine or transformation test the Federal Circuit ruled as the sole test for determining patentability of process claims. The justices recognize that technological advances mean that inventions may not necessarily have physical attributes. Thus, they seemed inclined to reverse the Federal Circuit’s ruling but at the same time, they struggled with finding and enunciating an appropriate test of patent eligibility.

Business method patents in China

Chinese patent laws do not have a specific category for business method claims so the standard applied to such claims are no different than other technical or computer related applications. Business method claims are patentable under Chinese law if they incorporate technical features to achieve a business or commercial purpose. The claim must specify the technical features required to be implemented on a commercial or business purpose. A detailed description of a business method without showing the technical features necessary for its implementation will not be patentable under Chinese law. Technical features must be an integral part of the business method. Thus, the Chinese standard is similar to the machine branch of the machine or transformation test.

Applying Chinese law, the Bilski claims will also be rejected. But a Chinese granted business method patent will also survive scrutiny under the machine or transformation test. On the other hand, business method patents granted under the useful, concrete and tangible result test may not be patentable under Chinese law unless they also incorporate sufficient technical features.

How will the Supreme Court resolve the problem?

Our speculation is that the Bilski claims will be rejected and the Supreme Court will reverse the Federal Circuit ruling that the machine or transformation test is the only test for patent eligibility. Instead, the Supreme Court may try to find a compromise standard that will allow protection of some business method and software claims but will screen out broad and abstract claims such as the Bilski claims. If we are correct, the new ruling may widen the gap between Chinese and U.S. law that the machine or transformation test had narrowed.

What was interesting about the oral arguments was the lack of mention of Section 112 of the Patent Act. This section also covers patent eligibility and requires that an invention must be specified in “full, clear, concise, and exact terms as to enable” someone to make and use it. While Section 101 uses broad language, Section 112 requires specificity in the claims. This serves to prevent abstract claims from gaining patent protection. These sections work together to prevent an inventor from precluding others from practicing a useful art merely by making general and broad claims. To be patentable, a claim must be sufficiently specific to enable someone to practice its teachings.

Since Section 101 should be read in conjunction with Section 112, one would think that Section 112 would be raised during oral arguments. Even if the Bilski claims can survive the broad language of Section 101, it would not pass muster under the specificity requirements of Section 112. Thus, the failure to bring up Section 112 has been described by a commentator as the elephant in the room that no one mentioned. The Bilski claims cannot pass Section 112 analysis. This will allow the Supreme Court to sidestep the machine or transformation test completely.

How will the Supreme Court rule? We will find out sometime in the spring 2010 when the decision is expected to be announced.