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

The United States Supreme Court finally issued its decision on Bilski v. Kappos just before it shut down for the summer. As widely expected, the justices unanimously agreed that the Bilski claims are abstract ideas which are nonpatentable and the Court of Appeals for the Federal Circuit properly rejected the claims. However, the court’s decision, authored by Justice Anthony Kennedy, left many dissatisfied as it declined to clarify limitations on the patentability of business method claims. The high court simply rejected the Federal Circuit’s view that the machine-or-transformation test was the exclusive test for patentable process claims and instead, looked back to the last century, to its cases of Gottschalk v. Benson, (1972), Parker v. Flook, (1978) and Diamond v. Diehr, (1981) to find the “guideposts” and §100(b) the Patent Act for the definition of “process”.

The court found that although the result of rejecting the Bilski claims were correct, the Federal Circuit wrongly assumed that the Benson, Flook and Diehr line of cases required the machine-or-transformation test as the sole test for determining patentability of process claims. Instead, it found that while a useful tool, the machine-or-transformation was never intended to be the sole test. While under §101, patentable process is very broad, but there are limitations. The Benson, Flook and Diehr line of cases taught that abstract ideas, such as those in the Bilski claims, were not patentable process under §101.

The decision also left undisturbed the rejection of the “useful, concrete and tangible result” test from State Street Bank & Trust Co. v. Signature Financial Group, Inc., (1998). That case led to a torrent of business method patents in the past decade and its rejection should help to reduce the number of dubious business method patents going through the Patent Office.

In In re Bilski, the Federal Circuit threw down the gauntlet and challenged the Supreme Court to do something about the deluge of business method claims since the State Street case. Instead of accepting the challenge, a divided Supreme Court merely found business method claims are not categorically unpatentable and tossed the glove back to the Federal Circuit to find the proper test for limiting patentability of such claims. Interestingly, the Supreme Court came one vote short of changing the game. Bilski came close to dealing a death blow to business method claims, but it provided a glimpse of the struggle among the justices on the issue. Retiring Justice John Paul Stevens’ lengthy concurrence was joined by three other justices. But for one vote, his would have been the majority opinion which would have held that methods of doing business are not patentable processes under §101 of the Patent Act.

It is customary for each Supreme Court justice to author at least one decision in each term, so speculation was that Justice Stevens, who retired at the end of the term, was chosen to write the majority decision in this case. All justices agree that the Bilski claims were unpatentable and that the Federal Circuit was wrong on finding the machine-or-transformation test as the sole test for patentability of process claims. Thus, Justice Stevens may have been assigned the task of writing the opinion for the court and he concluded that business methods are not patentable. Three other justices agreed with his conclusion.

He could not convince five justices that the high court should ban business method patents outright. Perhaps, this was a factor in the unusual delay in the court’s issuing the decision. The inability of convincing one more justice shifted Justice Stevens’ opinion from majority opinion to a concurrence and Justice Kennedy’s shorter and less detailed opinion, which has the style of a concurrence, became the court’s opinion instead.

Justice Kennedy recognized the problems of vagueness and suspect validity in some business method patents. He felt the need to set a bar high enough to reduce the flood of claims asserted by business method patent holders that may “put a chill on creative endeavor and dynamic change” but he left it to the Federal Circuit to search for a limiting principle. He stated that although some business method claims may qualify under §101 as “processes”, §101 is only a threshold. A business method claim must also be novel (§102), nonobvious (§103) and fully and particularly described (§112) before it can be patented. Justice Kennedy felt that these safeguards are sufficient to maintain a balance in the U.S. patent system.

There will be no wholesale changes to the U.S. patent system as the result of the Bilski case. Instead, what Bilski did was to say that the machine-or-transformation test will remain a useful tool for determining patentability of process claims, but not as the “sole test” as claimed by the Federal Circuit. Section 101 construes process broadly but there are limitations which bars patenting of abstract ideas. Finally, the Supreme Court hammered in the final nail to the “useful, concrete and tangible result” test enunciated in State Street Bank so business method claims that “ranged from the somewhat ridiculous to the truly absurd” should no longer see the light of day in the Patent Office..

Will this decision affect PCT applications with business method claims in China?

As discussed in our earlier posting  on In re Bilski, while China does not have a specific category for business methods, claims incorporating technical features to achieve business or commercial purpose are patentable in China. The rejection of the “useful, concrete and tangible result” test may help ensure fewer dubious business method patent applications are filed under the US system and business method claims that survived the initial screening should be more substantive and meritorious. The improvement in quality may make it easier for such claims to pass muster under the Chinese patent system. In this sense, Bilski helps bring US and Chinese patent law closer together.