Business method patents under Section 101 of the Patent Act

Business method, a patentable subject matter? This question was answered by the U.S. Court of Appeals for the Federal Circuit (CAFC) in the famous In re Bilski case. This was a case, where the patent applicants Bernard Bilski and Rand Warsaw challenged the denial of their patent application on methods for hedging risks for commodities trading.

In re Bilski

Facts: Patent applicants Bernard Bilski and Rand Warsaw claimed a business method patent for providing a fixed bill energy contract to consumers. Claimed process patent comprises following steps;

  • Initiating a series of sales or options transactions between a broker and purchaser-users by which the purchaser-users buy the commodity at a first fixed rate based on historical price levels;
  • Identifying producer-sellers of the commodity; and
  • Initiating a series of sales or options transactions between the broker and producer-sellers, at a second fixed rate, such that the purchasers’ and sellers’ respective risk positions balance out.

Patent examiner however rejected the claims on the grounds that, the invention is not implemented on a specific apparatus and merely manipulates an abstract idea and solves a purely mathematical problem without any limitation to a practical application.Hence, the invention is not directed to the technological arts.

Applicants appealed against the denial of the patent application by the examiners before the Board of Patent Appeals and Interferences (BPAI). However, the appeal was rejected by BPAI affirming the decision of the patent examiner. Thereafter, the applicants placed this appeal challenging the order of BPAI before the CAFC.

Opinion of the court

While delivering the majority opinion, the apex court categorized the dispute as whether the claimed method is a patent-eligible “process“, within the meaning of the Section 101 Patent Act. In this regard, the court opined that, the statutory meaning is narrower than the dictionary meaning which “forecloses a purely literal reading“.

Natural phenomena, laws of nature and an abstract idea are clearly excluded from the list of patentable subject matter. Because, they are the basic tools of scientific and technological work. Court further observed 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.

Dissenting opinion of the court noted that, nothing is wrong with patents on business methods or natural phenomena, so long as they are claimed to “achieve a useful, tangible, and concrete result. Thus, the majority should have stated that, Bilski claims merely an abstract idea, this court affirms the Board’s rejection. It was further noted that the present definition of the word process used by the court unswervingly refuted the statute, the precedent, and the constitutional mandate to endorse and encourage the useful arts and science.It also warned of the ambiguity in patentable subject matter which serves as a disincentive to innovation.