Business Concept Isn’t Patentable, Court Says

WASHINGTON (CN) - In a closely watched patent case that could affect thousands of banking and technology patents, the Federal Circuit voted 9-3 that two inventors could not patent a business concept that fell outside the "machine-or-transformation" test established by the Supreme Court.

Bernard Bilski and Rand Warsaw came up with a method of managing risk through commodities trading.

Rejecting their proposed patent, an examiner stated 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."

The examiner dismissed the idea as "not directed to the technical arts."

On appeal, the Board of Patent Appeals and Interferences upheld the gist of the examiner's conclusion, but jettisoned his reliance on the "technical arts" test.

It added that the proposed patent does not involve any "patent-eligible transformation" and only claims an abstract idea.

Bilski and Warsaw pressed the courts to allow them to patent their method.

The federal appeals court had to decide if the plaintiffs' claim qualified as a "new and useful process."

Under Webster's definition, it would, Chief Judge Paul Michel wrote. But the U.S. Supreme Court narrowed the definition in the 1970s, holding that a patent-eligible process cannot involve "laws of nature, natural phenomena (or) abstract ideas."

"The true issue before us then is whether applicants are seeking to claim a fundamental principle (such as an abstract idea) or a mental process," Michel wrote. To answer this question, the appeals court applied the Supreme Court's definitive test for flushing out patent eligibility. A process can be patented if it 1) is tied to a particular machine or apparatus or 2) transforms a particular article into a different state or thing.

The court held that the plaintiffs' patent claim "plainly fails" the machine-or-transformation test.

Judge Newman dissented, saying the majority decision "excludes many kinds of inventions that apply today's electronic and photonic technologies, as well as other processes that handle data and information in novel ways.

"This exclusion of process inventions is contrary to statute, contrary to precedent, and a negation of the constitutional mandate," Newman added. "Its impact on the future, as well as on the thousands of patents already granted, is unknown."

Judges Lourie, Schall, Bryson, Gajarsa, Linn, Dyk, Prost and Moore joined Michel's opinion, while Judge Mayer joined Newman's dissent and Judge Rader filed a separate dissent.

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