Supreme Court Fails to Define Business Process Patents

The Supreme Court on Monday ruled that an inventor’s request for a protection of a method of hedging weather-related risk in energy prices cannot be granted.

But, more critically, the court was unclear as to what criteria should be used to determine the patentability of a business method.

In a long-awaited ruling, the high court agreed with the Court of Appeals that Bernard Bilski and Rand Warsaw’s application was too abstract to be considered worthy of establishing that its process for doing business was so unique as to be protectable by a patent.

But the nation’s highest court didn’t agree with an appeals court’s reasoning as to why. “The patent application here can be rejected under our precedents on the unpatentability of abstract ideas,” Justice Anthony Kennedy wrote for the court. “The court, therefore, need not define further what constitutes a patentable process.”

Patents for business processes became commonplace in the financial services industry after 1998 when the State Street Bank and Trust acquired a patent on a data processing system for its “hub and spoke” approach to mutual fund management. In that process, mutual funds would pool their assets in an investment portfolio (hub) organized as a partnership.

In the case reviewed by the Supreme Court, Bilski and Warsaw tried to patent a method of buying or selling energy at a fixed price based on expected weather conditions for a season. However, the U.S. Patent Office rejected their application on the grounds the process was too abstract to be patented.

Bilski and Warsaw took their claim to the U.S. Court of Appeals in the Federal Court, which upheld the Patent Office’s decision last year. The appeals court was careful not to explicitly overturn the decision on State Street saying its patent claim was for a computer that administers a master-feeder structure for mutual funds, rather than the business method itself.The appeals court did not rule on whether State Street’s claim would pass its new litmus test which said that a process cannot be patented unless it is “tied to a particular machine or apparatus” or it “transforms a particular article into a different state or thing.” In their request for a patent, Bilski and Rand acknowledged that their method was not limited to any one computer.

Kennedy wrote that “the machine-or-transformation test would create uncertainty as to the patentability of software, advanced diagnostic medicine techniques and inventions based on linear programming, data compression and the manipulation of digital signals.”