Software Patents and Business Methods Patents, Are They Patentable?

Are software and business methods patentable? If you have been Googling the topic recently, you may have heard that the US Supreme Court and the Federal Circuit have heard a series of different cases during the past few years regarding it. Before I get into the history below, the short answer is still generally yes for software patents, with exceptions, but probably not for pure business methods, with exceptions of course!

Some of the earliest cases in the 70’s held that abstract ideas are not patentable, thus computer software which is composed of algorithms/mathematical concepts were held not to be patentable. This was an initial strike against software patents! Later in the 80’s the Supreme Court ruled on Diamond v. Diehr. The patent in question related to an invention for a method to determine how rubber is heated so it can be best “cured.” The invention was tied to a computer that calculated heating times of the rubber. The claims included a computer program claim and method claims. The Supreme Court held that the invention was not simply a mathematical algorithm, but was a valid process and
therefore patentable.

Throughout the years however, other cases came out that conflicted with Diehr. It wasn’t until the 90’s, in the seminal Supreme Court case of State Street Bank v. Signature Financial Group, which seemed to clarify the patentability of software patents. This patent related to a method of running mutual funds. Again, the issue revolved around the patentability of a mere mathematical algorithm or business method. The Supreme Court held the patent as valid and thus allowing a business method to be patentable subject matter. A key point was that the software must yield a “useful, concrete and tangible result”. So for many the feeling was that the patent claims needed to be drafted such that the software or processes were tied to a computer or processor to achieve a useful, concrete and tangible result to be patentable.

Fast forward to 2008, the Federal Circuit ruled on the In re Bilski matter which garnered a lot of media attention as to the patentability of business methods and computer software. The main claim at issue in the Bilski patent was for a method of hedging risk in the field of commodities trading. The claim was considered to be a pure business method because it dealt with simply a mental process (information that is analyzed and acted upon). The Court walked away with a new test requiring that a process is patentable if "(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing." This new machine-or-transformation test really called into question pure method claims, and software method claims as well.

Then in late 2009 the Bilski matter was pushed to the Supreme Court to decide if the machine-or-transformation test is a proper test to determine patentability of business methods. The Supreme Court will rule on the case sometime in mid 2010. Upholding of Bilski will likely require all business method patent claims to be tied to a machine and require processes to either transform an article or be timed to a machine. More will follow after the Bilski decision later this year!

Supreme Court to Review Patent Case Regarding Business Method and Software Patents

The fate of business method patents may be decided very soon since the US Supreme Court has decided to take on Bilski v. Doll. The case will set a significant precedent that will impact the validity of business method and even software patents. The Supreme Court will review the US Court of Appeals for the Federal Circuit’s decision of Bilski which upheld a rejection of a patent application of a method for managing risk in commodities trading.

As of now, there is much debate as to the patentability of business methods and software, like in the Bilski case. Typically the issue is whether these types of patents are just too broad and/or abstract. The Federal Circuit narrowed the standard by stating patent law only protects inventive processes that involve a “particular machine” or “transform an article from one state to another.” The result of this decision would lead to greater scrutiny of business method and software patents. This is a departure from the prior standard of Section 101 which states “whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent…”

So what’s at stake? Typically the software, finance, and pharmaceutical industries want less scrutiny and broader patent eligibility because they rely heavily on these types of patents. Many companies in these industries could lose existing and future patents rights if the stricter machine/transformation test above stands. Will this lead to an increase of Section 101 challenges to a patent’s validity in patent litigation? Probably if the Supreme Court allows Bilski to stand.

Interestingly, remember my prior blog about Sonia Sotomayor and her background in IP law? If the timing is right, she may be involved in reviewing Bilski. Hopefully, the decision will be a thoughtful one given her expertise in IP litigation.