Bernard Bilski and Rand Warsaw tried to patent their method of
hedging risk in energy commodities trading in 2000. They proposed a
system whereby an intermediary would buy and sell commodities –
such as coal – at fixed prices, offering the producers of those
commodities, such as mining companies, and their consumers, such as
power suppliers, pricing certainty.
They asked for a patent for their process, but the US Patents
and Trademarks Office (USPTO) rejected the request.
The USPTO's Board of Appeal upheld the original examiner's
decision, but on different grounds. It said that the transformation
of "non-physical financial risks and legal liabilities of the
commodity provider, the consumer, and the market participants" is
not something that can be patented.
The case was appealed to the US Court of Appeals for the Federal
Circuit. Business method patents have proved controversial in the
past. The most famous dispute has been over Amazon's patenting of
its 1-Click method of shopping on its site.
US patent law says: "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
therefore".
"It is undisputed that [Bilski's] claims are not directed to a
machine, manufacture, or composition of matter," said the Court of
Appeals ruling. "Thus, the issue before us involves what the term
'process' in [the law] means, and how to determine whether a given
claim … is a 'new and useful process'."
"The true issue before us then is whether [Bilski is] seeking to
claim a fundamental principle (such as an abstract idea) or a
mental process. And the underlying legal question thus presented is
what test or set of criteria governs the determination by the
[USPTO] or courts as to whether a claim to a process is
patentable," said the ruling.
The US Supreme Court ruled in a case in 1972, the Benson case,
in which it said that the use of a mathematical algorithm in a
computer could not be patented, because to do so would be to patent
the algorithm itself in its only useful form.
Mathematical formulae cannot be patented because they are said
by the courts to be laws of nature and they therefore belong to
everyone.
"The Supreme Court … has enunciated a definitive test to
determine whether a process claim is tailored narrowly enough to
encompass only a particular application of a fundamental principle
rather than to pre-empt the principle itself," said the Court of
Appeals ruling. "A claimed process is surely patent-eligible under
[patent law] 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 is permitted, the ruling said, because someone else could
use the fundamental principle in relation to a different machine or
to affect a different article without infringing the patent. It
therefore does not restrict the use of a fundamental principle, it
said.
In an earlier case involving State Street Bank the US Court of
Appeals for the Federal Circuit had said that a business method or
process could be awarded a patent if it "produces a useful,
concrete and tangible result".
The Court has now ruled, though, that that should not be the
test that is applied to requests for patents.
"While looking for 'a useful, concrete and tangible result' may
in many instances provide useful indications of whether a claim is
drawn to a fundamental principle or a practical application of such
a principle, that inquiry is insufficient to determine whether a
claim is patent-eligible," it said.
"It was certainly never intended to supplant the Supreme Court's
test. Therefore, we also conclude that the 'useful, concrete and
tangible result' inquiry is inadequate and reaffirm that the
machine-or-transformation test outlined by the Supreme Court is the
proper test to apply," it said.
The Court agreed, though, that the test may not be perfect for
modern business, when computers have so altered what kinds of
business processes are possible. It said, though, that it was for
the Supreme Court, and not it, to change the test.
"We agree that future developments in technology and the
sciences may present difficult challenges to the
machine-or-transformation test, just as the widespread use of
computers and the advent of the internet has begun to challenge it
in the past decade," it said.
"Thus, we recognize that the Supreme Court may ultimately decide
to alter or perhaps even set aside this test to accommodate
emerging technologies. And we certainly do not rule out the
possibility that this court may in the future refine or augment the
test or how it is applied," it said.
"At present, however, and certainly for the present case, we see
no need for such a departure and reaffirm that the
machine-or-transformation test, properly applied, is the governing
test for determining patent eligibility of a process," said the
ruling.
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