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United States: Federal Appeals Court Clarifies Test for Business Method Patents

(Nov. 18, 2008) On October 30, 2008, the U.S. Court of Appeals for the Federal Circuit clarified the test for determining if a business method is eligible for patent protection.

Section 101 of the U.S. Patent Code provides that a person who “invents or discovers any new and useful process . . . may obtain a patent therefor, subject to the conditions and requirements of [the patent law].” In a 1998 case involving a data processing system for managing mutual fund accounts, the Federal Circuit held that under section 101, a business method that “produces a useful, concrete, and tangible result” is patentable. Applications for business method patents proliferated under that standard.

Barnard L. Bilski submitted a patent application for a method of hedging risk in commodities trading. Both the Patent and Trademark Office and the Board of Patent Appeals and Interferences rejected Bilski's claim. Bilski appealed to the Federal Circuit. The Federal Circuit, sitting en banc, affirmed the denial of Bilski's application. The court observed that while section 101 provides that processes can be patented, patentability cannot extend to fundamental principles or abstract ideas. The court said that a process can be patented only if it is “tied to a particular machine or apparatus,” or if it “transforms a particular article into a different state or thing.” The court rejected alternative tests for the patentability of a process, including its 1998 standard of whether it “produces a useful, concrete, and tangible result.” (In re Bilski, No. 2007-1130 (Fed. Cir. Oct. 30, 2008), available at http://www.cafc.uscourts.gov/opinions/07-1130.pdf.)