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Legal Update

Patent Law—Patentable Subject Matter in the Energy Market

29 June 2010
Mayer Brown Legal Update

Under Section 101 of the Patent Act, four categories of inventions may be patented: a “process, machine, manufacture, or composition of matter.” 35 U.S.C. § 101. In a decision with profound importance to the patent system, the Supreme Court held today in Bilski v. Kappos, No. 08-964, that a method for hedging against the risk of price changes in the energy market is not a patentable “process.”

In the decision below, the Federal Circuit—the court of appeals with exclusive jurisdiction over patent cases—had held, en banc, that the claimed invention was not patentable because it was neither (1) tied to a particular machine or apparatus nor (2) used to transform a particular article into a different state or thing. The Federal Circuit took the position that this “machine-or-transformation test” is “the sole test governing §101 analyses.” 545 F.3d 943, 955.

In an opinion by Justice Kennedy that was joined in substantial part by four other Justices, the Supreme Court affirmed the Federal Circuit’s judgment but disagreed with its reasoning. While the “machine-or-transformation test is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101,” the Court held, it “is not the sole test for deciding whether an invention is a patent-eligible ‘process.’” Slip op. 8. The Court also rejected an alternative test: that “the term ‘process’ categorically excludes business methods.” Id. at 10. “Rather than adopting categorical rules that might have wide-ranging and unforeseen impacts,” the Court explained, it was deciding the case “narrowly on the basis of th[e] Court’s [prior] decisions” on process patents, which show that the claimed invention is not patentable because it is an “attempt[] to patent abstract ideas.” Id. at 13. The Court concluded its opinion with the observation that, “[i]n disapproving an exclusive machine-or-transformation test, we by no means foreclose the Federal Circuit’s development of other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text.” Id. at 16.

In a lengthy opinion concurring in the judgment, joined by Justices Ginsburg, Breyer, and Sotomayor, Justice Stevens took the position that the claimed invention “is not a ‘process’ because it describes only a general method of engaging in business transactions—and business methods are not patentable.” Slip op. 2 (Stevens, J., concurring in the judgment). In a separate opinion concurring in the judgment, joined in part by Justice Scalia, Justice Breyer expressed the view that, “in reemphasizing that the ‘machine-or-transformation’ test is not necessarily the sole test of patentability, the Court intends neither to deemphasize the test’s usefulness nor to suggest that many patentable processes lie beyond its reach.” Slip op. 4 (Breyer, J., concurring in the judgment).

Mayer Brown filed an amicus brief on behalf of the Business Software Alliance in support of affirmance, which Justice Kennedy cited in his opinion.

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