CAFC Substantially Limits Business Method Patents

By November 03, 2008

Business method patents are those based on business and software models. Over the past decade, the United States Patent and Trademark Office (PTO) have granted thousands of business method patent applications. Such patent issues are now in flux as a result of a recent high court decision. On October 30, the U.S. Court of Appeals for the Federal Circuit (CAFC) ruled that many existing business method patents are invalid or substantially limited. After all the appeal avenues with the PTO are exhausted, the CAFC is the next authority for dissatisfied patent applicants. Their October 30 decision (Ex Parte Bilski) subscribed to the “machine-or-transformation test,” which is a reversion to the standard used in the 1970s. To be valid, the inventor must show that her business method is either “tied to a particular machine or apparatus,” or “transform[s] a particular article into a different state or thing.” The CAFC ruled that if neither of these elements is met, then the business method is not patentable.

The CAFC considered more than 30 friends of the court briefs before reaching its decision, which will minimize abuse. For years, the CAFC attempted to refine its position in its State Street decision, with limited success. Controversially broad patents were being issued, leading to concerns that quite possibly led to this decision.

One thing is for sure, we have not heard the end of Bilski and business method patents. Corporations like Accenture, American Express, Red Hat, and IBM have all committed their support to both sides of the fence. Congress will likely get dragged into the issue, but before then, the United States Supreme Court will probably weigh in. In the meantime, the restrictions on business method patents have been narrowed, and the tech industry waits with vigilant patience.

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