The Bilski patent appeal in the US failed to deliver the hoped-for clarification of the patentability of business methods and softare, but may yet produce longer term benefits

The patentability of business methods and software has long proven to be an unsatisfactory and frustrating area for practitioners and clients alike, particularly given the contrasting approaches between Europe/the UK and the United States.

It was hoped that the US Supreme Court decision of Bilski v Kappos US, No 08-964, 28 June 2010 would have provided some much-needed guidance on exactly what the US considers to be patentable, and consequently give the international patent community a steer on what can and cannot be patented there.

Although the Supreme Court avoided answering the really pertinent questions definitively (and significant uncertainty remains), it did offer some guidance for practitioners which will have a knock-on effect for the approach taken to this type of patent, and also for UK organisations in relevant fields who do business in the US.

Patently unclear

In the US, it has been long established that new and useful processes, machines, manufacture and compositions of matter are patentable, whereas abstract ideas, laws of nature and natural phenomena are not. The UK’s position is slightly different: machines, products and industrial processes are patentable, but business methods and computer programs (and others) as such are not patentable. This means it is far more difficult to have a patent granted in the UK for software and business methods than it is in the US. A technical contribution or effect must be demonstrated.

A largely similar situation pertains in the case of European patents (albeit the European approach is different to the UK’s in practice – see below). It follows that the US Patent and Trademark Office (USPTO) and the US courts have proven to be more liberal in their approach to the patentability of business methods and computer software in comparison to other territories (especially UK and Europe).

The USPTO had considered that business methods, which produce useful, concrete and tangible results, did not fall to be excluded per se, and consequently there has been an abundance of business methods patents (and indeed software) granted in the US.

However, the precise criteria for the patentability of business methods and software have remained uncertain, and often applications would be made without any great confidence that the patent would ultimately be granted by the USPTO. The prospect of the Bilski decision by the US Supreme Court offered new hope that this uncertainty would be resolved.

The Bilski appeal

By way of background, Bilski was an appeal from the Federal Circuit Court on its decision to reject the business method patent sought by Bilski. The business method related to a method of hedging price risks in commodity transactions.

The Federal Circuit Court rejected the appeal on the basis that the business method sought by Bilski was an abstract idea and did not pass the “machine-or-transformation” test. This test provides that an abstract idea/the business method must be tied to a machine or transform something into a different state or thing. This is somewhat similar to the “technical contribution” UK test as detailed in the Aerotel/Macrossan case [2006] EWCA Civ 1371.

The US Supreme Court upheld the Federal Circuit Court’s decision because its view was that the Bilski business method was an abstract idea and did not pass the machine- or-transformation test. The Bilski method merely explained the concept of hedging and this was presented as a mathematical formula.

As noted above, given the uncertainty in this area of US patent law, it was hoped by some that the Supreme Court would take the opportunity to clarify exactly what business methods and software could and could not be patented. Some even hoped that the court would go one stage further and detail with clarity the scope of the patent exceptions (abstract ideas, laws of nature and natural phenomena) and/or develop those understood exceptions.

Those hoping for such guidance have been left disappointed. The Supreme Court failed to detail exactly what business methods could and could not be patented, or to clarify or develop the established exceptions. Furthermore, it did not agree on the basis for the majority decision.

That said, the decision did offer some guidance insofar as it indicated that the machine-or-transformation test was not the definitive test on whether an abstract idea was patentable. However, applying this test would nonetheless be a “useful and important clue” to determine patentability.

The court also said that the origins of the machine-or-transformation patentability test were rooted in the industrial era and now, in the information age, that test may no longer prove satisfactory. The judges did not prescribe a specific exclusive test and left the door open for further tests to be developed. Indeed, the court encouraged its lower court, the Federal Circuit, to continue to develop the patentability tests. However, some American commentators think it is unlikely that it will do so.

The court also sidestepped the question of the patentability of software, and asserted that the machine-or-transformation test only served to add uncertainty on this issue. Clearly, if software satisfies this test then it can be said with some confidence that the software is patentable. However, if the software does not pass the machine-or-transformation test, that is not to say that the software is not patentable per se. The same can be said of biotechnological inventions, which may or may not, on the face of it, pass the machine-or-transformation test.

What comes through overall in the majority decision is that the justices were reluctant to limit the test or tests, due to a fear that this might render whole swathes of ideas unpatentable and act as a disincentive to research development and creative endeavour. This perhaps explains their reluctance to commit to any further guidance. Thus, the consequences of Bilski on software patentability are negligible and, by and large, the status quo and the uncertainty – remain.

It’s stricter over here

In contrast to the position in the US, the UK Intellectual Property Office (UKIPO) and courts’ interpretation of the patentability of business methods and software patents has, on the whole, been very strict. The Patents Act 1977, s 1(2) excludes business methods and software as such. In a similar vein to the US machine-or-transformation test, in the UK those methods and software which provide a technical effect are patentable.

Initially, software and business method patent applications were looked on with some scepticism given the exclusions in the statute. However, following the Aerotel/ Macrossan and Symbian ([2008] EWCA Civ 1066) cases, the UKIPO is becoming a little less hostile towards software patents. There has also been some progress in the patentability of business methods, but not at the same rate as for software patents.

The strict approach of the UK is reflected in the European approach (although the actual tests employed by the UK and European courts differ – particularly in relation to software – and this is beyond the scope of this article). The UK and European position is in stark contrast to the US’s approach and this disparity has long proven to be a source of frustration for those involved in the relevant industries.

Longer term effect?

Bilski may yet force the UK/Europe’s hand into altering its relatively strict interpretation of the patentability of business methods and computer software to allow business methods and software which do not have a strict technical effect to be patented. Such a result will satisfy those who seek improved harmonisation on both sides of the Atlantic, creating a more level playing field.

The opponents of such a move will argue that a departure from the original test as detailed in the Patents Act 1977 and subsequent case law will give inventors of business methods and software a monopoly over something which the statute never set out to do. No doubt they will say it will stifle innovation in the UK and Europe too, as there would be a real fear of infringement due to a whole raft of new patents covering software and business methods.

Practically, the Bilski decision is likely, in the short term, to result in a plethora of litigation in the US as patent applicants try to push the boundaries as far as possible. It is likely that patent litigation in Europe may also pick up in an attempt to try to harmonise the position between the two continents.

In the longer term, in some respects it is likely that Bilski will prove to be a welcome decision because it acknowledges that the patent test in its current form, both here and on the other side of the Atlantic, may no longer be suitable for the technological inventions of the modern era. It is perhaps unfortunate, though, that Bilski could not have gone that one step further and established an appropriate test or tests – with clearly defined boundaries as to what can and cannot be patented – at this time.

  • Shaun Gibson, solicitor specialising in IP and technology, Maclay Murray & Spens
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