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Life Health > Running Your Business

High Court Rules on Business Patent Case

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The U.S. Supreme Court has ruled 9-0 against petitioners who tried to patent a commodity price hedging strategy, but the court says inventors may still be able to patent some business methods.

Justice Anthony Kennedy holds in an opinion discussing the case, Bernard Bilski et al. vs. David Kappos, Under Secretary of Commerce for Intellectual Property and Director, Patent and Trademark Office, that the inventors, Bernard Bilski and Rand Warsaw, cannot patent the hedging method because abstract ideas cannot be patented.

All 9 justices agreed with that argument.

Kennedy also writes in his opinion that Section 101 of the Patent Act – the provision of the act that describes the kinds of inventions that can be patented – “explicitly contemplates the existence of at least some business method patents.”

Under federal law, “if a patent-holder claims infringement based on a ‘method in [a] patent,’ the alleged infringer can assert a defense of prior use,” Kennedy says. “For purposes of this defense alone, ‘method’ is defined as ‘a method of doing or conducting business.’ … In other words, by allowing this defense, the statute itself acknowledges that there may be business method patents.

Although all 9 justices agreed with the conclusion that the Bilski hedging formula cannot be patented, only 4 of Kennedy’s colleagues — Chief Justice John Roberts Jr. and Justices Antonin Scalia, Clarence Thomas and Samuel Alito – have agreed with the sections of the opinion in which Kennedy suggests that some business methods can be patented.

Justices John Paul Stevens and Stephen Breyer each has written a concurring opinion stating that business methods cannot be patented. Breyer and Justices Ruth Bader Ginsburg and Sonia Sotomayor have joined in the Stevens opinion; Justice Antonin Scalia has joined in a part of the Breyer opinion that does not directly deal with whether business methods can be patented.


A patent is a government document that gives an inventor the right to profit from an invention for a specified period of time. Life insurers have applied for patents for inventions such as new product pricing methods, new application processing work allocation strategies, and new variable annuity administration systems in recent years.

Bilski and Warsaw, the inventors who filed the Bilski vs. Kappos suit, came up with a formula that energy suppliers and consumers can use to protect themselves against weather-related changes in energy demand.

A patent examiner rejected the application, saying the invention merely manipulated an abstract idea. The Board of Patent Appeals and Interferences and a 3-judge panel at the Federal Circuit Court of Appeals agreed with the patent examiner. The Federal Circuit appeals court decided that the 3-judge panel had used the wrong approach to reject the patent application, but that court found that the Bilski-Warsaw hedging formula failed the two-part test the court uses to decide whether an invention can be patented.

The full appeals court said a process is eligible to 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.”


Kennedy says the machine-or-transformation test is not in the Patent Act, and he says applying the test as an “exclusive test” could cause trouble with patenting software, medical diagnostic techniques or data compression applications.

Stevens acknowledges in his concurring opinion that someone patented a business method for creating a “plan for assurances on lives of persons from 10 to 80 years of age” in England in 1778.
But the 1778 life assurance patent appears to be the only business method patent issued in England during that era, and there is no indication that the patent was ever enforced, Stevens writes.

“For centuries, it was considered well established that a series of steps for conducting business was not, in itself, patentable,” Stevens writes in his opinion.

In recent years, the Federal Circuit appeals court has focused on testing to see if a process described in a patent application is tied to a particular machine or transforms an article into a different state or thing.

“Since Congress passed the 1952 [Patent Act], we have never ruled on whether the act authorizes patents on business methods,” Stevens says. “But we have cast significant doubt on that proposition by giving substantial weight to the machine-or-transformation test, as general methods of doing business do not pass that test.”


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