Bilski v. Kappos Software: What Is It?

Bilski v. Kappos makes it possible for business methods, processes, and software to qualify for patents. The term "Bilski v. Kappos software" refers to a 2010 Supreme Court case dealing with patents. Specifically, it dealt with whether processes like business methods and software can be patented. In the case, the Supreme Court ruled that Bilski's business method could not be patented. Their ruling opened up new ways to define whether or not "processes" are patentable.

Terms You Should Know

  • Machine or Transformation Test: 35 U.S.C. §101 deals with whether something is patentable. This test deals with the "process" you are patenting. Your process must either happen because of a machine or apparatus, or it must transform something into something else. The word "transformation" can apply to data.
  • Business Method: A unique way of doing business.
  • Bilski v. Doll: The original name of the Bilski v. Kappos court case.
  • Section 101 Patent Eligibility: The criteria the Patent Office uses to accept or reject patent applications. Many lawmakers think the language in Section 101 is ambiguous.
  • Patentable Subject Matter: The inventions that qualify for patents.

Background on Bilski v. Kappos

Bilski v. Kappos was a U.S. Supreme Court appeal case. The original case was about two people, Bernard Bilski and Rand Warsaw, trying to patent a business method, which was about risk management. The Patent Office used § 101 of the Patent Act to reject the business method. It was too abstract. Abstract ideas, laws of nature, and natural phenomena are not patentable. They are discovered, not created, and are not inventions.

In re Bilski

The United States Court of Appeals for the Federal Circuit (CAFC) did the appeal. The appeal is called In re Bilski, ruled in 2008. In re Bilski used the Supreme Court's "machine or transformation" test precedent. They also rejected Bilski's patent.

There were several reasons Bilski's method didn't meet the criteria. First, the court ruled it wasn't subject matter that could be patented. Second, the court ruled it didn't use a machine or apparatus.

The Board of Patent Appeals partially agreed. Bilski's method didn't meet patent criteria. The Court was wrong on one point, however: Patents don't have to be tied to a machine or apparatus. The court decision called this the "technological arts" test. The Board of Patent Appeals said no case law upheld that test.

The In re Bilski decision is important because it began a bigger conversation about patents. In re Bilski tried to define what was patentable more broadly than just addressing the Bilski method.

The State Street Bank Case

The CAFC went against a previous decision. The CAFC State Street Bank case ruled that you can't prevent business method patents. In State Street Bank & Trust Co. v. Signature Financial Group, Inc.(1998), the CAFC decision said something could be patented if it has a "useful, concrete, and tangible result."

The In re Bilski decision overturned the State Street Bank decision. In re Bilski put "machine or transformation" above "useful, concrete, and tangible." The United States Patent Office has used In re Bilski to reject patents.

The In re Bilski case went to the Supreme Court on appeal. The Supreme Court saw problems and contradictions in the ruling. Specifically, they questioned the method the Federal Court used to reach the ruling.

Why Is Bilski v. Kappos Software Important?

Bilski v. Kappos set down a new Supreme Court precedent about business method and software patents. Before this case, patenting business methods and software was difficult. Figuring out what methods and software were eligible for patents fell to lower courts. They didn't always agree.

The Supreme Court had not ruled on software and patents since 1981, in Diamond v. Diehr. In the 1981 case, the Supreme Court said that an abstract formula cannot be patented. When you have a computer use the formula to produce a result, you can patent that process.

The Bilski case dealt with several questions:

  • Did the Supreme Court make a mistake with "machine or transformation"?

The Supreme Court examined if "machine or transformation" limited too many possible patents. The decision relied on Bilski's method being too abstract to deserve a patent. The Court did not use the "machine or transformation" test. When they wrote this decision, they opened up more avenues for methods, including software, to be patented.

  • Does "machine or transformation" contradict Congress?

According to Congress, patents are supposed to protect " method[s] of doing or conducting business. " Some people felt "machine or transformation" went against Congress's intention.

What Did the Bilski Software Do?

The patent application was for a product that told buyers and sellers in a specific part of the economy how to deal with price fluctuation risks. The application said that this was an invention for people who deal with materials and products specifically in the energy market.

Key claims of the application:

  • Claim 1: the steps involved in hedging risk
    • The steps discuss the competing risks of provider versus consumer. The program takes into account the influences that drive price and tries to hedge the risk based on previous prices consumers have paid.
  • Claim 4: a mathematical formula for the steps in Claim 1

The Supreme Court Ruling

The Supreme Court's ruling in Bilski v. Kappos said business methods can be patented. Bilski's could not because it was too abstract. When the Supreme Court ruled Bilski v. Kappos, they also opened the doors to use that patent definition for software.

The In re Bilski case relied on previous Supreme Court cases. However, the nine Supreme Court justices agreed that In re Bilski did not interpret those decisions correctly. The "machine or transformation" test is not the only test to find if something is eligible for a patent. However, the court found that Section 273(b)(1) of the Patent Act acknowledges some business patents.

Justice Kennedy, in the majority opinion, wrote that "machine or transformation" is a good tool. However, it is not the only tool for deciding if something is patentable.

What §101 says about patent eligibility is just the beginning to figuring out if something can be patented. If something qualifies as a process, a machine, a composition of matter, or manufacture, it still has to satisfy what the Patent Act says.

  • §101 says the invention needs to be novel
  • §102 says it needs to be nonobvious
  • §103 says it needs to be described in full and with detail in the application

Abstract ideas are not patentable because:

  • They are used in multiple fields
  • Patenting an abstract idea would create a monopoly on that idea
  • They often use well-known ways of doing things in business and other fields
  • They aren't inventions

The Supreme Court was divided in several ways:

  • Conservative justices felt the "Information Age" means we need to update what is eligible for a patent
  • Liberal justices wanted to continue using centuries of previous patent precedent. Stevens, Sotomayor, Ginsburg, and Breyer felt that business methods could not be patented.

Why Software Is Important in Bilski v. Kappos

The court didn't officially rule on software patents in the Bilski decision. That doesn't mean software doesn't come into the equation. Eight of nine Supreme Court Justices agreed that you can patent some software. They did not discuss how to qualify that software.

Justice Stevens added Footnote 40 to his agreeing opinion. The footnote states that State Street Bank dealt with software patents. It also states that the State Street Bank ruling was correct. If software deals with doing business instead of a machine, that alone does not make it unpatentable.

The Supreme Court has ruled on software patents in the past. In both Gottschalk v. Benson and Parker v. Flook (both 1970s cases) the Supreme Court ruled against patenting the software methods. Though the 1981 Diamond v. Diehr decision partly changed precedent, the Bilski v. Kappos decision opens up possibilities for software patents far more.

Impact on Patent Applications

After the State Street Bank decision in 1998, patent applications for software and business methods increased sharply. In contrast, the CAFC ruling on In re Bilski in 2008 tried to make the requirements for patents on software and business methods more restrictive. Finally, the 2010 Bilski v. Kappos Supreme Court decision relaxed those requirements again, but it provided little guidance as to what should be considered patentable.

The U.S. Patent and Trademark Office (USPTO) was liberal with awarding software and business method patents in the early 2000s. In 2005, they received the Interim Guidelines for Patent Subject Matter Eligibility. These Interim Guidelines laid down the "machine-or-transformation" test.

Now, "machine or transformation" is no longer the only guideline. With the Bilski v. Kappos decision, the Supreme Court muddied the waters. The State Street Bank decision caused some confusion over patents. Bilski v. Kappos caused more.

These court decisions did not leave many answers about business method or software patents. What criteria should the USPTO or the courts use? The Supreme Court's Bilski ruling did not leave an answer.

The decision has had a wide impact. Within a short amount of time the Supreme Court voided the lower court's previous rulings about medical diagnostics.

The USPTO also issued information about how to figure out if a patent application is "abstract." Getting software or a business method as close to the "machine or transformation" criteria as possible is the best way. Make sure that process does not qualify as abstract by using machines or transformations in the patent application.

Similar Patent Decisions Abroad

Also in 2010, the European Patent Office (EPO) ruled in G0003/08 on software patents. This ruling says that software is still patentable under the same rules that the EPO has been using for two decades. Like Bilski v. Kappos, the EPO decision leaves questions about what counts as patent-eligible.

Seek Counsel

Bilski v. Kappos had quite an impact on software patents. In this case, the Supreme Court began a new set of rules for finding if software and business methods can be patented.

If you need help with software patents as related to theBilski v. Kappos ruling, you can post your question or concern on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.