The patent application claims a procedure for instructing buyers and sellers how to protect against the risk of price fluctuations in a discrete section of the economy. Three arguments are advanced for the proposition that the claimed invention is outside the scope of patent law: 1 it is not tied to a machine and does not transform an article; 2 it involves a method of conducting business; and 3 it is merely an abstract idea. The key claims are claims 1 and 4. Claim 1 describes a series of steps instructing how to hedge risk. Claim 4 puts the concept articulated in claim 1 into a simple mathematical formula.
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The patent application claims a procedure for instructing buyers and sellers how to protect against the risk of price fluctuations in a discrete section of the economy. Three arguments are advanced for the proposition that the claimed invention is outside the scope of patent law: 1 it is not tied to a machine and does not transform an article; 2 it involves a method of conducting business; and 3 it is merely an abstract idea.
The key claims are claims 1 and 4. Claim 1 describes a series of steps instructing how to hedge risk. Claim 4 puts the concept articulated in claim 1 into a simple mathematical formula. The remaining claims explain how claims 1 and 4 can be applied to allow energy suppliers and consumers to minimize the risks resulting from fluctuations in market demand for energy. The Board of Patent Appeals and Interferences affirmed, concluding that the application involved only mental steps that do not transform physical matter and was directed to an abstract idea.
The case produced five different opinions. Students of patent law would be well advised to study these scholarly opinions. Chief Judge Michel wrote the opinion of the court. Signature Financial Group, Inc. Excel Communications, Inc. Three judges wrote dissenting opinions. She did not say that the application should have been granted but only that the issue should be remanded for further proceedings to determine whether the application qualified as patentable under other provisions.
This Court granted certiorari. Chakrabarty, U. Washington ed. See Le Roy v. Tatham, 14 How. Kalo Inoculant Co. Diehr, U. United States, U. Brogdex Co. Watson, F. See Parker v. Flook, U. Stevens, U. The Court of Appeals incorrectly concluded that this Court has endorsed the machine-or-transformation test as the exclusive test.
It is true that Cochrane v. Deener, 94 U. Gottschalk v. Benson, U. See F. But times change. Technology and other innovations progress in unexpected ways. But this fact does not mean that unforeseen innovations such as computer programs are always unpatentable. See id. Ag Supply, Inc. The machine-or-transformation test may well provide a sufficient basis for evaluating processes similar to those in the Industrial Age—for example, inventions grounded in a physical or other tangible form.
But there are reasons to doubt whether the test should be the sole criterion for determining the patentability of inventions in the Information Age. As numerous amicus briefs argue, the machine-or-transformation test would create uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals.
See, e. In the course of applying the machine-or-transformation test to emerging technologies, courts may pose questions of such intricacy and refinement that they risk obscuring the larger object of securing patents for valuable inventions without transgressing the public domain. The dissent by Judge Rader refers to some of these difficulties.
It is important to emphasize that the Court today is not commenting on the patentability of any particular invention, let alone holding that any of the above-mentioned technologies from the Information Age should or should not receive patent protection. This Age puts the possibility of innovation in the hands of more people and raises new difficulties for the patent law. With ever more people trying to innovate and thus seeking patent protections for their inventions, the patent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles.
Nothing in this opinion should be read to take a position on where that balance ought to be struck. Nor is it clear how far a prohibition on business method patents would reach, and whether it would exclude technologies for conducting a business more efficiently.
Under 35 U. In other words, by allowing this defense the statute itself acknowledges that there may be business method patents. This would violate the canon against interpreting any statutory provision in a manner that would render another provision superfluous. See Corley v. This principle, of course, applies to interpreting any two provisions in the U. Code, even when Congress enacted the provisions at different times.
Committee for Industrial Organization, U. This established rule of statutory interpretation cannot be overcome by judicial speculation as to the subjective intent of various legislators in enacting the subsequent provision. See supra, at 8—9. At the same time, some business method patents raise special problems in terms of vagueness and suspect validity.
See eBay Inc. MercExchange, L. The Information Age empowers people with new capacities to perform statistical analyses and mathematical calculations with a speed and sophistication that enable the design of protocols for more efficient performance of a vast number of business tasks. If a high enough bar is not set when considering patent applications of this sort, patent examiners and courts could be flooded with claims that would put a chill on creative endeavor and dynamic change.
See infra, at 12— Indeed, if the Court of Appeals were to succeed in defining a narrower category or class of patent applications that claim to instruct how business should be conducted, and then rule that the category is unpatentable because, for instance, it represents an attempt to patent abstract ideas, this conclusion might well be in accord with controlling precedent.
See ibid. These limitations serve a critical role in adjusting the tension, ever present in patent law, between stimulating innovation by protecting inventors and impeding progress by granting patents when not justified by the statutory design. Petitioners seek to patent both the concept of hedging risk and the application of that concept to energy markets. But in practical effect that would be the result if the formula for converting. In Flook, the Court considered the next logical step after Benson.
The applicant there attempted to patent a procedure for monitoring the conditions during the catalytic conversion process in the petrochemical and oil-refining industries.
Finally, in Diehr, the Court established a limitation on the principles articulated in Benson and Flook. Stickney, R. Weil, K. Ross, R. Jordan, Fundamentals of Corporate Finance — 8th ed. The concept of hedging, described in claim 1 and reduced to a mathematical formula in claim 4, is an unpatentable abstract idea, just like the algorithms at issue in Benson and Flook. Allowing petitioners to patent risk hedging would pre-empt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea.
Flook established that limiting an abstract idea to one field of use or adding token postsolution components did not make the concept patentable. These claims attempt to patent the use of the abstract idea of hedging risk in the energy market and then instruct the use of well-known random analysis techniques to help establish some of the inputs into the equation.
Indeed, these claims add even less to the underlying abstract principle than the invention in Flook did, for the Flook invention was at least directed to the narrower domain of signaling dangers in operating a catalytic converter. The patent application here can be rejected under our precedents on the unpatentability of abstract ideas. It may be that the Court of Appeals thought it needed to make the machine-or-transformation test exclusive precisely because its case law had not adequately identified less extreme means of restricting business method patents, including but not limited to application of our opinions in Benson, Flook, and Diehr.
The judgment of the Court of Appeals is affirmed. It is so ordered. In the area of patents, it is especially important that the law remain stable and clear. It would be possible to answer that question simply by holding, as the entire Court agrees, that although the machine-or-transformation test is reliable in most cases, it is not the exclusive test.
I agree with the Court that, in light of the uncertainty that currently pervades this field, it is prudent to provide further guidance. But I would take a different approach. For centuries, it was considered well established that a series of steps for conducting business was not, in itself, patentable.
Congress quickly responded to a Federal Circuit decision with a stopgap measure designed to limit a potentially significant new problem for the business community.
Following several more years of confusion, the Federal Circuit changed course, overruling recent decisions and holding that a series of steps may constitute a patentable process only if it is tied to a machine or transforms an article into a different state or thing.
The Court correctly holds that the machine-or-transformation test is not the sole test for what constitutes a patentable process; rather, it is a critical clue. Energy suppliers and consumers may use that method to hedge their risks by agreeing upon a fixed series of payments at regular intervals throughout the year instead of charging or paying prices that fluctuate in response to changing weather conditions.
The patent application describes a series of steps, including the evaluation of historical costs and weather variables and the use of economic and statistical formulas, to analyze these data and to estimate the likelihood of certain outcomes.
The opinion is less than pellucid in more than one respect, and, if misunderstood, could result in confusion or upset settled areas of the law. Three preliminary observations may be clarifying. First, the Court suggests that the terms in the Patent Act must be read as lay speakers use those terms, and not as they have traditionally been understood in the context of patent law.
But the opinion cannot be taken literally on this point.
Bilski v. Kappos
Bilski and Rand Warsaw filed a patent application on 10 April for a method of hedging risks in commodities trading via a fixed bill system. Such patent claims are often termed business method claims. Under fixed bill energy contracts, consumers pay monthly prices for their future energy consumption in advance of winter based on their past energy use. The monthly prices remain the same no matter how much energy they then use. Thus, consumers save money relative to others if, for example, a given winter is unusually cold and they use an unusually large amount of energy for heating. On the other hand, consumers pay more than others if a winter is unusually warm and their energy use is lower than average.
Bilski v. Kappos, 561 U.S. 593 (2010)
PDF version Syllabus NOTE: Where it is feasible, a syllabus headnote will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. The key claims are claim 1, which describes a series of steps instructing how to hedge risk, and claim 4, which places the claim 1 concept into a simple mathematical formula. The remaining claims explain how claims 1 and 4 can be applied to allow energy suppliers and consumers to minimize the risks resulting from fluctuations in market demand. The patent examiner rejected the application on the grounds that the invention is not implemented on a specific apparatus, merely manipulates an abstract idea, and solves a purely mathematical problem.
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