With the hype surrounding President Barack Obama’s first Supreme Court nomination reaching a fever pitch, it may be time to step back from confirmation politics and consider an actual case that the would-be nominee will face next fall. Intellectual property law may not have the mainstream appeal of sexy constitutional law topics like gay marriage and abortion, but the potential business implications of the Court’s recent grant of certiorari are huge.

Section 35 U.S.C. 101 provides that the inventor of “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof” may obtain a U.S. patent. For some time now, this reference to process has been interpreted to justify business method patents, which Wikipedia simply defines as “a class of patents which disclose and claim new methods of doing business.” On June 1, the Supreme Court granted a petition for writ of certiorari in In re Bilski that may well determine the future of business method patents.

There are five elements of patentability: (1) eligible subject matter, (2) novelty, (3) utility, (4) nonobviousness, and (5) disclosure. As cited above, Section 101 provides that both processes and products qualify as patentable subject matter. In Bilski, the U.S. Court of Appeals for the Federal Circuit employed the “machine or transformation” test for patentable subject matter. This historic test has been used since the 19th century. However, in 1998′s State Street Bank decision, the Federal Circuit held that a business method was patentable subject matter so long as it had practical application and produced a useful, tangible result. Under this useful, concrete, and tangible result test for patentable subject matter many business method patents were registered. Now, a mere ten years later in Bilski, the Federal Circuit has changed course, holding that “those portions of our opinions in State Street . . . relying solely on a ‘useful, concrete and tangible result’ analysis should no longer be relied on.” While this does not exactly sound the death knell for business method patents, many have suggested that the ruling “appears to hold patent-ineligible many business-method patents granted in the last decade.”

Following the Bilski ruling, the U.S. Patent and Trademark Office, as well as many federal district courts, have narrowed the scope of patentable subject matter, rejecting business method claims that may have succeeded under the old test. For example, in a March 26, 2009 case in the Federal District Court for the Northern District of California, the court rejected the assertion of a pre-Bilski patent for a method of detecting fraudulent credit card transactions. The method relied on the manipulation of credit card numbers, and the court reasoned that “[e]ven if the court were to hold that ‘manipulation’ suffices to effect a ‘transformation,’ the question would remain whether either claim transforms an ‘article’—i.e., any physical object or substance, or an electronic signal representative of any physical object or substance . . . . A credit card number is not a physical object or substance . . . .” The court closed with the observation that “[t]he closing bell may be ringing for business method patents, and their patentees may find they have become bagholders.”

P.R.

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