Patenting Business Methods and Software in the U.S.

A little over a year ago the United States Supreme Court issued its decision in Bilski v. Kappos. The critical question presented to the Court for consideration was whether the Federal Circuit erred by creating the so-called “machine or transformation” test, which requires a process to be tied to a particular machine or apparatus, or transform an article into a different state or thing, in order to be patentable subject matter. The Supreme Court held that the machine-or-transformation test is not the sole test for patent eligibility under §101, but rather that it was an important clue, thereby overruling the Federal Circuit who had earlier ruled that the machine or transformation test was the singular test to determine whether an invention is patentable subject matter.

But what practical effect did the Supreme Court ruling in Bilski v. Kappos have? Truthfully, not much at least in terms of the day to day approach of patent attorneys and the U.S. Patent and Trademark Office.  Certainly, the decision was important in that it preserved the patentability of at least some business methods and preserved the patentability of software, both of which continue to remain patentable in the United States.  What has transpired since the Supreme Court’s decision, however, is not much different, if at all different, than what happened day-to-day prior to the decision.

While the machine-or-transformation test is now only an important clue, it really has become a safe harbor.  Satisfy the machine-or-transformation test announced by the Federal Circuit and you have a patentable invention.  Failure to satisfy the machine-or-transformation test and you may have a patentable invention, but neither the Patent Office or any court has yet found an invention that failed the machine-or transformation test to be patentable.

To satisfy the machine-or-transformation test the claimed process must:

  1. be tied to a particular machine or apparatus (machine implemented); or
  2. particularly transform a particular article to a different state or thing.

Any method claim that does not require machine implementation or does not cause a transformation will fail the test and will be rejected under § 101.  The importance of this from a practical standpoint is that business methods not tied to a machine are going to be rejected under § 101 and the rejection will be difficult, if not impossible, to overcome.


Business methods not tied to a machine will experience extreme difficulty because of the way “transformation” is defined.  “Transformation” of an article means that the “article” has changed to a different state or thing, as with a product or composition that has been created using a manufacturing method. Changing to a different state or thing to qualify as “transformative” usually means more than simply using an article or changing the location of an article.  Purely mental processes are likewise not considered an eligible transformation. Still further, mathematical manipulation is not a transformation, but transformation of electronic data has been found to be transformative when the nature of the data has been changed such that it has a different function or is suitable for a different use.  Typically when electronic data has been changed sufficiently to satisfy transformation there will be some machine tie as well.

In its decision the Supreme Court did underscore that the text of § 101 is expansive, specifying four independent categories of inventions eligible for protection, including processes, machines, manufactures, and compositions of matter. The Court also made clear that business methods are not categorically outside of § 101’s scope, stating that a business method is simply one kind of method that is, at least in some circumstances, eligible for patenting under § 101. As a result, the Patent Office has reminded patent examiners that § 101 is not the sole tool for determining patentability; where a claim encompasses an abstract idea, sections 102, 103, and 112 will provide additional tools for ensuring that the claim meets the conditions for patentability.  Nevertheless, patent examiners continue to issue 101 rejections.

As the Court made clear in Bilski:

The § 101 patent-eligibility inquiry is only a threshold test. Even if an invention qualifies as a process, machine, manufacture, or composition of matter, in order to receive the Patent Act’s protection the claimed invention must also satisfy “the conditions and requirements of this title.” § 101. Those requirements include that the invention be novel, see § 102, nonobvious, see § 103, and fully and particularly described, see § 112.

Examiners have been encouraged by the Patent office to avoid focusing on issues of patent-eligibility under § 101 to the detriment of considering an application for compliance with the requirements of §§ 102, 103, and 112, and should avoid treating an application solely on the basis of patent-eligibility under § 101 except in the most extreme cases.  Yet, patent examiners continue to wield 101 as a sword even when the specification clearly has support for a machine and even when claims are tied to a computer implemented process.  Thus, it is absolutely critical that in business method cases, as well as in software cases, the overall architecture of the computer systems employed to carry out the process steps are articulated both generally and with a degree of specificity.

Long gone are the days that a naked business method (i.e., a method comprising of steps that might be practiced without the use of a machine to facilitate) might have been patentable. Indeed, the Federal Circuit has been vindicated because in order to be patentable a process claim really must pass the machine-or-transformation test.  From an intellectual standpoint the test does make sense because it is intended to ensure that the process is limited to a particular practical application.  The test also seeks to guarantee that the process is not simply claiming an abstract idea, a mental process or substantially all practical uses of a law of nature or a natural phenomenon.

For those with business method inventions it is critical to understand that the mere presence of a machine within a process claim or a transformation is not necessarily sufficient to pass the machine-or-transformation test.  When a machine is present in a process claim or transformation has been identified, it must be further determined that the claim is tied is to a particular machine or the particular transformation is of a particular article.

Additionally, the particular machine or particular transformation must meet two corollaries to be patentable subject matter according to the Patent Office. First, the use of the particular machine or transformation of the particular article must impose a meaningful limit on the claim’s scope. A machine tied only to a particular field-of-use limitation would not be sufficient.  The reason a field-of-use limitation is not acceptable in and of itself is that such a limitation merely indicates that the method is for use in a particular environment, such as “for use with a machine” or “for transforming an article.”  This would not require that the machine implement the method or that the steps of the method cause the article to transform.

Second, the use of the particular machine or the transformation of the particular article must involve more than insignificant “extra-solution” activity. Extra-solution activity is activity that is not central to the purpose of the method invented. If the machine or transformation is only present in a step that is only insignificant extra-solution activity, the claim fails the machine-or-transformation test, despite the presence of a machine or a transformation in the claim.   For example, a method untied to a machine or without transformation of an article would fail the machine-or-transformation test if the the only link to a machine were to use e-mail to communicate results of a process.

At its core, the Supreme Court in Bilski reaffirmed Diehr’s holding that while an abstract idea, law of nature, or mathematical formula could not be patented, an application of a law of nature or mathematical formula to a known structure or process may well be deserving of patent protection. Unfortunately for Bilski, the claims were said to be drawn to an “abstract idea” despite the fact that they included steps drawn to initiating transactions. The claim specifically found to be abstract and, therefore, not patentable was:

1. A method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of:

(a) Initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said consumer;

(b) Identifying market participants for said commodity having a counter-risk position to said consumers; and

(c) Initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions.

The Supreme Court did not give us much to go on regarding why this claim was abstract, just that it was.  The Court merely said that the concept of hedging was an unpatentable abstract idea akin to an algorithm.  Allowing a patent claim to cover risk hedging would preempt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea.  Whether that is correct or not is of little consequence, it was how the Supreme Court viewed the matter.

The day after deciding Bilski, the Supreme Court denied certiorari in Ferguson v. Kappos, while vacating and remanding two other Federal Circuit section 101 cases. The denial of certiorari left intact the rejection of all of Ferguson’s claims. Although the Federal Circuit had applied the machine-or-transformation test to reject Ferguson’s process claims, the Patent Office treats the Supreme Court’s disposition of Ferguson as a tacit statement by the Supreme Court that the Ferguson claims ran afoul of the abstract idea exception.  That is not technically an accurate statement of law, but it does hold some logical basis.  If the Supreme Court thought it possible that Ferguson was patentable it would have seemed logical that they would have remanded the case to the Federal Circuit.

Regardless of whether the Supreme Court’s failure to take Ferguson can really be a useful interpretation tool, the Patent Office holds the view that the Ferguson claim is an unpatentable abstract idea.  A representative Ferguson claim is:

1. A method of marketing a product, comprising:

Developing a shared marketing force, said shared marketing force including at least marketing channels, which enable marketing a number of related products;

Using said shared marketing force to market a plurality of different products that are made by a plurality of different autonomous producing company [sic], so that different autonomous companies, having different ownerships, respectively produce said related products;

Obtaining a share of total profits from each of said plurality of different autonomous producing companies in return for said using; and

Obtaining an exclusive right to market each of said plurality of products in return for said using.

So where does this leave us?  We know that that Supreme Court believed the Bilski claim to be abstract because it was similar to an algorithm and algorithms are not patentable.  We also know that disembodied business methods are not patentable, but a business method that is tied to a computer implementation can be patented.  So the take-home is this:

  1. To get a patent on business method you will need to have it tied to a machine.
  2. Merely reciting a machine is not enough to patent a business method, the tie to the machine must be real, integral to the process and explained in detail.
  3. Computer implemented methods are patentable, but merely reciting a computer to perform the method is insufficient.
  4. When dealing with computer implemented methods, whether they be characterized as business method patents or straight software, there will need to be discussion of the computer technologies that are employed to carry out the process to the desired result.

In other words, the way to view inventions in this space is as a system cooperatively working toward a goal.  A computer architecture should be defined, which will make the invention real and tangible, giving it the maximum chance to be patented.


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Join the Discussion

2 comments so far.

  • [Avatar for patent enforcement]
    patent enforcement
    July 25, 2011 10:26 pm

    Some have opined that patent reform is the answer in combating shaky business method patents, but I’m not sure that I agree. Instead, a more feasible solution may lie in waiting for the courts to more fully develop and apply presently-evolving law via patent litigation. As time passes, the various courts will undoubtedly improve upon the currently-vague “abstract idea” standard articulated in Bilski, and perhaps some of the more “abstract” inventions will gradually be weeded out.

  • [Avatar for Just visiting]
    Just visiting
    July 18, 2011 04:58 pm

    I wrote this on June 30th … just a few days after the decision:

    “Funny … I’ve been waiting for this decision for months and months and months, and now that it is out — it’s like ho-hum … a pretty inconsequential decision by SCOTUS.”

    I still stand by that statement.

    “neither the Patent Office or any court has yet found an invention that failed the machine-or transformation test to be patentable”
    How about Research Corp v. Microsoft?

    “3.Computer implemented methods are patentable, but merely reciting a computer to perform the method is insufficient.” “Satisfy the machine-or-transformation test announced by the Federal Circuit and you have a patentable invention.”
    Which is it? Although the USPTO may forget that a computer is a machine, it really is a machine.

    Anyway, from where I’m sitting, Bilski changed little.