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In re Bilski

Case name: In re Bernard L. Bilski and Rand A. Warsaw
Parties: Bernark L. Bilski, Rand A. Warsaw (appellants)
Court: Court of Appeals for the Federal Circuit
Decision Date: October 30, 2008 (after sua sponte en banc review decision February 15, 2008)
Ruling: Affirmed
Opinion by: Michel (Newman (dissenting opinion), Mayer (dissenting opinion), Lourie, Rader (dissenting), Schall, Bryson, Gajarsa, Linn (concuring - Dyk), Dyk (concurring opinion), Prost, Moore)

The examiner rejected claims 1-11 as not patentable subject matter under 35 U.S.C. § 101. The claims were directed to a method of managing consumption risk costs of a commodity sold to consumers by providers at a fixed price by initiating a series of transactions between the provider and consumers at a first fixed rate, identifying market participants having a counter-risk position to the consumers, and initiating another series of transactions between the provider and the market participants at a second fixed rate. There was no requirement of any specific apparatus. The examiner rejected on the basis that there was no apparatus tie and no transformation, the invention merely manipulating an abstract idea/solving a mathematical problem, and thus, not directed to the technological arts. The BPAI found error, but affirmed on the basis that there was no transformation of physical subject matter.

Invention is essentially a method for hedging risk in the field of commodities trading.  Users of commodities are subject to risk of increases in demand for commodity, since such would increase the price and accordingly their costs.  Commodity producers are subject to risk when a drop in demand occurs since such would decrease their price and consequent sales revenue.  An intermediary commodity provider sells to users at a fixed price mediating the effect of a price increase due to demand.  Commodity provider purchases from producer at fixed price, mediating effect of price decrease due to fall off of demand.

Examiner rejected as not implemented on a specific apparatus, merely manipulating idea/solving mathematical problem, and thus not directed to technological arts.  Applicants admitted no specific apparatus was required.  BPAI held examiner incorrect as to technological arts test, but affirmed on lack of apparatus and lack of “transformation of physical subject matter from one state to another”. Also held that process as claimed did not produce “useful, concrete and tangible result”.  Thus, not patent eligible subject matter.

Lower Court Decision(s): Ex parte Bilski, BPAI, App. No. 2002-2257 re Pat. Appl. Ser. No. 08/833,892, Sepember 26, 2006, affirming examiner's rejection of claims 1-11. Bilski appealed.
Analysis of Appellate Decision:

Applicants' claims are not directed to patent-eligible subject matter. No dispute that Applicants’ invention was a process.  But not patent eligible if claims are merely “laws of nature, natural phenomena [or] abstract ideas”.  Diamond v. Diehr

Mental processes are not patent eligible.  Test is whether claims encompass fundamental principle itself or only a particular application thereof.  If the former, not patent eligible.  If the latter, patent eligible.  Test is 1) whether tied to particular machine or apparatus, or, 2) if a particular article is transformed or reduced to a different state, if no particular machine.  See Gottschalk v. Benson, 409 U.S. 63, 70 (1972)  Reason is that these two limits do not preempt all uses of a fundamental principle.  Whether novel or non-obvious is irrelevant to section 101 patent eligibility.

Freeman Walter Abele test inadequate.  That is, is it an algorithm, and, if so, then is the algorithm applied to physical elements or process steps.  State Street test of whether the transformation constitutes a useful, concrete and tangible result also found inadequate.

Machine or transformation test affirmed as only applicable test.  No technological arts test.

Principal Cases Considered: State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed.Cir. 1998); AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed.Cir. 1999); Diamond v. Diehr, 450 U.S. 175, 185 (1981).
Concurring/Dissenting Opinions:

Dyk/Linn: Only processes related to new manufactures (including machines and compositions of matter) should be patentable

Newman: Technology has led to many new processes, such as electronic and photonic processes that lack physical matter.  Computer programs are patent eligible (Benson).   Newman would rely on Flook/Diamond v. Chakrabarty and would use “useful, concrete and tangible result” test. The result can include numbers. Process is an independent category of patentable invention and does not need to be tied to an apparatus or transformation.  U.S. patent right never limited to manufactures. Would require patentability on novelty and non-obviousness to be required for any claim even if 101 is asserted.

Mayer: Would overrule State Street and AT&T and hold no business method eligible for patent protection and dissents specifically from the fact that this was not done.  Supports technological arts rejection.

Rader: Would reject on basis that claims are merely an abstract idea, but dissents because majority disrupts settled law.  Would follow Diehr that laws of nature, natural phoomena and abstract idease are not eligible, and the claims of Bilski are such.  Would use "useful, concrete and tangible result" test.

Appeal Taken: Y, writ of certiorari granted by U.S. Supreme Court as Bilski v. Doll, June 1, 2009
Result on AppealThe long-awaited Bilski decision has now come down from the Supreme Court (June 28, 2010). Although the Federal Circuit decision that Bilskiís invention was not patentable was affirmed, the Supreme Court found that the test used by the Federal Circuit, while useful, was not determinative of whether an invention meets statutory patentable material requirements. The machine or transformation test was found by the Supreme Court to be useful in such determinations, but not the ultimate bright line test.

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Williamson Intellectual Property Law, LLC
1870 The Exchange, Suite 100 - Atlanta, Georgia 30339