The U.S. Supreme Court today handed down its much awaited Bilski v Kappos decision. The decision is available here [PDF].
Bilski’s patent application was directed to the management of fixed bill energy contracts, in which consumers pay monthly prices for their future energy consumption in advance of winter based on their past energy use. The patent specification, and the claims themselves, omitted any reference to a computer or other technological implementation of invention.
The U.S. Federal Circuit had previously decided that the “machine-or-transformation” test was the sole test for patentability of processes in the US. The “machine-or-transformation” test requires that there be the transformation of a physical article, or a least data representative of a physical article, or that the invention be performed by a particular machine (and not a general purpose computer) in order for patentable subject matter to exist. The software and IT industry feared that many U.S. software patents would fail this test, and that entire U.S. software patent portfolios could be invalid.
The U.S. Supreme Court decision overturns the Federal Circuit’s opinion. Whilst the “machine-or-transformation” test may be useful as an investigative tool, the Court has decided that the “process” category of patentable subject-matter should not be tied to this test only.
The claims of the Bilski patent itself were rejected as covering an unpatentable abstract idea, just like the algorithms at issue in the famous trilogy of U.S. Supreme Court decisions relating to the patentability of software inventions Gottschalk v Benson, Parker v Flook and Diamond v Diehr.
The “machine-or-transformation” test is certainly not dead. In the immediate aftermath of the U.S. Supreme Court decision, the U.S. Patent and Trademark Office has issued a Memorandum instructing U.S. Patent Examiners to continue to examine U.S. patent applications for compliance with the machine-or-transformation test as a tool for determining whether a process is patentable. If the machine-or-transformation test is not met, a patent applicant will need to argue why the invention is not drawn to an abstract idea. The U.S. Patent and Trademark Office is reviewing the Bilski v Kappos decision and will develop further guidelines for U.S. Examiners.
The U.S. Supreme Court decision means that business methods which are not implemented using technology are unlikely to be patentable, but that not all “processes” (and computer programs) need necessarily satisfy the “machine-or-transformation” test.
(The position of the U.S. Courts as to the patentability of business methods and software is now very similar to that of the Australian Courts, as set out in Grant v Commissioner of Patents  FCAFC 120. )