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The Bilski case: Significance and Impact on patent applications

The Bilski case is one of the most talked about cases in the patent world. There have been countless articles, follow-ups and discussions on the case since the judgment was made. Modern patent applications are granted, drafted and approved based on the guidelines issued after the Bilski final judgment.

Why was the Bilski case important? The Bilski was important because it was the first time since 1981 (Diamond vs Diehr) that the Supreme Court gave a ruling about whether or not a certain patent was valid patentable subject matter (laws of nature, mathematical formulae and algorithms were ruled not patentable in the Diamond vs Diehr case). So what was the case about? Bilski’s patent application was formulated around a hedging formula for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price. So what is hedging? Hedging is an investment position used to reduce any substantial losses/gains suffered by an individual or an organization. The commodity of interest was energy, the commodity providers were transmission distributors and the consumption risk was a weather related price risk. The consumers would be able to initiate a transaction with the distributor to pay a fixed price based on his history of bills and on the hedging formula, which would in turn protect him form large bills that may be weather related, for example using the heater for prolonged periods during the winter. However if the bill was below the fixed price he would be at a loss.

Why did the court reject it? The court rejected it because they believed that the patent was a method claim based on an abstract idea called hedging and that it instructed the use of well-known random analysis techniques to help establish some of the inputs into the equation. An abstract idea cannot be patented. A method claim would have to pass a MOT (machine or transformation) test to see whether the claimed method is tied to a particular machine or apparatus or if it transforms a particular article to a different state or thing. Bilski’s claim was tied neither to any machine nor to any apparatus to derive the result nor did it cause transformation of any physical object from one state to another and hence was unpatentable subject matter. However, the court also stated that the machine or transformation criterion was not the only thing that would have to be taken into consideration and merely relating an operation to a machine or the merely performing a step on a machine was not enough. Claims not directed to the application of a law of nature and merely statements of a general concept are too not eligible.

What impact did the judgment have? The judgment influenced software and business methods. Business and software methods now have to pass the MOT test and both are merely abstract ideas which in most cases, do not involve transformation of a physical object from one state to another. Moreover, the judgment invalidated the 1998 State Street Bank v. Signature Financial Group case, which held that a practical application of an algorithm or formula to produce “useful, concrete and tangible result” was sufficient to constitute patentable subject matter, which facilitated numerous software patents. Thus, the MOT invalidates software patents that are characterized by broad claims adding insignificant post solution activity.

Has the judgment stifled software and business methods? If the inventor could show that, his software or business method does involve the use of a machine and involves a physical transformation, he can be granted a patent. On the bright side, the court decision may have paved the way to software inventions and business ideas that may change and revolutionize our physical reality and not some domain that is of no consequence to us and besides “An invention has to make sense in the world it finishes in, not in the world it started.” -Tim O’Reilly.
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