Background
Bernard Bilski and Rand Warsaw applied to the USPTO for a patent on a method of managing risk in commodities trading. Their claims described a process in which a commodity seller hedges price-risk by entering into fixed-rate transactions with consumers while simultaneously taking offsetting positions in the commodities market. The claims were drawn purely in terms of steps — there was no reference to a machine, computer, or any physical transformation of matter. The USPTO rejected the claims as not directed to patent-eligible subject matter under 35 U.S.C. § 101, and the Board of Patent Appeals and Interferences affirmed.
The Federal Circuit granted en banc review to address the fundamental question of what makes a process or method claim patent-eligible. The case attracted enormous attention because the answer would determine the fate not just of business methods but of software patents more broadly.
The Court’s Holding
The Federal Circuit affirmed the rejection, holding that Bilski’s claimed method was not patent-eligible. Writing for the en banc court, Chief Judge Michel held that the proper and definitive test for process patent eligibility is the machine-or-transformation test: a process is patent-eligible under § 101 if (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. Because Bilski’s claims were tied to neither a machine nor any physical transformation — they described only an abstract economic concept — the claims failed to satisfy § 101.
The court explicitly rejected the argument that a process claim could satisfy § 101 simply by being “useful, concrete, and tangible” (the State Street Bank test from 1998), and declined to categorically hold that all business methods are patent-ineligible. Instead, the machine-or-transformation test was declared the exclusive test for determining process patent eligibility. Multiple judges wrote separately — some urging a categorical exclusion of business methods, others warning that the test was too rigid and would sweep out legitimately patentable software and computer-implemented inventions.
Key Takeaways
- A claimed process must either (1) be tied to a particular machine or apparatus, or (2) transform a particular article into a different state or thing in order to be patent-eligible under § 101.
- The State Street Bank “useful, concrete, and tangible” test was overruled as the standard for process patent eligibility.
- Purely abstract economic methods and business concepts, untied to any machine or physical transformation, are not patent-eligible processes.
- Software and computer-implemented method claims that are truly tied to a specific machine or that transform data representing physical reality may still satisfy § 101.
Why It Matters
In re Bilski was one of the most significant Federal Circuit decisions on patent-eligible subject matter in decades. By overturning the permissive State Street Bank standard, the court put the patent system on a path toward narrowing the scope of patentable processes — particularly business methods and purely software-implemented claims.
The Supreme Court later affirmed the rejection of Bilski’s claims in Bilski v. Kappos (2010), but declined to adopt the machine-or-transformation test as the exclusive standard, calling it a “useful and important clue” rather than the definitive rule. That tension — between the Federal Circuit’s definitive test and the Supreme Court’s more flexible approach — set the stage for the ongoing § 101 battles that culminated in Alice Corp. v. CLS Bank (2014). For inventors, companies, and patent practitioners, Bilski marked the beginning of a new era of uncertainty about the patentability of software and computer-implemented business methods.