The Supreme Court on Monday rejected an effort to patent a business method, but offered no alternative to the prevailing standard, giving little clarity to companies seeking to protect such inventions.
The case involving a system for hedging against fluctuation in energy costs had been closely watched by a broad range of industries.
Some software and biotechnology companies wanted the definition of what can be patented to be broad because they license processes. Others, such as some financial institutions, wanted restrictions on business method patents to avoid getting sued.
The court did not offer an alternative to the currently limiting standard for patenting business methods, such as Amazon.com Inc's one-click purchases, leaving companies with no resolution on what future business methods could be protected.
The ruling itself was sort of holding the status quo, said Scott Bain, litigation counsel for the Software and Information Industry Association, whose 500 members include Adobe, Symantec and Oracle.
The decision is good for patent lawyers that represent business methods, he said. It leaves questions unanswered.
The case before the Supreme Court involved Bernard Bilski and Rand Warsaw, who founded a small Pittsburgh company called WeatherWise to sell services based on hedging methods.
Bilski and Warsaw had tried to patent the hedging method, which allows users to make fixed energy payments even if usage and energy prices vary. The U.S. patent office rejected the patent application in 2000, and the patent board upheld the rejection in 2006.
The U.S. Court of Appeals for the Federal Circuit, which specializes in patent cases, had rejected a patent on the hedging method in 2008 on the grounds that it did not involve a machine or result in the transformation of a material substance.
The Supreme Court upheld the appeals court decision to refuse the patent, but criticized the requirement that it involve a machine or transform a material substance -- or the machine or transformation test.
In the Supreme Court opinion, Justice Anthony Kennedy wrote: Today, the court once again declines to impose limitations on the Patent Act that are inconsistent with the Act's text.
The patent application here can be rejected under our precedents on the unpatentability of abstract ideas, he concluded.
The majority opinion did little to rein in business method patents, said Stuart Meyer, a patent lawyer with Fenwick and West.
The only bright line that we got out of today's ruling was that the machine or transformation test is not the talismanic test, he added.
Michael Jakes, who argued for Bilski, said he was disappointed by the decision to refuse the patent.
We are pleased, however, that the court rejected the Federal Circuit's very limiting machine-or-transformation test and confirmed that business methods are not excluded from patenting, said Jakes, with the law firm Finnegan, Henderson, Farabow, Garrett and Dunner LLP.
The Supreme Court case is Bilski v. Kappos, No. 08-964.
(Additional reporting by James Vicini, editing by John Wallace and Maureen Bavdek)