This morning, the Supreme Court decided the long-running Bilski case (PDF) on business method patents—a case with broad applicability to software patents. As expected, the Court struck down the Bilski patent itself as an unpatentable "abstract idea"—but it also said that business method and software patents can be legitimate.

The case began when one Bernard Bilski tried to patent "a method for managing the consumption risk costs of a commodity sold by a commodity provider." The application included some broad statistical algorithms for hedging risk, but then asserted broad ownership over the way that these principles could be implemented by others.

The Patent Office rejected the application on the grounds that it was not a tangible invention. Two federal courts have agreed, and the Supreme Court today concurred. Bilski's idea is an unpatentable abstract concept, not an "invention."

But the meat of the ruling concerns the broader patentability of similar claims. For years, the Patent Office has tried to rein in broad patents by limiting them to inventions that involve a machine or a transformation of one thing into another. In other words, broad "process" and algorithmic patents have been frowned on.

Recently, the Federal Circuit Court of Appeals (which handles patent appeals) tried to crack down on overbroad patents by claiming that the "machine or transformation" standard applied to all patents—a ruling that seemed to severely limit both business method and software patents.

In today's decision, the Supremes refused to accept the machine/transformation standard as the exclusive rule for patents. "Process" patents are still allowed, as "process" is one of the categories in the Patent Act.

"The Court is unaware of any ordinary, contemporary, common meaning of 'process' that would require it to be tied to a machine or the transformation of an article," wrote the court.

The same reasoning applies to business method patents, which can certainly count as a "process."

Many Bilski watchers hoped the court would uphold the "machine or transformation test" exclusively and put the kibosh on business method patents and on software patents. That didn't happen; in fact, the majority opinion says that "the machine-or-transformation test would create uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals."

"Machine-or-transformation" instead remains a valid patent test, but it's not the only one that can be used. Software patents and business method patents are still valid—but the Supremes did suggest that such intangible patents should be more difficult to get.

While saying that business method patents are allowed under the law, this "does not suggest broad patentability of such claimed inventions," said the opinion. And the court explicitly invited the Federal Circuit Court of Appeals to introduce further patent limitations.

Should have gone further

Justice Stevens, though concurring with the unanimous judgment, was disappointed that the court did not go further and strike down business method patents altogether. (Ginsburg, Breyer, and Sotomayor agreed with Stevens.)

"The Court correctly holds that the machine-or-transformation test is not the sole test for what constitutes a patentable process; rather, it is a critical clue. But the Court is quite wrong, in my view, to suggest that any series of steps that is not itself an abstract idea or law of nature may constitute a 'process'... The language in the Court’s opinion to this effect can only cause mischief. The wiser course would have been to hold that petitioners’ method is not a 'process' because it describes only a general method of engaging in business transactions—and business methods are not patentable."

"The primary concern is that patents on business methods may prohibit a wide swath of legitimate competition and innovation," he continued. "If business methods could be patented, then many business decisions, no matter how small, could be potential patent violations. Businesses would either live in constant fear of litigation or would need to undertake the costs of searching through patents that describe methods of doing business, attempting to decide whether their innovation is one that remains in the public domain."

By explicitly refusing to lay down any ground rules for software and business method patents, the Supremes did little to bring clarity to the issue of when and how such patents should be granted. Perhaps they should not be granted as often as they are, but what criteria and limitations should apply?

The Software Freedom Law Center, which supports open source licenses, lamented the ruling.

"The landscape of patent law has been a cluttered, dangerous mess for almost two decades," said Eben Moglen, Chairman of the Software Freedom Law Center. "The confusion and uncertainty behind today’s ruling guarantees that the issues involved in Bilski v. Kappos will have to return to the Supreme Court after much money has been wasted and much innovation obstructed."