Why the Bilski decision matters in Australia

Background
In 2009 more than 2,200 patent applications were filed directly in the United States by Australian entities, while nearly 1,500 Patent Cooperation Treaty (PCT) applications designating the United States were filed by Australian entities. These figures reflect that Australian entities are users of the US patent system and target the United States as a key market. In figures recently published by the World Intellectual Property Organisation, Australia had the third-highest ranking in the PCT conversion ratio table for 2009. A high conversion rate implies that a large proportion of Australian applicants file a PCT application after filing a patent application at the Australian Patent Office, reflecting Australian applicants’ focus on overseas markets, including the United States. 

The United States is an important market for many Australian companies. Gaining a foothold in the United States provides Australian companies with access to one of the largest consumer markets in the world, as well as to capital on a scale that is unimaginable in Australia.

The Australia-US Bilateral Free Trade Agreement, which came into effect on 1st January 2005, has supported some sectors of Australian business in accessing the US market and in expanding linkages with the US economy and US business practice.

For an innovative Australian company with a majority of its value residing in intangibles, particularly intellectual assets, the availability of strong patent rights is essential to gain a competitive advantage against incumbent competitors, especially in a mature market such as the United States. Significant developments in US patent law which may change the patent landscape and the validity of patents owned by Australian companies in the United States are therefore relevant.

The Bilski decision in brief
On 28th June 2010 the US Supreme Court delivered its decision in Bilski v Kappos, a case in which the court considered whether a method of hedging risks in commodities trading was “patentable subject matter”. This decision dealt with the fundamental issue of where the dividing line lies between patentable technologies and unpatentable abstract ideas.

The Supreme Court rejected Bilski's claims, stating that they represented an improper attempt to claim an abstract idea. However, in reaching this decision, the court affirmed that the scope of the term “process” appearing in US patent law is broad and may encompass any method – including those implemented using computer software and even some business and financial processes. Such methods will be eligible for patent protection provided that they are defined in sufficiently concrete terms that they are limited to identifiable fields of human endeavour. However, methods expressed in terms that are so abstract as to monopolise all possible uses of a process or algorithm are not patentable.

The Supreme Court also rejected the “machine or transformation" test as the sole test for determining patent eligible subject matter under 35 USC 101, considering it to be a more restrictive test for patentability than had previously been applied.

Consequences for Australian innovators
The US Supreme Court decision is positive for innovative Australian companies utilising the US patent system. Had the court endorsed the “machine or transformation" test as the exclusive test for patent eligibility under 35 USC 101, this would have resulted in existing patents held by Australian companies being rendered invalid, potentially wiping out the value of a substantial proportion of the intangible intellectual assets of such companies.

The decision confirms the availability of patent rights for processes generally and does not exclude business processes and methods. For those Australian companies that hold patent rights in the United States directed to or including processes such as business processes or methods, this decision should provide some comfort about the value of their assets and the enforceability of these patents. For Australian companies which are developing innovative processes, including business processes, and which are targeting the United States, this decision supports a patenting strategy as part of the company’s intellectual asset management.