In Gottschalk v. Benson, the Supreme Court noted that the transformation and reduction of an article to a different state or thing is a clue to the patentability of a process claim that does not include particular machines (409 U.S. 63 (1972)). The Supreme Court, however, did not intend this to be the sole test for determining patent-eligibiity and in June 2010 in Bilski v. Kappos reversed the Federal Circuit's holding that the "machine-or-transformation" test was the sole test for determining patent-eligibility. Instead the Supreme Court characterized the test as merely a useful tool (130 U.S. 3218 (2010)).

Notably, the Supreme Court in Bilski:

For more on the Supreme Court's patent-eligibility test for computer-implemented business methods, see Practice Note, Intellectual Property Rights: The Key Issues: Box, Patenting Business Methods.

Recent Federal Circuit cases illustrate the challenge in determining patent-eligibility for computer-implemented business methods.

In CLS Bank International v. Alice Corp., CLS Bank filed suit against Alice Corporation seeking a declaratory judgment that Alice's patents for a computerized trading platform for exchanging financial obligations where a trusted third party settles obligations between two parties to eliminate the risk that only one party's obligations will be paid were invalid, unenforceable and not infringed.

A divided panel of the Court of Appeals for the Federal Circuit held that Alice's asserted method, system and product claims cover patent-eligible subject matter. The majority concluded that when, after considering all of the claim limitations, it is not manifestly evident that a claim is directed to a patent-ineligible abstract idea, that claim cannot be deemed invalid under Section 101. In this case, the Federal Circuit concluded that the asserted claims include specific computer-implemented limitations that appear to cover the practical application of a business concept in a specific way.

On October 9, 2012, the Federal Circuit granted CLS Bank's petition for a rehearing en banc and vacated its earlier decision. The Federal Circuit asked the parties to file new briefs addressing:

On February 8, 2013, the Federal Circuit heard oral argument on the rehearing en banc.

For more information on this case, see Practice Note, In Dispute: CLS Bank International v. Alice Corporation.

In Wildtangent, Inc. v. Ultramercial, LLC, Ultramercial, LLC sued Wildtangent, Inc. and Hulu, LLC for infringing its patent covering a method for distributing content over the internet that allows users to view copyrighted material for free if they watch certain sponsored advertisements. The main issue in this case is what is the permissible level of abstractness for a computer-implemented invention to be patent-eligible. Specifically, whether the claimed computer-implemented method is a particular application of an abstract idea, which is patent-eligible, or is merely a patent-ineligible abstract idea.

The Federal Circuit reversed the district court's decision that the asserted claims are not patent-eligible and noted the difficulty it and the Supreme Court have had in providing a precise formula or definition for an abstract idea. However, the Federal Circuit refused to further define an abstract idea beyond recognizing that it should be so manifest as to override the broad statutory categories of eligible subject matter under Section 101. It further stated that although abstract ideas are not eligible for patent protection, the application of an abstract idea to a new and useful end is patent-eligible subject matter. In this case, it held that Ultramercial's invention is not an abstract idea because it:

For more information on this case, see Practice Note, In Dispute: Wildtangent v. Ultramercial.

Both the Supreme Court and Federal Circuit have refrained from articulating any bright line test to determine when computer-implemented inventions are patent-eligible under Section 101, making this determination challenging.

The Supreme Court's March 20, 2012 decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc. sets out the court's current approach to the law of nature exception to patent-eligible subject matter.

In Mayo v. Prometheus, Prometheus sued Mayo for infringing certain claims of two patents covering a method of optimizing the efficacy of treating a patient suffering from certain autoimmune diseases. The main issue was whether a method that uses certain individualized drug metabolite measurements based on a law of nature to inform the calibration of the patient's drug dosage is patent-eligible subject matter.

In its decision, the Supreme Court reversed the Federal Circuit's decision that the method covered patent-eligible subject matter. It held that the claimed method, correlating drug metabolites in the body to determine the efficacy or toxicity of the drug, is not eligible for patent protection because:

The Court further held that where a law of nature is concerned, the claimed invention must do more than simply state the law of nature and add the words, "apply it." The claimed invention must be limited to a particular application of the natural law. The Supreme Court also noted:

For more information on Mayo v. Prometheus, see Practice Note, In Dispute: Mayo Collaborative Services v. Prometheus Laboratories.

In the Myriad Genetics litigation, the ACLU, on behalf of medical organizations, researchers, genetic counselors and patients, sued Myriad Genetics, among others, challenging the patentability of certain composition of matter and method claims relating to human genetics. The main issue is whether isolated human gene sequence claims and diagnostic method claims using certain human gene sequences are eligible for patent protection under Section 101.

The US District Court for the Southern District of New York ruled in favor of the plaintiffs, holding the challenged claims invalid. The Federal Circuit affirmed-in-part and reversed-in-part, holding that the claims concerning:

The plaintiffs filed a petition for a writ of certiorari with the Supreme Court, which the Supreme Court granted for the limited purpose of vacating the Federal Circuit's decision and remanding the case for reconsideration in light of the Court's Mayo decision. On remand, the Federal Circuit reached the same conclusion as it did in its earlier decision.

In its analysis, the majority noted that for the isolated DNA molecule claims, which are composition of matter claims, the Court's Mayo decision does not control and Section 101 of the Patent Act expressly authorizes compositions of matter to be patent-eligible subject matter.

Therefore, according to the majority, the issue of patent-eligibility turns on whether the claims cover products of nature, which the majority concluded they do not. The majority noted the differences between the naturally occurring DNA molecule and the claimed isolated DNA molecules, which are cleaved from the larger chromosomal DNA molecules, and concluded that they are markedly different. Based on this analysis, the majority determined that these claims cover patent-eligible subject matter. The majority also noted that isolated DNA molecules have been the subject of patents issued by the US Patent and Trademark Office for almost 30 years.

Regarding the diagnostic method claims, the Federal Circuit concluded that the method of:

The plaintiffs filed another petition for a writ of certiorari, which the Supreme Court granted on November 30, 2012. The Supreme Court will hear oral arguments on April 15, 2013.

For more information on Myriad, see Practice Note, In Dispute: Ass'n for Molecular Pathology v. Myriad Genetics.