The proper subject matter for a patent is defined by section 101 of the Patent Act as "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof." The meaning of the word "process" in that definition has become an intense controversy, with consequences for mutual funds, the software industry, financial risk management, biopharm research, and beyond.
Business Method Patents
The controversy over process-as-subject-matter entered its modern phase in 1998 with a U.S. Circuit Court decision in State Street Bank v. Signature Financial Group. The Federal Circuit upheld a patent for a way of processing business data that would assist a single administrator in operating several distinct mutual funds. This was known as the hub-and-spokes method, and it remains to this day critical to the mutual fund industry. The court said that this was a patentable process simple because it produced a "useful, concrete, and tangible result."
The State Street decision came to be regarded not only as a green light for business method patents but also -- given the Federal Circuit's emphasis on the "transformation of data" involved in the hub-and-spoke system -- a green light for software patents. In 1999, the same Circuit Court decided a case dealing with software more directly, AT&T; Corp. v. Excel Communications and said explicitly that "computer-based programming constitutes patentable subject matter."
But the light for a lot of process-based patents that seemed so green at the turn of the century has since turned yellow. In June 2010, the U.S. Supreme Court rejected a patent for a process for hedging against energy commodity price increases. Four of the justices indicated that they would like to have used this case to create a general rule against business method patents. But four falls short of a majority, and Bernard Bilski's patent was rejected only with the help of the swing justice, Anthony Kennedy, whose views seemed to apply only to the specific facts of the Bilski case. So business methods, as a variety of process, remain uncertain legal terrain as patentable subject matters. They are patentable only insofar as they constitute something more than mere "abstract ideas."
In March 2012, the U.S. Supreme Court found that a certain process used to treat autoimmune diseases through the use of thiopurine drugs is not patentable. Since different patients metabolize the drugs differently, doctors sometimes check the metabolites in the bloodstream at periodic intervals. This lets them know that they aren't either over- or under-medicating the patient. But that process -- the regular checks for metabolites -- is not patentable, not because it is abstract (it isn't) but because the claim if allowed would preempt the "use of a natural law."
The use of the patent act's reference to "process" as a form of appropriate subject matter for a patentable invention has become quite confused and controversial. Processes are still in principle patentable, but as the Supreme Court said in the Bilski case, "the meaning of 'process' [at law] is narrower than its ordinary meaning."