Bernard Bilski and Rand Warsaw filed a patent application with the U.S. Patent and Trademark Office (PTO). The application sought patent protection for a claimed invention that explains how buyers and sellers of commodities in the energy market can hedge against the risk of price changes. The key claims are claims 1 and 4. Claim 1 describes a series of steps instructing how to hedge risk. Claim 4 puts the concept articulated in claim 1 into a simple mathematical formula. The remaining claims describe how claims 1 and 4 can be applied to allow energy suppliers and consumers to minimize the risks resulting from fluctuations in market demand for energy. The PTO rejected the patent application, holding that it merely manipulates an abstract idea and solves a purely mathematical problem. The U.S. Court of Appeals affirmed. Petitioners Bilski and Warsaw appealed to the U.S. Supreme Court. Issue Is the petitioners’ claimed invention patentable? Language of the U.S. Supreme Court Section 101 specifies four independent categories of inventions or discoveries that are eligible for protection: processes, machines, manufactures, and compositions of matter. The Court’s precedents provide three specific exceptions to Section 101’s broad patent-eligibility principles: laws of nature, physical phenomena, and abstract ideas. The concepts covered by these exceptions are part of the storehouse of knowledge of all men free to all men and reserved exclusively to none. Petitioners seek to patent both the concept of hedging risk and the application of that concept to energy markets. It is clear that petitioners’ application is not a patentable process. Claims 1 and 4 in petitioners’ application explain the basic concept of hedging, or protecting against risk. Hedging is a fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class. The concept of hedging, described in claim 1 and reduced to a mathematical formula in claim 4, is an unpatentable abstract idea. Allowing petitioners to patent risk hedging would preempt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea. The patent application here can be rejected under our precedents on the unpatentability of abstract ideas. Decision of the U.S. Supreme Court The U.S. Supreme Court held that the concept of hedging is an abstract idea that cannot be patented. 1.Is it often difficult for the U.S. Patent and Trademark Office to determine the patentability of claims in patent applications? 2.Do you think that it was obvious that hedging is an abstract concept that cannot be patented? 3.Does the patent system promote or detract from business innovation?