The question in this case turns on whether a patent can be issued for a claimed invention designed for the business world. The patent application claims a procedure for instructing buyers and sellers how to protect against the risk of price fluctuations in a discrete section of the economy. Three arguments are advanced for the proposition that the claimed invention is outside the scope of patent law: (1) it is not tied to a machine and does not transform an article; (2) it involves a method of conducting business; and (3) it is merely an abstract idea. The Court of Appeals ruled that the first mentioned of these, the socalled machine-or-transformation test, was the sole test to be used for determining the patentability of a ‘‘process’’ under the Patent Act, 35 U.S.C. §101.

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   Petitioners’ application seeks patent protection for a claimed invention that explains how buyers and sellers of commodities in the energy market can protect, or 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 explain 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 patent examiner rejected petitioners’ application, explaining that it ‘‘‘is not implemented on a specific apparatus and merely manipulates [an] abstract idea and solves a purely mathematical problem without any limitation to a practical application, therefore, the invention is not directed to the technological arts.’’’ [Citation.] The Board of Patent Appeals and Interferences affirmed, concluding that the application involved only mental steps that do not transform physical matter and was directed to an abstract idea. [Citation.]

   The United States Court of Appeals for the Federal Circuit heard the case en banc and affirmed. * * * 

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   This Court granted certiorari. [Citation.] 

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   Section 101 defines the subject matter that may be patented under the Patent Act:

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title. 

   Section 101 thus specifies four independent categories of inventions or discoveries that are eligible for protection: processes, machines, manufactures, and compositions of matter. ‘‘In choosing such expansive terms… modified by the comprehensive ‘any,’ Congress plainly contemplated that the patent laws would be given wide scope.’’ [Citation.] Congress took this permissive approach to patent eligibility to ensure that ‘‘‘ingenuity should receive a liberal encouragement.’’’ [Citation.]

   The Court’s precedents provide three specific exceptions to §101’s broad patent-eligibility principles: ‘‘laws of nature, physical phenomena, and abstract ideas.’’ [Citation.] While these exceptions are not required by the statutory text, they are consistent with the notion that a patentable process must be ‘‘new and useful.’’ * * * 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.’’ [Citation.]

   The §101 patent-eligibility inquiry is only a threshold test. Even if an invention qualifies as a process, machine, manufacture, or composition of matter, in order to receive the Patent Act’s protection the claimed invention must also satisfy ‘‘the conditions and requirements of this title.’’ §101. Those requirements include that the invention be novel, see §102, nonobvious, see §103, and fully and particularly described, see §112. 

   The present case involves an invention that is claimed to be a ‘‘process’’ under §101. Section 100(b) defines ‘‘process’’ as:

process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material.

   The Court first considers two proposed categorical limitations on ‘‘process’’ patents under §101 that would, if adopted, bar petitioners’ application in the present case: the machine-or-transformation test and the categorical exclusion of business method patents.

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   Under the Court of Appeals’ formulation, an invention is a ‘‘process’’ only if: ‘‘(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.’’ [Citation.] * * * In patent law, as in all statutory construction, ‘‘[u]nless otherwise defined, ‘words will be interpreted as taking their ordinary, contemporary, common meaning.’’’ [Citation.] The Court has read the §101 term ‘‘manufacture’’ in accordance with dictionary definitions, [citation], and approved a construction of the term ‘‘composition of matter’’ consistent with common usage, [Citation.]

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   Adopting the machine-or-transformation test as the sole test for what constitutes a ‘‘process’’ (as opposed to just an important and useful clue) violates these statutory interpretation principles. Section 100(b) provides that ‘‘[t]he term ‘process’ means process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material.’’ The Court is unaware of any ‘‘‘ordinary, contemporary, common meaning,’’’ [citation], of the definitional terms ‘‘process, art or method’’ that would require these terms to be tied to a machine or to transform an article. * * *

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   This Court’s precedents establish that the machine-or-transformation test is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101. The machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible ‘‘process.’’

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   The machine-or-transformation test may well provide a sufficient basis for evaluating processes similar to those in the Industrial Age—for example, inventions grounded in a physical or other tangible form. But there are reasons to doubt whether the test should be the sole criterion for determining the patentability of inventions in the Information Age. * * *

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   It is important to emphasize that the Court today is not commenting on the patentability of any particular invention * * *. This [Information] Age puts the possibility of innovation in the hands of more people and raises new difficulties for the patent law. With ever more people trying to innovate and thus seeking patent protections for their inventions, the patent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles. Nothing in this opinion should be read to take a position on where that balance ought to be struck.

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   Section 101 similarly precludes the broad contention that the term ‘‘process’’ categorically excludes business methods. The term ‘‘method,’’ which is within §100(b)’s definition of ‘‘process,’’ at least as a textual matter and before consulting other limitations in the Patent Act and this Court’s precedents, may include at least some methods of doing business. [Citation.] * * *

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   Interpreting §101 to exclude all business methods simply because business method patents were rarely issued until modern times revives many of the previously discussed difficulties. [Citation.] At the same time, some business method patents raise special problems in terms of vagueness and suspect validity. [Citation.] The Information Age empowers people with new capacities to perform statistical analyses and mathematical calculations with a speed and sophistication that enable the design of protocols for more efficient performance of a vast number of business tasks. If a high enough bar is not set when considering patent applications of this sort, patent examiners and courts could be flooded with claims that would put a chill on creative endeavor and dynamic change.

   In searching for a limiting principle, this Court’s precedents on the unpatentability of abstract ideas provide useful tools. [Citation.] Indeed, if the Court of Appeals were to succeed in defining a narrower category or class of patent applications that claim to instruct how business should be conducted, and then rule that the category is unpatentable because, for instance, it represents an attempt to patent abstract ideas, this conclusion might well be in accord with controlling precedent. [Citation.] But beyond this or some other limitation consistent with the statutory text, the Patent Act leaves open the possibility that there are at least some processes that can be fairly described as business methods that are within patentable subject matter under §101.

   Finally, even if a particular business method fits into the statutory definition of a ‘‘process,’’ that does not mean that the application claiming that method should be granted. In order to receive patent protection, any claimed invention must be novel, §102, nonobvious, §103, and fully and particularly described, §112. These limitations serve a critical role in adjusting the tension, ever present in patent law, between stimulating innovation by protecting inventors and impeding progress by granting patents when not justified by the statutory design.

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   Even though petitioners’ application is not categorically outside of §101 * * *, that does not mean it is a ‘‘process’’ under §101. Petitioners seek to patent both the concept of hedging risk and the application of that concept to energy markets. [Citation.] Rather than adopting categorical rules that might have wide-ranging and unforeseen impacts, the Court resolves this case narrowly on the basis of this Court’s decisions in [citations], which show that petitioners’ claims are not patentable processes because they are attempts to patent abstract ideas. Indeed, all members of the Court agree that the patent application at issue here falls outside of §101 because it claims an abstract idea.

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   In light of these precedents, 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.’’ [Citations.] 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 pre-empt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea. 

   Petitioners’ remaining claims are broad examples of how hedging can be used in commodities and energy markets. * * * These claims attempt to patent the use of the abstract idea of hedging risk in the energy market and then instruct the use of well-known random analysis techniques to help establish some of the inputs into the equation. * * *

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   * * * The patent application here can be rejected under our precedents on the unpatentability of abstract ideas. * * *

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   The judgment of the Court of Appeals is affirmed.
   It is so ordered.