Chapter 8: Patent Protection of Software:
Statutory Subject Matter in the
Supreme Court and the Federal Circuit
D. Statutory Subject Matter in Computerized
Methods of Doing Business (Continued)
Statement of Rep. Howard L. Berman
Upon Introduction of H.R. 5364, the Business
Method Patent Improvement Act of 2000 (Oct. 3, 2000)
Mr. Speaker, in recent months, substantial concern has been expressed over the patenting of Internet and business strategies and techniques. Both the quality and appropriateness of a number of recently granted patents have been questioned.
My primary concern in this issue is the protection of intellectual property, which I believe is critical both to innovation and to the economy — and in that context, I want to make sure that the quality of U.S. patents is the highest possible.
As the breadth of patentable subject matter grows, it is incumbent upon Congress to consider two questions. First, are the Patent and Trademark Office and the courts properly interpreting the scope of what should be patentable? Second, is the process for patenting appropriate for the subject matter we allow to be patented?
It is clear from my conversations with those who are developing the Internet, those financing Internet ventures, individuals conducting business and those in the patent community and the public at large that the patenting of Internet and business strategies and techniques is controversial and deserves serious examination. Some believe that “business method” patents should simply not be allowed. They argue, by analogy, that a toaster should be patentable but the idea of toasting bread should not. Others argue that business methods should remain patentable, but the PTO should apply much greater scrutiny when it examines such patent applications. To extend the analogy: we have been toasting bread for a long time and if you are going to patent a method of doing so, the PTO better make sure that it has never been done in just that way before. Some note that people have received patents on activities that have been undertaken for decades and even centuries, and argue that merely placing an activity on the Internet does not make for novelty. Finally, there are a number of strange examples that lend themselves to questions about whether such common human activities deserve patent protection at all. Surely, the patent system is functioning in a curious manner when patents have been issued on a technique for measuring a breast with a tape to determine bra size (Pat. No. 5,965,809), methods of executing a tennis stroke (Pat. No. 5,993,366) and swinging a golf club (Pat. No. 5,616,089), an architect's method of eliminating hallways by placing staircases on the outside of buildings (Pat. No. 5,761,857), and a method for teaching custodial staff basic cleaning tasks (Pat. No. 5,851,117). Others have noted with suspicion the patent for a method of exercising a cat using a laser light as a tease (Pat. No. 5,443,036).
Other patents, granted to more serious endeavors, have also have been roundly criticized. With regard to patenting Internet adaptations of brick-and-mortar businesses, questions have arisen about patents granted for a method of selling music and movies in electronic form over the Internet (Pat. No. 5,191,573), a method of developing a statistical fantasy football game using a computer (Pat. No. 4,918,603), a method of allowing car purchasers to select options for cars ordered over the Internet (Pat. No. 5,825,651), a method of rewarding online shoppers with frequent flyer miles (Pat. No. 5,774,870), and an arguably very broad patent on managing secure online orders and payments using an “electronic shopping cart” to purchase goods on the Internet (5,745,681).
In lay terms, the basic question in each case is whether the patent owner merely adapted a well known business activity to the Internet in a straight forward manner. In patent parlance, the question is whether any of these activities are truly new and would not be obvious to one skilled in the relevant art. Other questions that may be relevant are whether others in the U.S. had known of the invention or had used it, and whether the invention was used or sold in public prior to the filing for a patent.
I am not asserting that any of these patents should be invalidated. However, patents are becoming a critical factor in valuing many new economy businesses, and that means they are significant to the health of the economy. If business method patents are indeed being issued based on insufficient information about the relevant inventions that preceded the patented invention or if a patent is issued on the basis of insufficient “prior art,” there is substantial risk to the inventor that those who know of the “prior art” could step forward at any time, invalidating the patent. This uncertainty means that investors cannot be confident that businesses will in fact reap the returns they expect on the patented inventions.
In the context of the Internet, many argue that rather than spurring innovation, patents interfere with innovation; that fierce commercial competition, as opposed to patent monopolies, has driven innovation; and that a culture of open sharing of innovation has been the key to the Internet's rapid growth. Whether this is true or false, an invention that is tied up because of an inappropriate grant of patent is problematic and may interfere with the advancement of technology. If a patent is granted for an invention that is not truly novel or one which is obvious to an expert in the field, it may then become unavailable for competitors to exploit. Such a patent may also open the user of the prior invention to an infringement lawsuit.
The U.S. patent system, created under the specific authority of the Constitution, grants for a limited time a statutory monopoly over one’s inventions. An inventor should have an incentive to create a monopoly for a limited time allows an inventor the opportunity to appropriately benefit from his creativity, and at the same time, reveal in detail the invention to allow others to build on his advances. Historically, the concept of invention was limited to the physical realm, a machine or process by which a product is produced. Over the years, however, the courts and the PTO have expanded the scope of patentable subject matter. In fact, the Patent and Trademark Office is of the view that it is operating under Supreme Court instruction to patent “anything under the sun made by man.” To that end, they have allowed the patenting of business methods.
Three events have contributed to the rapid growth in the number of applications for business method patents:
In the 1998 ruling in State Street Bank v. Signature Financial Group, the Court of Appeals for the Federal Circuit (which has exclusive jurisdiction over patent appeals) concluded that methods of doing business implemented using a computer are patentable. Some interpret the opinion as not even requiring computer implementation, and thus more broadly affirming the patenting of any business method. State Street was notable because it resolved a question where there had previously been divergent opinions among the lower courts. Some courts were of the view that there was a “business method exception” to patentability dating back to at least 1868. In resolving this issue, the court opened the flood gates for business method patents.
The second key event has been the explosive growth of the Internet. As businesses move to the Internet, they either adapt methods of doing their ongoing brick-and-mortar business or they invent new and innovative methods to take advantage of the unique qualities of the Internet.
Finally, business executives and entrepreneurs alike are gaining a better understanding of the economic value of intellectual property and patents, and are pursuing ways to take advantage of these opportunities.
Given this growth in patent applications, has the quality of patents suffered? There are several reasons identified for the lessening of the quality of patents in this area. In the view of some, the existing patent corps does not have the expertise to examine these “new tech” and “business” patents. The PTO needs more resources to enhance their examiners expertise and increase the size of the examiner corps in the relevant areas of art. Also, as a result of industry practices, there is a dearth of “prior art” data, the evidence of preexisting inventions, available in the areas of the Internet and business methods.
To be patentable, an invention has to be novel, useful, and not obvious to an expert in the field. Novelty is judged by comparing the invention with both patented and non-patented inventions. Determining whether an invention existed before the patent application was filed — or whether the invention is obvious — is an extraordinarily difficult task in the realm of business methods and the Internet. Core Internet tools such as the Amazon.com “1-click,” may have been in use prior to the filing of Amazon's patent application. Priceline.com's “buyer-driven sales” over the Internet arguably may have been “obvious” to an expert in the field of auctions.
I do not know whether these patents should or should not have been granted (and ongoing litigation will inevitably make that determination), but it is clear that the review of business method patent applications is impaired by the lack of documentation capturing the history of innovation in the Internet or the development of business techniques and methods.
By contrast, in the fields of engineering or science (two areas in which many patents are sought), inventions and innovations are meticulously documented and published. With these publications at hand, an examiner has easy reference to existing inventions. But very little published information exists with Internet and hi-tech practices...and most of what does exist is analogous to “folk knowledge,” handed from person to person orally or in chat rooms or by e-mail. Where developments are documented, there is no common organizing scheme. Where business plans are involved, they are usually closely held as trade secrets. Since an examiner can reject a patent application only on published “prior art,” informal communications are excluded.
As to obviousness, it is usually up to the patent examiner using his own expertise and research of “prior art” — to assess whether an expert in the field would think to come up with the applicant”s invention. In the area of business method patents, the endeavors for which patents are being sought are very new to the PTO. It has been only five years since the Internet became a tool of business, and only two years since the court clearly established the rule that a business method is patentable in the U.S. Unfortunately, although PTO is taking strides to develop expertise in the appropriate fields, there must be improvement in how experts can submit information to the PTO regarding specific patent applications.
Many of the changes needed can be met only by legislative action. It is critical that we create new mechanisms to get “prior art” into the system and make it available to applicants and the PTO. We must enhance the deference given the PTO in rejecting patent applications on the basis of all of the provisions of subsections 102(a) and (b) of title 35 by allowing examiners to rely on evidence of knowledge, use, public knowledge or sale in the U.S. that may not be documented in published references.
I am today introducing with Mr. Boucher a bill that will enhance the quality of Internet and non-Internet business method patents by increasing the opportunity for expert input into the patenting process. These improvements will provide patent owners and investors alike with greater confidence in the quality of their patents. The bill requires the PTO to publish business method patent applications and give the members of the public an opportunity to present “prior art” they believe may disqualify the application. Members of the public may also petition the PTO to hold a hearing to determine whether an invention was known, used by others, or in public use or on sale in the U.S. prior to the filing of the application. The bill also establishes an expeditious administrative “opposition” process by which a party will be able to challenge a business method patent. The opposition process provides parties with substantial evidentiary tools but will be much less costly and more efficient than litigation. The opposition process must be invoked within 9 months of the granting of a patent, and must be concluded within 18 months thereafter. Thus, we assure that within 27 months after the granting of the patent, a patent owner will either have enhanced confidence in the quality of their patent something akin to quiet title or will know the patent has been invalidated. The procedure will be presided over by an Administrative Opposition Judge who has substantial patent expertise and will have the responsibility to assure efficient review.
In regard to adaptations of business methods to the Internet, the bill establishes that where an invention only differs from “prior art” in that it is implemented using computer technology, such an invention shall be presumed obvious and therefore not patentable (this presumption can be overcome if a preponderance of the evidence shows that the invention was not obvious). Finally, the bill lowers the burden of proof for a challenge to a patent from “clear and convincing evidence” to “a preponderance of the evidence” an appropriately lower standard where the difficulty of producing evidence is complicated by the traditions and practices of the industries.
In introducing this legislation I am not taking a final position as to whether business methods should be patentable I tend to think they should be, but I could be persuaded otherwise. I am not wed to any particular provision of this bill itself. But I do believe that we need to be sure that the Patent and Trademark Office is well equipped to consider these patents, that there are adequate means to get good information into the system describing prior inventions, and that there are the appropriate standards and processes in place to assure the quality of the patents that are actually issued. There should be no question that the U.S. patent system produces high quality patents.
This bill is a work in progress, and one that will likely generate great debate. As I have noted, there are some who believe that “business methods” should not be patentable at all. Others who are certain to argue that current law “ain't broke,” so there is no need for Congress to fix it. Still others believe that, to the extent there may be a problem, the Patent and Trademark Office will address it administratively. My intent with this legislation is to stimulate the dialogue. We need to air these issues and ultimately (and hopefully quickly) find the proper solutions.
1. A key feature of the proposed legislation is the definition of the business method subject matter to which the law would apply. The pertinent text of § 2 of the bill follows:
Sec. 2. Definitions
Section 100 of title 35, United States Code, is amended by adding at the end the following:
“(f) The term `business method' means—
“(1) a method of—
“(A) administering, managing, or otherwise operating an enterprise or organization, including a technique used in doing or conducting business; or
“(B) processing financial data;
“(2) any technique used in athletics, instruction, or personal skills; and
“(3) any computer-assisted implementation of a method described in paragraph (1) or a technique described in paragraph (2).”
“(g) The term `business method invention' means—
“(1) any invention which is a business method (including any software or other apparatus); and
“(2) any invention which is comprised of any claim that is a business method.”
Is this language over- or under-inclusive? Or both? Is it indefinite.
Assume that you were an ill-disposed observer of this language. What would you seize on to sabotage it, say, in interpreting it for purposes of an opinion of an appellate court?
Is a method for operating a refinery or petrochemical plant (cf. Flook) a method of operating an enterprise or organization, within the meaning of ¶ (1)(A)? If so, how could you re-word this provision to exclude industrial processes of that kind? Is a mechanical calculator for processing financial transactions (say, a cash register?) within ¶ (1)(B)? If so, how would you re-word the bill?
Does the definition of business method invention cover claims to floppy disks encoded with computer program information? Does it cover a claimed telecommunications signal encoded with information used in a business method (say, a filled out form from a Web page, such as a book order to amazon.com)?
2. The following are reported comments from a conference at The George Washington University Law School, November 2000, on E-Commerce and related patents, after a presentation explaining H.R. 5364:
Professor Lee Hollaar of the University of Utah's School of Computing expressed concern that the “will turn the examination process into an argument as to whether something is a business method or not.” He observed that patent lawyers seeking to avoid the provisions of the proposed law would be “creative” and draft their claims to escape the reach of §§ 100(f)-(g): “You’re dealing with lawyers and computer programmers, who are equally creative.”
Professor Vincent Chiappetta of Willamette University agreed with Hollaar in opposing the bill's “piecemeal attack” on business method patents. He asserted that small inventors would complain about the impact of the bill's post-grant opposition procedure.
Stacy Baird, a Brookings Scholar associated with preparation of the bill, maintained that it was legitimate to single out business method patents for special legislation, because of the “acute situation” and economic repercussions created by the Internet and the State Street decision, as well as their potential impact on the economy. He added that the bill reflected an effort “to address the prior art problem” of PTO inability to find poorly indexed and poorly documented prior art in the particular area of business methods; he said that it was therefore appropriate for the bill narrowly to target that problem with narrow language.
Others referred to existing examples of intellectual property laws targeting special segments of the economy: the Semiconductor Chip Protection Act (17 U.S.C. §§ 901-14), design patent protection, plant patent protection, the Ganske Amendment (35 U.S.C. § 287(c), excluding surgical procedures from patent enforcement protection), the special obviousness provisions for biotechnology (35 U.S.C. § 103(b)).
PTO Director Todd Dickinson said that the Clinton Administration had not taken a position on the business methods bill. While he hoped for broad support for the bill's “European-style” post-grant opposition procedure, he was unsure that “Congress is ready for it.” He pointed out that Congress had failed to include a general post-issuance revocation procedure in 1999 patent reform legislation, and instead legislated “only incrementally” with that law's expanded third-party patent reexamination provision.
Congressmen Berman and Boucher introduced H.R. 1332, a revised version of the bill, on April 3, 2001. Oversight hearings on business method patents were held April 4, 2001.
Case-Law Developments After State Street and AT&T
Ex Parte Bowman
Board of Patent Appeals and Interferences
2001 Pat. App. LEXIS 46, 61 USPQ2d 1669 (June 12, 2001)
Before JERRY SMITH, DIXON, and BLANKENSHIP, Administrative Patent Judges.
[The opinion in support of the decision being entered today was not written for publication and is not binding precedent of the Board.]
JERRY SMITH, Administrative Patent Judge.
This is a decision on the appeal under 35 U.S.C. § 134 from the examiner's rejection of claims 1--18, which constitute all the claims in the application. The disclosed invention pertains to a method of evaluating an intangible asset of interest. Representative claim 1 is reproduced as follows:
1. A method of evaluating an intangible asset of interest, comprising the steps of:
establishing first and second variables related to the value of said intangible asset of interest;
establishing a series of performance criteria statements probative of the value of said first and second variables;
scoring each of said performance criteria statements;
summing scores to generate first and second total scores based upon the extent to which individual statements accurately describe said intangible asset of interest;
transforming physical media into a chart having a first axis relating to said first variable and a second axis relating to said second variable;
physically plotting a point on said chart, said point being located at coordinates corresponding to said first and second total scores, respectively, and,
using said chart in making at least one decision regarding the value of said intangible asset of interest.
Claims 1--18 stand rejected under 35 U.S.C. § 101 as being directed to nonstatutory. subject matter. It is our view, after consideration of the record before us, that claims 1--18 are not directed to statutory subject matter.
With respect to the rejection under 35 U.S.C. § 101, the examiner asserts that the claimed invention does not fall within the technological arts because no form of technology is disclosed or claimed [answer, page 3]. Appellant responds by analyzing the claimed invention under "The Examination Guidelines for Computer--Related Inventions" as published by the qus PTO. Based on these guidelines, appellant argues that the recited method of creating a chart and plotting a point thereon is "physical and has clear real world value." Appellant also argues that the claimed process clearly results in a physical transformation outside of a computer for which a practical application in the technological arts is either disclosed in the specification or would have been known to a skilled artisan. The examiner responds that the noted guidelines are inapplicable here because appellant has not recited the use of a computer in either the specification or the claims. The examiner finds that neither the specification nor the claims discuss the use of any technology with respect to the claimed invention.
We agree with the examiner. Appellant has carefully avoided tying the disclosed and claimed invention to any technological art or environment. As noted by the examiner, the disclosed and claimed invention is directed to nothing more than a human making mental computations and manually plotting the results on a paper chart. The Examination Guidelines for Computer--Related Inventions are not dispositive of this case because there is absolutely no indication on this record that the invention is connected to a computer in any manner.
Despite the express language of 35 U.S.C. § 101, several judicially created exceptions have been excluded from subject matter covered by Section 101. These exceptions include laws of nature, natural phenomena, and abstract ideas. See Diamond v. Diehr, 450 U.S. 175, 185 (1981). We interpret the examiner's rejection as finding that the claimed invention before us is nothing more than an abstract idea because it is not tied to any technological art or environment. Appellant's argument is that the physical (even manual) creation of a chart and the plotting of a point on this chart places the invention within the technological arts.
The phrase "technological arts" has been created to offer another view of the term "useful arts." The Constitution of the United States authorizes and empowers the government to issue patents only for inventions which promote the progress [of science and] the useful arts. We find that the invention before us, as disclosed and claimed, does not promote the progress of science and the useful arts, and does not fall within the definition of technological arts. The abstract idea which forms the heart of the invention before us does not become a technological art merely by the recitation in the claim of "transforming physical media into a chart" [sic, drawing or creating a chart] and "physically plotting a point on said chart."
In summary, we find that the invention before us is nothing more than an abstract idea which is not tied to any technological art, environment, or machine, and is not a useful art as contemplated by the Constitution of the United States. The physical aspects of claim 1, which are disclosed to be nothing more than a human manually drawing a chart and plotting points on this chart, do not automatically bring the claimed invention within the technological arts. For all the reasons just discussed, we sustain the examiner's rejection of the appealed claims under 35 U.S.C. § 101.
Ex Parte Lundgren
Board of Patent Appeals and Interferences
Available at http://www.uspto.gov/web/offices/dcom/bpai/prec/2003-2088.pdf,
2004 WL 3561262, 76 U.S.P.Q.2d 1385 (heard April 20, 2004)
Before FLEMING, Chief Administrative Patent Judge, HARKCOM, Vice Chief Administrative Patent Judge, and HAIRSTON, JERRY SMITH, and BARRETT, Administrative Patent Judges.
[Pursuant to the Board of Patent Appeals and Interference’s Standard Operating Procedure 2, the opinion below has been designated a precedential opinion.]
DECISION ON APPEAL
This is an appeal under 35 U.S.C. § 134(a) from the rejection of claims 1, 2, 6, 7, 19-22, 32, and 35-40, all the claims pending in the application.
Claim 1 is representative of the subject matter on appeal and reads as follows:
1. A method of compensating a manager who exercises administrative control over operations of a privately owned primary firm for the purpose of reducing the degree to which prices exceed marginal costs in an industry, reducing incentives for industry collusion between the primary firm and a set of comparison firms in said industry, or reducing incentives for coordinated special interest industry lobbying, said set of comparison firms including at least one firm, said primary firm having the manager who exercises administrative control over said primary firm's operations during a sampling period, wherein privately owned means not wholly government owned, the method comprising the steps of:
a) choosing an absolute performance standard from a set of absolute performance standards;
b) measuring an absolute performance of said primary firm with respect to said chosen absolute performance standard for said sampling period;
c) measuring an absolute performance of each firm of said set of comparison firms with respect to said chosen absolute performance standard for said sampling period, said measurement of performance for each firm of said set of comparison firms forming a set of comparison firm absolute performance measures;
d) determining a performance comparison base based on said set of comparison firm absolute performance measures by calculating a weighted average of said set of comparison firm absolute performance measures;
e) comparing said measurement of absolute performance of said primary firm with said performance comparison base;
f) determining a relative performance measure for said primary firm based on said comparison of said primary firm measurement of absolute performance and said performance comparison base;
g) determining the managerial compensation amount derived from said relative performance measure according to a monotonic managerial compensation amount transformation; and
h) transferring compensation to said manager, said transferred compensation having a value related to said managerial compensation amount.
This is the second time this case has been appealed to the Board. A merits panel previously reversed the examiner's rejection premised upon 35 U.S.C. § 101 (non-statutory subject matter) of the claims then pending. The panel stated "[w]e find that the claim language recites subject matter that is a practical application of shifting of physical assets to the manager. We note the remaining claims also recite the above practical application. Therefore, we find statutory subject matter." Dissatisfied with the outcome of the previous appeal, the Examining Corps filed a "Request for Reconsideration and Rehearing" that lists two issues for reconsideration as follows:
1. Whether the invention as a whole is in the technological arts.
2. Assuming that the invention is in the technological arts, whether the claim transferring compensation to a manager is a practical application.
An expanded panel of the Board remanded the application to the examiner for two reasons. First, the record did not reflect that the examiner had considered and evaluated appellant's response to the Request for Reconsideration and Rehearing, and second, the Office of the Deputy Commissioner for Patent Examination Policy had requested that the application be remanded to the jurisdiction of the patent examiner so that issues regarding "technological arts" and "practical application" could be further considered.
Following further prosecution before the examiner in which the examiner maintained a rejection under 35 U.S.C. § 101 (non-statutory subject matter), appellant filed a second appeal to this Board. Oral argument was held by an expanded panel on April 20, 2004, and the case was taken under advisement [for about 18 months].
We reverse the examiner's rejection under 35 U.S.C. § 101 (non-statutory subject matter). The examiner states "both the invention and the practical application to which it is directed to be outside the technological arts, namely an economic theory expressed as a mathematical algorithm without the disclosure or suggestion of computer, automated means, apparatus of any kind, the invention as claimed is found non-statutory."
In reviewing the examiner's "Response to Argument" we first note that the examiner states that "the part of the 35 U.S.C. § 101 rejection that asserted that claims 1, 2, 6, 7, 19-22, 32, and 35-40 fail to produce a useful, concrete, and tangible result is withdrawn." By withdrawing this rejection, it can be concluded that the examiner has found that the process claims on appeal produce a useful, concrete, and tangible result.
Since the Federal Circuit has held that a process claim that applies a mathematical algorithm to "produce a useful, concrete, tangible result without pre-empting other uses of the mathematical principle, on its face comfortably falls within the scope of § 101," AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352, 1358 (Fed. Cir. 1999), one would think there would be no more issues to be resolved under 35 U.S.C. § 101. However, the examiner is of the opinion that there is a separate test for determining whether claims are directed to statutory subject matter, i.e., a "technological arts" test.
Thus, the only issue for review in this appeal is, to use the examiner’s terminology, "whether or not claims 1, 2, 6, 7, 19-22, 32, and 35-40 are limited to the technological arts, as required by 35 U.S.C. § 101."
35 U.S.C. § 101 provides:
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.
As seen, claim 1 on appeal is directed to a process. Thus, one may wonder why there is any issue regarding whether claim 1 is directed to statutory subject matter. The issue arises because the Supreme Court has ". . . recognized limits to § 101 and every discovery is not embraced within the statutory terms. Excluded from such patent protection are laws of nature, physical phenomena and abstract ideas." Diamond v. Diehr, 450 U.S. 175, 185 (1981). However, in this appeal, the examiner has not taken the position that claim 1 is directed to a law of nature, physical phenomena or an abstract idea, the judicially recognized exceptions to date to § 101. Rather, the examiner has found a separate "technological arts" test in the law and has determined that claim 1 does not meet this separate test.
The examiner finds the separate "technological arts" test in In re Musgrave, 431 F.2d 882 (CCPA 1970); In re Toma, 575 F.2d 872 (CCPA 1978); and Ex parte Bowman, 61 USPQ2d 1669 (Bd. Pat. App. & Int. 2001)(non-precedential). We have reviewed these three cases and do not find that they support the examiner’s separate "technological arts" test.
In Musgrave, the court reversed a rejection under 35 U.S.C. § 101 that the claims under review therein were non-statutory because it disagreed with the Board that "these claims . . . are directed to non-statutory processes merely because some or all of the steps therein can also be carried out in or with the aid of the human mind or because it may be necessary for one performing the processes to think." Musgrave, 431 F.2d at 893. After so holding, the court went on to observe "[a]ll that is necessary, in our view, to make a sequence of operational steps a statutory 'process' within 35 U.S.C. § 101 is that it be in the technological arts so as to be in consonance with the Constitutional purpose to promote the progress of 'useful arts.' Const. Art. 1, sec. 8."
We do not view the court's statement in Musgrave in regard to the technological arts to have created a separate "technological arts" test in determining whether a process is statutory subject matter. Indeed, the court stated as much in Toma. The court first noted that the examiner in that case had "cited [inter alia, Musgrave] for the proposition that all statutory subject matter must be in the 'technological' or 'useful' arts... ." Toma, 575 F.2d at 877. The court then stated that cases such as Musgrave involved what was called at that time a "mental steps" rejection and observed, "[t]he language which the examiner has quoted was written in answer to 'mental steps' rejections and was not intended to create a generalized definition of statutory subject matter. Moreover, it was not intended to form a basis for a new § 101 rejection as the examiner apparently suggests." Id. at 878. We do not believe the court could have been any clearer in rejecting the theory the present examiner now advances in this case.
We have also considered Ex parte Bowman, cited by the examiner. Bowman is a non-precedential opinion and thus, not binding.
Finally, we note that the Supreme Court was aware of a "technological arts test," and did not adopt it when it reversed the Court of Customs and Patent Appeals in Gottschalk v. Benson, 409 U.S. 63 (1972). As explained in Diamond v. Diehr, 450 U.S. 175, 201 (1981) (Stevens, J., dissenting) (footnotes omitted):
In re Benson, [441 F.2d 682 (CCPA 1971)] of course was reversed by this Court in Gottschalk v. Benson, 409 U.S. 63, (1972). Justice Douglas' opinion for a unanimous Court made no reference to the lower court's rejection of the mental-steps doctrine or to the new technological-arts standard. Rather, the Court clearly held that new mathematical procedures that can be conducted in old computers, like mental processes and abstract intellectual concepts, see id., at 67, are not patentable processes within the meaning of § 101. (Footnotes omitted.)
Our determination is that there is currently no judicially recognized separate "technological arts" test to determine patent eligible subject matter under § 101. We decline to create one. Therefore, it is apparent that the examiner’s rejection can not be sustained. Judge Barrett suggests that a new ground of rejection should be entered against the claims on appeal. We decline at this stage of the proceedings to enter a new ground of rejection based on Judge Barrett's rationale, because in our view his proposed rejection would involve development of the factual record and, thus, we take no position in regard to the proposed new ground of rejection. Accordingly, the decision of the examiner is reversed.
Michael R. Fleming, Chief Administrative Patent Judge; Gary V. Harkcom, Vice Chief Administrative Patent Judge; Kenneth W. Hairston, Administrative Patent Judge.
[Judge Smith dissented and would have affirmed. He said: “I would affirm the rejection, not because it is directed to a method of doing business, but rather, because the process as claimed is not tied to any known science or technology. If the claim recited that the steps were performed by a computer, then I would agree that the claimed invention would at leat have met the constitutional ‘technological arts’ standard, although the claimed invention would still need to be analyzed under 35 U.S.C. § 101 for conventional compliance with that section of the statute. There is no science or technology associated with the claimed invention. It is interesting to note that the claimed invention could have been performed by the writers of the Constitution using only the knowledge available at that time. I find it ludicrous, however, to think that the writers of the Constitution would have found the idea of providing compensation to an executive, as claimed, to be something that would qualify for a patent.”
Judge Barrett agreed that to make a § 101 rejection on grounds of not being in the technological arts was unsupported. He argued, however, that the claimed process was not the kind of process that § 101 registered, and maintained that a rejection should be entered and the case should go forward to the Federal Circuit for needed guidance.]
1. The reasoning of the majority is elaborated and embodied in the PTO interim § 101 guidelines and MPEP § 2106.
2. The Board majority observes: “Since the Federal Circuit has held that a process claim that applies a mathematical algorithm to 'produce a useful, concrete, tangible result without pre-empting other uses of the mathematical principle, on its face comfortably falls within the scope of § 101,' AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352, 1358 (Fed. Cir. 1999), one would think there would be no more issues to be resolved under 35 U.S.C. § 101.” The "useful, concrete, and tangible result" test, however, is criticized in the Breyer Lab Corp dissent, below, in which three Justices joined. How comfortably does that leave the Board falling?
3. Is there something reminiscent of Alappat about the procedural aspect of this decision?
eBay Inc v. MercExchange, L.L.C.
United States Supreme Court
548 U.S. __, 126 S. Ct. 1837 (May 15, 2006)
(Excerpt from concurring opinion of Justice Kennedy)
Justice Kennedy, joined by Justices Stevens, Souter, and Breyer
. . . In cases now arising trial courts should bear in mind that in many instances the nature of the patent being enforced and the economic function of the patent holder present considerations quite unlike earlier cases. An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees. See FTC, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, ch. 3, pp. 38–39 (Oct. 2003), available at http://www.ftc.gov/os/2003/10/innovationrpt.pdf (as visited May 11, 2006, and available in Clerk of Court’s case file). For these firms, an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent. See ibid. When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest. In addition injunctive relief may have different consequences for the burgeoning number of patents over business methods, which were not of much economic and legal significance in earlier times. The potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test. . . .
Laboratory Corp. of America v. Metabolite Laboratories, Inc.
United States Supreme Court
548 U.S. __, 126 S. Ct. 2921, 2927-28 (June 22, 2006)
PER CURIAM. The writ of certiorari [to the Federal Circuit] is dismissed as improvidently granted.
JUSTICE BREYER, with whom JUSTICE STEVENS and JUSTICE SOUTER join, dissenting.
This case involves a patent that claims a process for helping to diagnose deficiencies of two vitamins, folate and cobalamin. The process consists of using any test (whether patented or unpatented) to measure the level in a body fluid of an amino acid called homocysteine and then noticing whether its level is elevated above the norm; if so, a vitamin deficiency is likely.
The lower courts held that the patent claim is valid. They also found the petitioner, Laboratory Corporation of America Holdings (LabCorp), liable for inducing infringement of the claim when it encouraged doctors to order diagnostic tests for measuring homocysteine. The courts assessed damages. And they enjoined LabCorp from using any tests that would lead the doctors it serves to find a vitamin deficiency by taking account of elevated homocysteine levels.
We granted certiorari in this case to determine whether the patent claim is invalid on the ground that it improperly seeks to "claim a monopoly over a basic scientific relationship," namely, the relationship between homocysteine and vitamin deficiency. The Court has dismissed the writ as improvidently granted. In my view, we should not dismiss the writ. The question presented is not unusually difficult. We have the authority to decide it. We said that we would do so. The parties and amici have fully briefed the question. And those who engage in medical research, who practice medicine, and who as patients depend upon proper health care, might well benefit from this Court's authoritative answer.
The relevant principle of law "[e]xclude[s] from . . . patent protection . . . laws of nature, natural phenomena, and abstract ideas." Diamond v. Diehr, 450 U. S. 175, 185 (1981). This principle finds its roots in both English and American law. See, e.g., Neilson v. Harford, Webster's Patent Cases 295, 371 (1841); Le Roy v. Tatham, 14 How. 156, 175 (1853); O'Reilly v. Morse, 15 How. 62 (1854); The Telephone Cases, 126 U. S. 1 (1888). The principle means that Einstein could not have "patent[ed] his celebrated law that E=mc2; nor could Newton have patented the law of gravity." Diamond v. Chakrabarty, 447 U. S. 303, 309 (1980). Neither can one patent "a novel and useful mathematical formula," Parker v. Flook, 437 U. S. 584, 585 (1978), the motive power of electromagnetism or steam, Morse, supra, at 116, "the heat of the sun, electricity, or the qualities of metals," Funk Brothers Seed Co. v. Kalo Inoculant Co., 333 U. S. 127, 130 (1948).
The justification for the principle does not lie in any claim that "laws of nature" are obvious, or that their discovery is easy, or that they are not useful. To the contrary, research into such matters may be costly and time-consuming; monetary incentives may matter; and the fruits of those incentives and that research may prove of great benefit to the human race. Rather, the reason for the exclusion is that sometimes too much patent protection can impede rather than "promote the Progress of Science and useful Arts," the constitutional objective of patent and copyright protection. U. S. Const., Art. I, §8, cl. 8.
The problem arises from the fact that patents do not only encourage research by providing monetary incentives for invention. Sometimes their presence can discourage research by impeding the free exchange of information, for example by forcing researchers to avoid the use of potentially patented ideas, by leading them to conduct costly and time-consuming searches of existing or pending patents, by requiring complex licensing arrangements, and by raising the costs of using the patented information, sometimes prohibitively so.
Patent law seeks to avoid the dangers of overprotection just as surely as it seeks to avoid the diminished incentive to invent that underprotection can threaten. One way in which patent law seeks to sail between these opposing and risky shoals is through rules that bring certain types of invention and discovery within the scope of patentability while excluding others. And scholars have noted that "patent law['s] exclu[sion of] fundamental scientific (including mathematical) and technological principles," (like copyright's exclusion of "ideas") is a rule of the latter variety. W. Landes & R. Posner, The Economic Structure of Intellectual Property Law 305 (2003). That rule reflects "both . . . the enormous potential for rent seeking that would be created if property rights could be obtained in [those basic principles] and . . . the enormous transaction costs that would be imposed on would-be users." Id., at 305–306; cf. Nichols v. Universal Pictures Corp., 45 F. 2d 119, 122 (CA2 1930) (L. Hand, J.).
Thus, the Court has recognized that "[p]henomena of nature, though just discovered, mental processes, and abstract intellectual concepts are . . . the basic tools of scientific and technological work." Gottschalk v. Benson, 409 U. S. 63, 67 (1972). It has treated fundamental scientific principles as "part of the storehouse of knowledge"and manifestations of laws of nature as "free to all men and reserved exclusively to none." Funk Bros., supra, at 130. And its doing so reflects a basic judgment that protection in such cases, despite its potentially positive incentive effects, would too often severely interfere with, or discourage, development and the further spread of useful knowledge itself.
. . . LabCorp filed a petition for certiorari. Question Three of the petition asks "[w]hether a method patent . . . directing a party simply to 'correlate' test results can validly claim a monopoly over a basic scientific relationship . . .such that any doctor necessarily infringes the patentmerely by thinking about the relationship after looking at a test result." After calling for and receiving the views of the Solicitor General, 543 U. S. 1185(2005), we granted the petition, limited to Question Three.
The question before us is whether claim 13, as construed and applied in the way I have described in Part I–B, isinvalid in light of the "law of nature" principle, described in Part I–A. I believe that we should answer that question. There is a technical procedural reason for not doing so, namely, that LabCorp did not refer in the lower courts to § 101 of the Patent Act, which sets forth subject matter that is patentable, and within the bounds of which the "law of nature" principle most comfortably fits. See 35 U. S. C. §101 (patent may be obtained for "any new and useful process, machine, manufacture, or composition of matter"); Flook, 437 U. S., at 588–589. There is also a practical reason for not doing so, namely, that we might benefit from the views of the Federal Circuit, which did not directly consider the question.
Nonetheless, stronger considerations argue for our reaching a decision. For one thing, the technical procedural objection is tenuous. LabCorp argued the essence of its present claim below. It told the Federal Circuit that claim 13 as construed by the District Court was too "vague" because that construction would allow "anyone" to "obtain a patent on any scientific correlation;" it would permit the respondents "improperly [to] gain a monopoly over a basic scientific fact" despite "settled" law "that no such claim should be allowed." LabCorp explicitly stated in its petition for certiorari that, "if the Court allows the Federal Circuit opinion to stand . . . [respondents] would improperly gain monopolies over basic scientific facts rather than any novel inventions of their own." And after considering the Solicitor General's advice not to hear the case (primarily based upon LabCorp's failure to refer to 35 U. S. C. § 101), we rejected that advice, thereby "necessarily consider[ing] and reject[ing] that contention as a basis for denying review."
For another thing, I can find no good practical reason for refusing to decide the case. The relevant issue has been fully briefed and argued by the parties, the Government,and 20 amici. The record is comprehensive, allowing us to learn the precise nature of the patent claim, to consider the commercial and medical context (which the parties and amici have described in detail), and to become familiar with the arguments made in all courts. Neither the factual record nor the briefing suffers from any significant gap. No party has identified any prejudice due to our answering the question. And there is no indication that LabCorp's failure to cite § 101 reflected unfair gamesmanship.
Of course, further consideration by the Federal Circuit might help us reach a better decision. Lower court consideration almost always helps. But the thoroughness of the briefing leads me to conclude that the extra time, cost, and uncertainty that further proceedings would engender are not worth the potential benefit.
Finally, I believe that important considerations of the public interest — including that of clarifying the law in this area sooner rather than later — argue strongly for our deciding the question presented now.
. . . Neither does the Federal Circuit's decision in State Street Bank help respondents. That case does say that a process is patentable if it produces a "useful, concrete, and tangible result." 149 F. 3d, at 1373. But this Court has never made such a statement and, if taken literally, the statement would cover instances where this Court has held the contrary. The Court, for example, has invalidated a claim to the use of electromagnetic current for transmitting messages over long distances even though it produces a result that seems "useful, concrete, and tangible." Morse, supra, at 16. Similarly the Court has invalidated a patent setting forth a system for triggering alarm limits in connection with catalytic conversion despite a similar utility, concreteness, and tangibility. Flook, supra. And the Court has invalidated a patent setting forth a process that transforms, for computer-programming purposes,decimal figures into binary figures — even though the result would seem useful, concrete, and at least arguably (within the computer's wiring system) tangible. Gottschalk, supra.
Even were I to assume (purely for argument's sake) that claim 13 meets certain general definitions of process patentability, however, it still fails the one at issue here: the requirement that it not amount to a simple natural correlation, i.e., a "natural phenomenon." See Flook, supra, at 588, n. 9 (even assuming patent for improved catalytic converter system meets broad statutory definition of patentable "process," it is invalid under natural phenomenon doctrine); Diehr, 450 U. S., at 184–185 (explaining that, even if patent meets all other requirements, it must meet the natural phenomena requirement as well).
At most, respondents have simply described the natural law at issue in the abstract patent language of a "process." But they cannot avoid the fact that the process is no more than an instruction to read some numbers in light of medical knowledge. Cf. id., at 192 (warning against "allow[ing] a competent draftsman to evade the recognized limitations on the type of subject matter eligible for patent protection"). One might, of course, reduce the "process" to a series of steps, e.g., Step 1: gather data; Step 2: read a number; Step 3: compare the number with the norm; Step 4: act accordingly. But one can reduce any process to a series of steps. The question is what those steps embody. And here, aside from the unpatented test, they embody only the correlation between homocysteine and vitamin deficiency that the researchers uncovered. In my view,that correlation is an unpatentable "natural phenomenon," and I can find nothing in claim 13 that adds anything more of significance.
If I am correct in my conclusion in Part III that the patent is invalid, then special public interest considerations reinforce my view that we should decide this case. To fail to do so threatens to leave the medical profession subject to the restrictions imposed by this individual patent and others of its kind. Those restrictions may inhibit doctors from using their best medical judgment; they may force doctors to spend unnecessary time and energy to enter into license agreements; they may divert resources from the medical task of health care to the legal task of searching patent files for similar simple correlations; they may raise the cost of healthcare while inhibiting its effective delivery. Even if Part III is wrong, however, it still would be valuable to decide this case. Our doing so would help diminish legal uncertainty in the area, affecting a "substantial number of patent claims." See Brief for United States as Amicus Curiae 12-14 (filed Aug. 26, 2005). It would permit those in the medical profession better to understand the nature of their legal obligations. It would help Congress determine whether legislation is needed. Cf. 35 U. S. C. § 287(c) (limiting liability of medical practitioners for performance of certain medical and surgical procedures).
In either event, a decision from this generalist Court could contribute to the important ongoing debate, among both specialists and generalists, as to whether the patent system, as currently administered and enforced, adequately reflects the "careful balance" that "the federal patent laws. . . embod[y]." Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U. S. 141, 146 (1989). See also eBay Inc. v. MercExchange, L. L. C., 547 U. S. ___, ___ (2006) (slip op., at 2) (KENNEDY, J., concurring); FTC [To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy (Oct. 2003), available at http://www.ftc.gov/os/2003/10/innovationrpt.pdf], ch. 4, at 1-44; Pollack, The Multiple Unconstitutionality of Business Method Patents: Common Sense, Congressional Consideration, and Constitutional History, 28 Rutgers Computer & Technology L. J. 61 (2002); Pitofsky, Antitrust and Intellectual Property: Unresolved Issues at the Heart of the New Economy,16 Berkeley Technology L. J. 535, 542–546 (2001).
For these reasons, I respectfully dissent.
The following is a brief excerpt from the oral argument in Microsoft v. AT&T on February 27, 2007. AT&T sued Microsoft for patent infringement under § 271(f), which creates infringement liability when “components” of a patented invention are supplied abroad to be combined in a manner that would infringe a U.S. patent if the conduct occurred in the United States. Microsoft ships software code abroad (say, by mailing CDs) that is then copied and is installed on hard disks. Microsoft argued that its actions do not satisfy 271(f) because (1) software code itself (if separated from a physical disk) cannot be a component, because it is not physical; and (2) only copies of the code (copied, say, from the exported CD), not the exported CDs, are installed. Here are some excerpts:
JUSTICE BREYER: I take it that we are operating under the assumption that software is patentable? We have never held that in this Court, have we?
MR. JOSEFFER: No, but . . . that's not relevant here . . .
. . . JUSTICE STEVENS: Your time is up, but I want to ask you one yes or no question. In your view is software patentable?
MR. JOSEFFER: Standing alone in and of itself, no.
. . . MR. WAXMAN [For AT&T]: The code is not patentable.
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