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)





Case-Law Developments After State Street and AT&T (Cont'd)



In re Bilski
United States Court of Appeals for the Federal Circuit
545 F.3d 943 (Fed. Cir. 2008) (en banc)

MICHEL, Chief Judge.

Bernard L. Bilski and Rand A. Warsaw appeal from the final decision of the Board of Patent Appeals and Interferences sustaining the rejection of all eleven claims of their U.S. Patent Application Serial No. 08/833,892 ("'892 application"). Specifically, Applicants argue that the examiner erroneously rejected the claims as not directed to patent-eligible subject matter under 35 U.S.C. § 101, and that the Board erred in upholding that rejection. The appeal was originally argued before a panel of the court on October 1, 2007. Prior to disposition by the panel, however, we sua sponte ordered en banc review. We affirm the decision of the Board because we conclude that Applicants' claims are not directed to patent-eligible subject matter, and in doing so, we clarify the standards applicable in determining whether a claimed method constitutes a statutory "process" under § 101.

I.

Claim 1 reads:

A method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of:

(a) initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said consumer;

(b) identifying market participants for said commodity having a counter-risk position to said consumers; and

(c) initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions

In essence, the claim is for a method of hedging risk in the field of commodities trading. For example, coal power plants (i.e., the "consumers") purchase coal to produce electricity and are averse to the risk of a spike in demand for coal since such a spike would increase the price and their costs. Conversely, coal mining companies (i.e., the "market participants") are averse to the risk of a sudden drop in demand for coal since such a drop would reduce their sales and depress prices. The claimed method envisions an intermediary, the "commodity provider," that sells coal to the power plants at a fixed price, thus isolating the power plants from the possibility of a spike in demand increasing the price of coal above the fixed price. The same provider buys coal from mining companies at a second fixed price, thereby isolating the mining companies from the possibility that a drop in demand would lower prices below that fixed price. And the provider has thus hedged its risk; if demand and prices skyrocket, it has sold coal at a disadvantageous price but has bought coal at an advantageous price, and vice versa if demand and prices fall. Importantly, however, the claim is not limited to transactions involving actual commodities, and the application discloses that the recited transactions may simply involve options, i.e., rights to purchase or sell the commodity at a particular price within a particular timeframe.

The examiner ultimately rejected claims 1-11 under 35 U.S.C. § 101, stating: "[r]egarding . . . claims 1-11, the invention 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." The examiner noted that Applicants had admitted their claims are not limited to operation on a computer, and he concluded that they were not limited by any specific apparatus.

On appeal, the Board held that the examiner erred to the extent he relied on a "technological arts" test because the case law does not support such a test. Further, the Board held that the requirement of a specific apparatus was also erroneous because a claim that does not recite a specific apparatus may still be directed to patent-eligible subject matter "if there is a transformation of physical subject matter from one state to another." Elaborating further, the Board stated: "'mixing' two elements or compounds to produce a chemical substance or mixture is clearly a statutory transformation although no apparatus is claimed to perform the step and although the step could be performed manually." But the Board concluded that Applicants' claims do not involve any patent-eligible transformation, holding that transformation of "non-physical financial risks and legal liabilities of the commodity provider, the consumer, and the market participants" is not patent-eligible subject matter. The Board also held that Applicants' claims "preempt[ ] any and every possible way of performing the steps of the [claimed process], by human or by any kind of machine or by any combination thereof," and thus concluded that they only claim an abstract idea ineligible for patent protection. Finally, the Board held that Applicants' process as claimed did not produce a "useful, concrete and tangible result," and for this reason as well was not drawn to patent-eligible subject matter.

II.

Whether a claim is drawn to patent-eligible subject matter under § 101 is a threshold inquiry, and any claim of an application failing the requirements of § 101 must be rejected even if it meets all of the other legal requirements of patentability. In re Comiskey, 499 F.3d 1365, 1371 (Fed. Cir. 2007) (quoting Parker v. Flook, 437 U.S. 584, 593 (1978)). Whether a claim is drawn to patent-eligible subject matter under § 101 is an issue of law that we review de novo. Comiskey, 499 F.3d at 1373. Although claim construction, which we also review de novo, is an important first step in a § 101 analysis, there is no claim construction dispute in this appeal. We review issues of statutory interpretation such as this one de novo as well. (Given that § 101 is a threshold requirement, claims that are clearly drawn to unpatentable subject matter should be identified and rejected on that basis. Thus, an examiner should generally first satisfy herself that the application's claims are drawn to patent-eligible subject matter.)

A.

As this appeal turns on whether Applicants' invention as claimed meets the requirements set forth in § 101, we begin with the words of the statute:

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.

35 U.S.C. § 101. The statute thus recites four categories of patent-eligible subject matter: processes, machines, manufactures, and compositions of matter. It is undisputed that Applicants' claims are not directed to a machine, manufacture, or composition of matter. 2 Thus, the issue before us involves what the term "process" in § 101 means, and how to determine whether a given claim--and Applicants' claim 1 in particular--is a "new and useful process." 3

The term "process" is ordinarily broad in meaning, at least in general lay usage. In 1952, at the time Congress amended § 101 to include "process," 4 the ordinary meaning of the term was: "[a] procedure . . . [a] series of actions, motions, or operations definitely conducing to an end, whether voluntary or involuntary." EBSTER'S NEW INTERNATIONAL DICTIONARY OF THE ENGLISH LANGUAGE 1972 (2d ed. 1952). There can be no dispute that Applicants' claim would meet this definition of "process." But the Supreme Court has held that the meaning of "process" as used in § 101 is narrower than its ordinary meaning. See Flook, 437 U.S. at 588-89 ("The holding [in Benson] forecloses a purely literal reading of § 101."). Specifically, the Court has held that a claim is not a patent-eligible "process" if it claims "laws of nature, natural phenomena, [or] abstract ideas." Diamond v. Diehr, 450 U.S. 175, 185 (citing Flook, 437 U.S. at 589, and Gottschalk v. Benson, 409 U.S. 63, 67 (1972)). Such fundamental principles 5 are "part of the storehouse of knowledge of all men . . . free to all men and reserved exclusively to none." Funk Bros. Seed Co. v. Kalo Inoculant Co., 333 U.S. 127, 130 (1948); see also Le Roy v. Tatham, 55 U.S. (14 How.) 156, 175 (1852) ("A principle, in the abstract, is a fundamental truth; an original cause; a motive; these cannot be patented, as no one can claim in either of them an exclusive right."). "Phenomena of nature, though just discovered, mental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work." Benson, 409 U.S. at 67; see also Comiskey, 499 F.3d at 1378-79 (holding that "mental processes," "processes of human thinking," and "systems that depend for their operation on human intelligence alone" are not patent-eligible subject matter under Benson).

The true issue before us then is whether Applicants are seeking to claim a fundamental principle (such as an abstract idea) or a mental process. And the underlying legal question thus presented is what test or set of criteria governs the determination by the Patent and Trademark Office ("PTO") or courts as to whether a claim to a process is patentable under § 101 or, conversely, is drawn to unpatentable subject matter because it claims only a fundamental principle.

The Supreme Court last addressed this issue in 1981 in Diehr, which concerned a patent application seeking to claim a process for producing cured synthetic rubber products. The claimed process took temperature readings during cure and used a mathematical algorithm, the Arrhenius equation, to calculate the time when curing would be complete. Noting that a mathematical algorithm alone is unpatentable because mathematical relationships are akin to a law of nature, the Court nevertheless held that the claimed process was patent-eligible subject matter, stating:

[The inventors] do not seek to patent a mathematical formula. Instead, they seek patent protection for a process of curing synthetic rubber. Their process admittedly employs a well-known mathematical equation, but they do not seek to pre-empt the use of that equation. Rather, they seek only to foreclose from others the use of that equation in conjunction with all of the other steps in their claimed process.

The Court declared that while a claim drawn to a fundamental principle is unpatentable, "an application of a law of nature or mathematical formula to a known structure or process may well be deserving of patent protection."

The Court in Diehr thus drew a distinction between those claims that "seek to pre-empt the use of" a fundamental principle, on the one hand, and claims that seek only to foreclose others from using a particular "application" of that fundamental principle, on the other. Patents, by definition, grant the power to exclude others from practicing that which the patent claims. Diehr can be understood to suggest that whether a claim is drawn only to a fundamental principle is essentially an inquiry into the scope of that exclusion; i.e., whether the effect of allowing the claim would be to allow the patentee to pre-empt substantially all uses of that fundamental principle. If so, the claim is not drawn to patent-eligible subject matter.

In Diehr, the Court held that the claims at issue did not pre-empt all uses of the Arrhenius equation but rather claimed only "a process for curing rubber . . . which incorporates in it a more efficient solution of the equation." The process as claimed included several specific steps to control the curing of rubber more precisely: "These include installing rubber in a press, closing the mold, constantly determining the temperature of the mold, constantly recalculating the appropriate cure time through the use of the formula and a digital computer, and automatically opening the press at the proper time." Thus, one would still be able to use the Arrhenius equation in any process not involving curing rubber, and more importantly, even in any process to cure rubber that did not include performing "all of the other steps in their claimed process."

In contrast to Diehr, the earlier Benson case presented the Court with claims drawn to a process of converting data in binary-coded decimal ("BCD") format to pure binary format via an algorithm programmed onto a digital computer. The Court held the claims to be drawn to unpatentable subject matter:

It is conceded that one may not patent an idea. But in practical effect that would be the result if the formula for converting BCD numerals to pure binary numerals were patented in this case. The mathematical formula involved here has no substantial practical application except in connection with a digital computer, which means that if the judgment below is affirmed, the patent would wholly pre-empt the mathematical formula and in practical effect would be a patent on the algorithm itself.

Because the algorithm had no uses other than those that would be covered by the claims (i.e., any conversion of BCD to pure binary on a digital computer), the claims pre-empted all uses of the algorithm and thus they were effectively drawn to the algorithm itself. See also O'Reilly v. Morse, 56 U.S. (15 How.) 62, 113 (1853) (holding ineligible a claim pre-empting all uses of electromagnetism to print characters at a distance).

The question before us then is whether Applicants' claim recites a fundamental principle and, if so, whether it would pre-empt substantially all uses of that fundamental principle if allowed. Unfortunately, this inquiry is hardly straightforward. How does one determine whether a given claim would pre-empt all uses of a fundamental principle? Analogizing to the facts of Diehror Benson is of limited usefulness because the more challenging process claims of the twenty-first century are seldom so clearly limited in scope as the highly specific, plainly corporeal industrial manufacturing process of Diehr nor are they typically as broadly claimed or purely abstract and mathematical as the algorithm of Benson.

The Supreme Court, however, has enunciated a definitive test to determine whether a process claim is tailored narrowly enough to encompass only a particular application of a fundamental principle rather than to pre-empt the principle itself. A claimed process is surely patent-eligible under § 101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. See Benson, 409 U.S. at 70 ("Transformation and reduction of an article 'to a different state or thing' is the clue to the patentability of a process claim that does not include particular machines."); Diehr, 450 U.S. at 192 (holding that use of mathematical formula in process "transforming or reducing an article to a different state or thing" constitutes patent-eligible subject matter); see also Flook, 437 U.S. at 589 n.9 ("An argument can be made [that the Supreme] Court has only recognized a process as within the statutory definition when it either was tied to a particular apparatus or operated to change materials to a 'different state or thing'"); Cochrane v. Deener, 94 U.S. 780, 788 (1876). A claimed process involving a fundamental principle that uses a particular machine or apparatus would not pre-empt uses of the principle that do not also use the specified machine or apparatus in the manner claimed. And a claimed process that transforms a particular article to a specified different state or thing by applying a fundamental principle would not pre-empt the use of the principle to transform any other article, to transform the same article but in a manner not covered by the claim, or to do anything other than transform the specified article.

The process claimed in Diehr, for example, clearly met both criteria. The process operated on a computerized rubber curing apparatus and transformed raw, uncured rubber into molded, cured rubber products. The claim at issue in Flook, in contrast, was directed to using a particular mathematical formula to calculate an "alarm limit" — a value that would indicate an abnormal condition during an unspecified chemical reaction. The Court rejected the claim as drawn to the formula itself because the claim did not include any limitations specifying "how to select the appropriate margin of safety, the weighting factor, or any of the other variables ... the chemical processes at work, the [mechanism for] monitoring of process variables, or the means of setting off an alarm or adjusting an alarm system." The claim thus was not limited to any particular chemical (or other) transformation; nor was it tied to any specific machine or apparatus for any of its process steps, such as the selection or monitoring of variables or the setting off or adjusting of the alarm.

A canvas of earlier Supreme Court cases reveals that the results of those decisions were also consistent with the machine-or-transformation test later articulated in Benson and reaffirmed in Diehr. See Tilghman, 102 U.S. at 729 (particular process of transforming fats into constituent compounds held patentable); Cochrane, 94 U.S. at 785-88 (process transforming grain meal into purified flour held patentable); Morse, 56 U.S. (15 How.) at 113 (process of using electromagnetism to print characters at a distance that was not transformative or tied to any particular apparatus held unpatentable). Interestingly, Benson presents a difficult case under its own test in that the claimed process operated on a machine, a digital computer, but was still held to be ineligible subject matter.[FN9] However, in Benson, the limitations tying the process to a computer were not actually limiting because the fundamental principle at issue, a particular algorithm, had no utility other than operating on a digital computer. Thus, the claim's tie to a digital computer did not reduce the preemptive footprint of the claim since all uses of the algorithm were still covered by the claim.

      9. We acknowledge that the Supreme Court in Benson stated that the claims at issue "were not limited . . . to any particular apparatus or machinery." 409 U.S. at 64. However, the Court immediately thereafter stated: "[The claims] purported to cover any use of the claimed method in a general-purpose digital computer of any type." And, as discussed herein, the Court relied for its holding on its understanding that the claimed process pre-empted all uses of the recited algorithm because its only possible use was on a digital computer. The Diehr Court, in discussing Benson, relied only on this latter understanding of the Benson claims. See Diehr, 450 U.S. at 185-87. We must do the same.

B.

Applicants and several amici have argued that the Supreme Court did not intend the machine-or-transformation test to be the sole test governing § 101 analyses. As already noted, however, the Court explicitly stated in Benson that "[t]ransformation and reduction of an article 'to a different state or thing' is the clue to the patentability of a process claim that does not include particular machines." And the Court itself later noted in Flook that at least so far it had "only recognized a process as within the statutory definition when it either was tied to a particular apparatus or operated to change materials to a 'different state or thing.'". Finally, the Court in Diehr once again applied the machine-or-transformation test in its most recent decision regarding the patentability of processes under § 101.

We recognize, however, that the Court was initially equivocal in first putting forward this test in Benson. As the Applicants and several amici point out, the Court there stated:

It is argued that a process patent must either be tied to a particular machine or apparatus or must operate to change articles or materials to a "different state or thing." We do not hold that no process patent could ever qualify if it did not meet the requirements of our prior precedents.

In Flook, the Court took note that this statement had been made in Benson but merely stated: "As in Benson, we assume that a valid process patent may issue even if it does not meet [the machine-or-transformation test]." And this caveat was not repeated in Diehr when the Court reaffirmed the machine-or-transformation test. ("Transformation and reduction of an article 'to a different state or thing' is the clue to the patentability of a process claim that does not include particular machines."). Therefore, we believe our reliance on the Supreme Court's machine-or-transformation test as the applicable test for § 101 analyses of process claims is sound.

Nevertheless, we agree that future developments in technology and the sciences may present difficult challenges to the machine-or-transformation test, just as the widespread use of computers and the advent of the Internet has begun to challenge it in the past decade. Thus, we recognize that the Supreme Court may ultimately decide to alter or perhaps even set aside this test to accommodate emerging technologies. And we certainly do not rule out the possibility that this court may in the future refine or augment the test or how it is applied. At present, however, and certainly for the present case, we see no need for such a departure and reaffirm that the machine-or-transformation test, properly applied, is the governing test for determining patent eligibility of a process under § 101.

C.

As a corollary, the Diehr Court also held that mere field-of-use limitations are generally insufficient to render an otherwise ineligible process claim patent-eligible. See 450 U.S. at 191-92 (noting that ineligibility under § 101 "cannot be circumvented by attempting to limit the use of the formula to a particular technological environment"). We recognize that tension may be seen between this consideration and the Court's overall goal of preventing the wholesale pre-emption of fundamental principles. Why not permit patentees to avoid overbroad pre-emption by limiting claim scope to particular fields of use? This tension is resolved, however, by recalling the purpose behind the Supreme Court's discussion of pre-emption, namely that pre-emption is merely an indication that a claim seeks to cover a fundamental principle itself rather than only a specific application of that principle. Pre-emption of all uses of a fundamental principle in all fields and pre-emption of all uses of the principle in only one field both indicate that the claim is not limited to a particular application of the principle. See Diehr, 450 U.S. at 193 n.14 ("A mathematical formula in the abstract is nonstatutory subject matter regardless of whether the patent is intended to cover all uses of the formula or only limited uses.") In contrast, a claim that is tied to a particular machine or brings about a particular transformation of a particular article does not pre-empt all uses of a fundamental principle in any field but rather is limited to a particular use, a specific application. Therefore, it is not drawn to the principle in the abstract.

The Diehr Court also reaffirmed a second corollary to the machine-or-transformation test by stating that "insignificant post-solution activity will not transform an unpatentable principle into a patentable process." See also Flook, 437 U.S. at 590 ("The notion that post-solution activity, no matter how conventional or obvious in itself, can transform an unpatentable principle into a patentable process exalts form over substance."). The Court in Flookeasoned:

A competent draftsman could attach some form of post-solution activity to almost any mathematical formula; the Pythagorean theorem would not have been patentable, or partially patentable, because a patent application contained a final step indicating that the formula, when solved, could be usefully applied to existing surveying techniques.

Therefore, even if a claim recites a specific machine or a particular transformation of a specific article, the recited machine or transformation must not constitute mere "insignificant post-solution activity." [FN14]

      14. Although the Court spoke of "postsolution" activity, we have recognized that the Court's reasoning is equally applicable to any insignificant extra-solution activity regardless of where and when it appears in the claimed process. See In re Schrader, 22 F.3d 290, 294 (Fed. Cir. 1994) (holding a simple recordation step in the middle of the claimed process incapable of imparting patent-eligibility under § 101); In re Grams, 888 F.2d 835, 839-40 (Fed. Cir. 1989) (holding a pre-solution step of gathering data incapable of imparting patent-eligibility under § 101).

D.

We discern two other important aspects of the Supreme Court's § 101 jurisprudence. First, the Court has held that whether a claimed process is novel or non-obvious is irrelevant to the § 101 analysis. Rather, such considerations are governed by 35 U.S.C. § 102 (novelty) and § 103 (non-obviousness). Although § 101 refers to "new and useful" processes, it is overall "a general statement of the type of subject matter that is eligible for patent protection 'subject to the conditions and requirements of this title.'" As the legislative history of § 101 indicates, Congress did not intend the "new and useful" language of § 101 to constitute an independent requirement of novelty or non-obviousness distinct from the more specific and detailed requirements of §§ 102 and 103, respectively. So here, it is irrelevant to the § 101 analysis whether Applicants' claimed process is novel or non-obvious.

Second, the Court has made clear that it is inappropriate to determine the patent-eligibility of a claim as a whole based on whether selected limitations constitute patent-eligible subject matter. Diehr, 450 U.S. at 188 ("It is inappropriate to dissect the claims into old and new elements and then to ignore the presence of the old elements in the analysis."). After all, even though a fundamental principle itself is not patent-eligible, processes incorporating a fundamental principle may be patent-eligible. Thus, it is irrelevant that any individual step or limitation of such processes by itself would be unpatentable under § 101.

III.

In the years following the Supreme Court's decisions in Benson, Flook, and Diehr, our predecessor court and this court have reviewed numerous cases presenting a wide variety of process claims, some in technology areas unimaginable when those seminal Supreme Court cases were heard. Looking to these precedents, we find a wealth of detailed guidance and helpful examples on how to determine the patent-eligibility of process claims.

A.

Before we turn to our precedents, however, we first address the issue of whether several other purported articulations of § 101 tests are valid and useful. The first of these is known as the Freeman-Walter-Abele test after the three decisions of our predecessor court that formulated and then refined the test. In light of the present opinion, we conclude that the Freeman-Walter-Abele test is inadequate. Indeed, we have already recognized that a claim failing that test may nonetheless be patent-eligible. Rather, the machine-or-transformation test is the applicable test for patent-eligible subject matter.

The second articulation we now revisit is the "useful, concrete, and tangible result" language associated with State Street ("Today, we hold that the transformation of data, representing discrete dollar amounts, by a machine through a series of mathematical calculations into a final share price, constitutes a [patent-eligible invention] because it produces 'a useful, concrete and tangible result' . . . ."),[FN18] although first set forth in Alappat ("This is not a disembodied mathematical concept which may be characterized as an 'abstract idea,' but rather a specific machine to produce a useful, concrete, and tangible result."); see also AT&T, 172 F.3d at 1357 ("Because the claimed process applies the Boolean principle to produce a useful, concrete, tangible result without pre-empting other uses of the mathematical principle, on its face the claimed process comfortably falls within the scope of § 101."). The basis for this language in State Street and Alappat was that the Supreme Court has explained that "certain types of mathematical subject matter, standing alone, represent nothing more than abstract ideas until reduced to some type of practical application." To be sure, a process tied to a particular machine, or transforming or reducing a particular article into a different state or thing, will generally produce a "concrete" and "tangible" result as those terms were used in our prior decisions. But while looking for "a useful, concrete and tangible result" may in many instances provide useful indications of whether a claim is drawn to a fundamental principle or a practical application of such a principle, that inquiry is insufficient to determine whether a claim is patent-eligible under § 101. And it was certainly never intended to supplant the Supreme Court's test. Therefore, we also conclude that the "useful, concrete and tangible result" inquiry is inadequate and reaffirm that the machine-or-transformation test outlined by the Supreme Court is the proper test to apply.[FN19]

      18. In State Street, as is often forgotten, we addressed a claim drawn not to a process but to a machine. 149 F.3d at 1371-72 (holding that the means-plus-function elements of the claims on appeal all corresponded to supporting structures disclosed in the written description).

      19. As a result, those portions of our opinions in State Street and AT&T relying solely on a "useful, concrete and tangible result" analysis should no longer be relied on.

We next turn to the so-called "technological arts test" that some amici urge us to adopt. We perceive that the contours of such a test, however, would be unclear because the meanings of the terms "technological arts" and "technology" are both ambiguous and ever-changing. And no such test has ever been explicitly adopted by the Supreme Court, this court, or our predecessor court, as the Board correctly observed here. Therefore, we decline to do so and continue to rely on the machine-or-transformation test as articulated by the Supreme Court.

We further reject calls for categorical exclusions beyond those for fundamental principles already identified by the Supreme Court. We rejected just such an exclusion in State Street, noting that the so-called "business method exception" was unlawful and that business method claims (and indeed all process claims) are "subject to the same legal requirements for patentability as applied to any other process or method." We reaffirm this conclusion.

Lastly, we address a possible misunderstanding of our decision in Comiskey. Some may suggest that Comiskey implicitly applied a new § 101 test that bars any claim reciting a mental process that lacks significant "physical steps." We did not so hold, nor did we announce any new test at all in Comiskey. Rather, we simply recognized that the Supreme Court has held that mental processes, like fundamental principles, are excluded by § 101 because '[p]henomena of nature, though just discovered, mental processes, and abstract intellectual concepts . . . are the basic tools of scientific and technological work.'" And we actually applied the machine-or-transformation test to determine whether various claims at issue were drawn to patent-eligible subject matter. Because those claims failed the machine-or-transformation test, we held that they were drawn solely to a fundamental principle, the mental process of arbitrating a dispute, and were thus not patent-eligible under § 101.

Further, not only did we not rely on a "physical steps" test in Comiskey, but we have criticized such an approach to the § 101 analysis. Thus, the proper inquiry under § 101 is not whether the process claim recites sufficient "physical steps," but rather whether the claim meets the machine-or-transformation test. As a result, even a claim that recites "physical steps" but neither recites a particular machine or apparatus, nor transforms any article into a different state or thing, is not drawn to patent-eligible subject matter. Conversely, a claim that purportedly lacks any "physical steps" but is still tied to a machine or achieves an eligible transformation passes muster under § 101.

B.

With these preliminary issues resolved, we now turn to how our case law elaborates on the § 101 analysis set forth by the Supreme Court. To the extent that some of the reasoning in these decisions relied on considerations or tests, such as "useful, concrete and tangible result," that are no longer valid as explained above, those aspects of the decisions should no longer be relied on. Thus, we reexamine the facts of certain cases under the correct test to glean greater guidance as to how to perform the § 101 analysis using the machine-or-transformation test.

The machine-or-transformation test is a two-branched inquiry; an applicant may show that a process claim satisfies § 101 either by showing that his claim is tied to a particular machine, or by showing that his claim transforms an article. Certain considerations are applicable to analysis under either branch. First, as illustrated by Benson and discussed below, the use of a specific machine or transformation of an article must impose meaningful limits on the claim's scope to impart patent-eligibility. Second, the involvement of the machine or transformation in the claimed process must not merely be insignificant extra-solution activity. As to machine implementation, Applicants themselves admit that the language of claim 1 does not limit any process step to any specific machine or apparatus. As a result, issues specific to the machine implementation part of the test are not before us today. We leave to future cases the elaboration of the precise contours of machine implementation, as well as the answers to particular questions, such as whether or when recitation of a computer suffices to tie a process claim to a particular machine.

We will, however, consider some of our past cases to gain insight into the transformation part of the test. A claimed process is patent-eligible if it transforms an article into a different state or thing. This transformation must be central to the purpose of the claimed process. But the main aspect of the transformation test that requires clarification here is what sorts of things constitute "articles" such that their transformation is sufficient to impart patent-eligibility under § 101. It is virtually self-evident that a process for a chemical or physical transformation of physical objects or substances is patent-eligible subject matter. As the Supreme Court stated in Benson:

[T]he arts of tanning, dyeing, making waterproof cloth, vulcanizing India rubber, smelting ores . . . are instances, however, where the use of chemical substances or physical acts, such as temperature control, changes articles or materials. The chemical process or the physical acts which transform the raw material are, however, sufficiently definite to confine the patent monopoly within rather definite bounds.

The raw materials of many information-age processes, however, are electronic signals and electronically-manipulated data. And some so-called business methods, such as that claimed in the present case, involve the manipulation of even more abstract constructs such as legal obligations, organizational relationships, and business risks. Which, if any, of these processes qualify as a transformation or reduction of an article into a different state or thing constituting patent-eligible subject matter?

Our case law has taken a measured approach to this question, and we see no reason here to expand the boundaries of what constitutes patent-eligible transformations of articles.

Our predecessor court's mixed result in Abele illustrates this point. There, we held unpatentable a broad independent claim reciting a process of graphically displaying variances of data from average values. That claim did not specify any particular type or nature of data; nor did it specify how or from where the data was obtained or what the data represented. In contrast, we held one of Abele's dependent claims to be drawn to patent-eligible subject matter where it specified that "said data is X-ray attenuation data produced in a two dimensional field by a computed tomography scanner." This data clearly represented physical and tangible objects, namely the structure of bones, organs, and other body tissues. Thus, the transformation of that raw data into a particular visual depiction of a physical object on a display was sufficient to render that more narrowly-claimed process patent-eligible. We further note for clarity that the electronic transformation of the data itself into a visual depiction in Abele was sufficient; the claim was not required to involve any transformation of the underlying physical object that the data represented. We believe this is faithful to the concern the Supreme Court articulated as the basis for the machine-or-transformation test, namely the prevention of pre-emption of fundamental principles. So long as the claimed process is limited to a practical application of a fundamental principle to transform specific data, and the claim is limited to a visual depiction that represents specific physical objects or substances, there is no danger that the scope of the claim would wholly pre-empt all uses of the principle.

This court and our predecessor court have frequently stated that adding a data-gathering step to an algorithm is insufficient to convert that algorithm into a patent-eligible process. For example, in Grams we held unpatentable a process of performing a clinical test and, based on the data from that test, determining if an abnormality existed and possible causes of any abnormality. We rejected the claim because it was merely an algorithm combined with a data-gathering step. We note that, at least in most cases, gathering data would not constitute a transformation of any article. A requirement simply that data inputs be gathered — without specifying how — is a meaningless limit on a claim to an algorithm because every algorithm inherently requires the gathering of data inputs. Further, the inherent step of gathering data can also fairly be characterized as insignificant extra-solution activity.

Similarly, In re Schrader presented claims directed to a method of conducting an auction of multiple items in which the winning bids were selected in a manner that maximized the total price of all the items (rather than to the highest individual bid for each item separately). We held the claims to be drawn to unpatentable subject matter, namely a mathematical optimization algorithm. No specific machine or apparatus was recited. The claimed method did require a step of recording the bids on each item, though no particular manner of recording (e.g., on paper, on a computer) was specified. But, relying on Flook, we held that this step constituted insignificant extra-solution activity.

IV.

We now turn to the facts of this case. As outlined above, the operative question before this court is whether Applicants' claim 1 satisfies the transformation branch of the machine-or-transformation test.

We hold that the Applicants' process as claimed does not transform any article to a different state or thing. Purported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances. Applicants' process at most incorporates only such ineligible transformations. See Appellants' Br. at 11 ("[The claimed process] transforms the relationships between the commodity provider, the consumers and market participants ") As discussed earlier, the process as claimed encompasses the exchange of only options, which are simply legal rights to purchase some commodity at a given price in a given time period. The claim only refers to "transactions" involving the exchange of these legal rights at a "fixed rate corresponding to a risk position." Thus, claim 1 does not involve the transformation of any physical object or substance, or an electronic signal representative of any physical object or substance. Given its admitted failure to meet the machine implementation part of the test as well, the claim entirely fails the machine-or-transformation test and is not drawn to patent-eligible subject matter.

Applicants' arguments are unavailing because they rely on incorrect or insufficient considerations and do not address their claim's failure to meet the requirements of the Supreme Court's machine-or-transformation test. First, they argue that claim 1 produces "useful, concrete and tangible results." But as already discussed, this is insufficient to establish patent-eligibility under § 101. Applicants also argue that their claimed process does not comprise only "steps that are totally or substantially practiced in the mind but clearly require physical activity which have [sic] a tangible result." But as previously discussed, the correct analysis is whether the claim meets the machine-or-transformation test, not whether it recites "physical steps." Even if it is true that Applicant's claim "can only be practiced by a series of physical acts" as they argue, its clear failure to satisfy the machine-or-transformation test is fatal. Thus, while we agree with Applicants that the only limit to patent-eligibility imposed by Congress is that the invention fall within one of the four categories enumerated in § 101, we must apply the Supreme Court's test to determine whether a claim to a process is drawn to a statutory "process" within the meaning of § 101. Applied here, Applicants' claim fails that test so it is not drawn to a "process" under § 101 as that term has been interpreted.

On the other hand, while we agree with the PTO that the machine-or-transformation test is the correct test to apply in determining whether a process claim is patent-eligible under § 101, we do not agree, as discussed earlier, that this amounts to a "technological arts" test. Neither the PTO nor the courts may pay short shrift to the machine-or-transformation test by using purported equivalents or shortcuts such as a "technological arts" requirement. Rather, the machine-or-transformation test is the only applicable test and must be applied, in light of the guidance provided by the Supreme Court and this court, when evaluating the patent-eligibility of process claims. When we do so here, however, we must conclude, as the PTO did, that Applicants' claim fails the test.

Applicants' claim is similar to the claims we held unpatentable under § 101 in Comiskey. There, the applicant claimed a process for mandatory arbitration of disputes regarding unilateral documents and bilateral "contractual" documents in which arbitration was required by the language of the document, a dispute regarding the document was arbitrated, and a binding decision resulted from the arbitration. We held the broadest process claims unpatentable under § 101 because "these claims do not require a machine, and these claims evidently do not describe a process of manufacture or a process for the alteration of a composition of matter." We concluded that the claims were instead drawn to the "mental process" of arbitrating disputes, and that claims to such an "application of [only] human intelligence to the solution of practical problems" is no more than a claim to a fundamental principle. See Benson, 409 U.S. at 67 ("[M]ental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work.").

Just as the Comiskey claims as a whole were directed to the mental process of arbitrating a dispute to decide its resolution, the claimed process here as a whole is directed to the mental and mathematical process of identifying transactions that would hedge risk. In neither case do the claims require the use of any particular machine or achieve any eligible transformation. (27 (We note that several Justices of the Supreme Court, in a dissent to a dismissal of a writ of certiorari, expressed their view that a similar claim in Laboratory Corp. of America Holdings v. Metabolite Laboratories, Inc. was drawn to unpatentable subject matter. 126 S. Ct. 2921, 2927-28 (2006) (Breyer, J., dissenting; joined by Stevens, J., and Souter, J.). There, the claimed process only comprised the steps of: (1) "assaying a body fluid for an elevated level of total homocysteine," and (2) "correlating an elevated level of total homocysteine in said body fluid with a deficiency of cobalamin or folate.")

Applicants here seek to claim a non-transformative process that encompasses a purely mental process of performing requisite mathematical calculations without the aid of a computer or any other device, mentally identifying those transactions that the calculations have revealed would hedge each other's risks, and performing the post-solution step of consummating those transactions. Therefore, claim 1 would effectively pre-empt any application of the fundamental concept of hedging and mathematical calculations inherent in hedging (not even limited to any particular mathematical formula). And while Applicants argue that the scope of this pre-emption is limited to hedging as applied in the area of consumable commodities, the Supreme Court's reasoning has made clear that effective pre-emption of all applications of hedging even just within the area of consumable commodities is impermissible. Moreover, while the claimed process contains physical steps (initiating, identifying), it does not involve transforming an article into a different state or thing. Therefore, Applicants' claim is not drawn to patent-eligible subject matter under § 101.

CONCLUSION

Because the applicable test to determine whether a claim is drawn to a patent-eligible process under § 101 is the machine-or-transformation test set forth by the Supreme Court and clarified herein, and Applicants' claim here plainly fails that test, the decision of the Board is AFFIRMED.

[Judge Mayer dissented, first, on the ground that the majority opinion failed to overrule State Street explicitly. Whether this should be done was a question that the court had asked to be briefed on the re-argument. “I would answer that question with an emphatic ‘yes.’” He then moved to the major thrust of his dissent: business-method patents are unconstitutional, or the patent statute must be interpreted not to extend to them in order to avoid unconstitutionality. He maintained:

The patent system is intended to protect and promote advances in science and technology, not ideas about how to structure commercial transactions. Claim 1 of the application . . . is not eligible for patent protection because it is directed to a method of conducting business. Affording patent protection to business methods lacks constitutional and statutory support, serves to hinder rather than promote innovation and usurps that which rightfully belongs in the public domain. State Street and AT&T should be overruled.

Pointing to the Statute of Monopolies and the public hostility to the “odious monopolies,” he concluded that when Congress enacted the first patent statute (in language substantially unchanged to this day in regard to patent-eligibility), Congress did not want the system to allow patents on methods of conducting trade. State Street was a grave error. “Before State Street led us down the wrong path, this court had rightly concluded that patents were designed to protect technological innovations, not ideas about the best way to run a business.”

Judge Mayer also criticized the majority opinion for doing nothing to remedy the ills of a “patent system [that] has run amok,” for evading crucial issues, and for failing to enlighten users of the patent system in regard to

three of the thorniest issues in the patentability thicket: (1) the continued viability of business method patents, (2) what constitutes sufficient physical transformation or machine-implementation to render a process patentable, and (3) the extent to which computer software and omputer-implemented processes constitute statutory subject matter.

Judge Dyk, joined by Judge Linn, concurred in the majority opinion upholding the PTO’s rejection of Bilski’s patent, but concurred also in Judge Mayer’s historical analysis that the framers of the Constitution intended to exclude from the operation of the US patent system “methods for organizing human activity that do not involve manufactures, machines, or compositions of matter.” Since Bilski’s method failed that test, it is patent-ineligible.

Judge Rader dissented on the ground that the majority should have “said in a single sentence: ‘Because Bilski claims merely an abstract idea, this court affirms the Board's rejection.’” He then complained that instead of doing that, the majority opinion

propagates unanswerable questions: What form or amount of “transformation” suffices? When is a “representative” of a physical object sufficiently linked to that object to satisfy the transformation test? (E.g., Does only vital sign data taken directly from a patient qualify, or can population data derived in part from statistics and extrapolation be used?) What link to a machine is sufficient to invoke the “or machine” prong? Are the “specific” machines of Benson required, or can a general purpose computer qualify? What constitutes “extra-solution activity?” If a process may meet eligibility muster as a “machine,” why does the Act “require” a machine link for a “process” to show eligibility?

Judge Rader indicated his belief that nothing is wrong with patents on business methods or natural phenomena, so long as they are claimed to “achieve a useful, tangible, and concrete result.” In his view, the LabCorp dissent’s criticism of that test, and of business method patents generally, misses the point of the needs of Twenty-first Century innovation and entrepreneurship.

Judge Newman dissented on the ground that the PTO should have allowed Bilski’s patent. The opinion largely constitutes a debate with Judge Dyk’s concurrence about whether the Statute of Monopolies, common law precedents, and the widespread opposition to the “odious monopolies” led to a ban on business-method patents in the U.S. Judge Newman insists that “[i]t is inconceivable that on this background the Framers, and again the enactors of the first United States patent statutes in 1790 and 1793, intended sub silentio to impose the limitations on ‘process’ now created by this court.”]


Notes

1. A petition for certiorari (available here) was filed and granted. The petition asked two questions:

Whether the Federal Circuit erred by holding that a “process” must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing…despite this Court’s precedent declining to limit the broad statutory grant of patent eligibility for “any” new and useful process beyond excluding patents for “laws of nature, physical phenomena, and abstract ideas.”

Whether the Federal Circuit’s “machine-or-transformation” test for patent eligibility, which effectively forecloses meaningful patent protection to many business methods, contradicts the clear Congressional intent that patents protect “method[s] of doing or conducting business.” 35 U.S.C. § 273.

2. The Bilski court said, “[T]he main aspect of the transformation test that requires clarification here is what sorts of things constitute ‘articles’ such that their transformation is sufficient to impart patent-eligibility under § 101.” That is, how do you tell what are “articles” that, if transformed, constitute patent-eligible subject matter and what other “articles,” if transformed, do not constitute patent-eligible subject matter? “Which, if any, of these processes qualify as a transformation or reduction of an article into a different state or thing constituting patent-eligible subject matter?” How does the court answer that — once you get beyond vulcanization of rubber and tanning of leather? Say, to data or signals representative of some kind of parameter.

Looking to the Abele case, the Federal Circuit said that a method that transforms data that “clearly represent[s] the physical and tangible objects, namely the structure of bones, organs, and other body tissues” is a patent-eligible method. Go back a decade and revisit Schrader, which tried to explain this just before the Alappat and State Street train wrecks.

But what of data that can be anything? What about the claims rejected in Abele? What about methods that transform (or manipulate) data representing “public or private legal obligations or relationships, business risks, or other such abstractions,” or “money” rather than data “representative of physical objects or substances."? Professor Kevin Collins of Indiana University's Law School calls this the tangibility test "going meta," because it isn't the tangibility of the electrons in a wire that creates patent-eligibility but the tangibility of the meaning that the inventor assigns to the data involved in the claim — the tangibility of the informational content of the data or the thing that it represents. (Is this Schrader deja vu?) Professor Collins protests the Federal Circuit's methodolgy that makes patent-eligible “the manipulation of data that represents my height (a presumptively physical property of my body)” and yet denies patent-eligibility to “the manipulation of data that represents my expected longevity (a property that is difficult to classify as a physical one).”

3. The Constution gives Congress power to promote the useful arts (“the uſeful Arts”) by granting patents to inventors. Assuming that Congress would not be able to promote the useful arts by causing patents to issue on things outside the useful arts (such as advances in poetry or music), what about a machine for doing something not concerning something in the useful arts? Consider the machine of Franz Kafka’s In the Penal Colony. It is a machine that cuts into the skin of culprits words appropriate to the crimes they committed, and its process continues until the culprits expire from loss of blood. The claimed subject matter of the machine is (my interpretation and claim drafting here, not Kafka’s):

A machine adapted to provide a punishment to fit a particular crime, said machine adapted to hold a person immobile, said machine comprising:

• a programming unit, said unit adapted to be programmed with instructions corresponding to preselected words, said unit adapted to transmit signals representative of said instructions, said words preselected to be representative of a series of acts admonishing a person against commission of said particular crime; and

• a writing module [detail at left below], said module coupled to said programming unit and adapted to receive said signals therefrom, said module comprising a needle adapted to contact, penetrate, and traverse the skin of the person, said module capable of causing said needle to inscribe said preselected words on the skin of the person, responsively to said signals from said programming unit, thereby inscribing on the skin of the person instructions not to commit said particular crime.

The next claim is a process for imposing on a convicted criminal a punishment to fit said criminal’s crime, said process comprising placing said criminal in the (appropriately programmed) machine of the preceding claim and operating the machine until the criminal expires. Is the machine a patent-eligible machine? Is the process a patent-eligible process? Does promoting the function of the process or machine promote the progress of useful arts? See the discussion in Being Within the Useful Arts as a Further Constitutional Requirement for US Patent Eligibility, [2009] EUR. INTELL. PROP. REV 6, 10-12.

4. In footnote 18, the court says, “In State Street, as is often forgotten, we addressed a claim drawn not to a process but to a machine. 149 F.3d at 1371-72 (holding that the means-plus-function elements of the claims on appeal all corresponded to supporting structures disclosed in the written description).” What does that mean? Why is it relevant to anything? Compare the preceding with this statement from AT&T v. Excel: “Whether stated implicitly or explicitly, we consider the scope of § 101 to be the same regardless of the form — machine or process — in which a particular claim is drafted. In fact, whether the invention is a process or a machine is irrelevant. ...Furthermore, the Supreme Court’s decisions in Diehr, Benson, and Flook, all of which involved method (i.e., process) claims, have provided and supported the principles which we apply to both machine- and process-type claims.” AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352, 1357-58 (Fed. Cir. 1999); see also State Street, 149 F.3d at 1372 (“For the purposes of a § 101 analysis, it is of little relevance whether claim 1 is directed to a ‘machine’ or a ‘process,’ ...”). What is going on here?

5. After the Supreme Court granted certiorari in Bilski and while that case remained pending, the courts and PTO struggled to deal with the flood of business patents (illustrated in the following graph) and efforts to obtain and enforce them.

5. Next is a PTO “clarification” of the Federal Circuit's Bilski opinion and next after that a Federal Circuit panel’s treatment of a GWLS grad’s test case attempting to push the PTO into allowing a patent on a business “paradigm.” Other decisions during this period also struggled with the problems found in applying the post-Bilski law of patent-eligibility. Read on.



PTO's Guidance for Examining Process Claims in view of In re Bilski


In re Ferguson
United States Court of Appeals for the Federal Circuit
558 F.3d 1359 (Fed. Cir. 2009)

Before Newman, Mayer, and Gjarsa
GAJARSA, Circuit Judge.

Applicants argue that the Board erroneously decided that the claims are not directed to patent-eligible subject matter under 35 U.S.C. § 101. Because we conclude that Applicants’ claims are not within the parameters of the statutory requirements and do not cover patent-eligible subject matter, particularly in light of this court’'s recent decision in In re Bilski, 545 F.3d 943 (Fed. Cir. 2008) (en banc), we affirm the decision of the Board.

BACKGROUND

The application [Ed. note: a test case by Scott Harris, a GWLS graduate] is directed to a marketing paradigm for bringing products to market. Claims 1-23 and 36-68 are method claims; claims 24-35 are “paradigm” claims. Claim 1, which is representative of Applicants’ method claims, reads:

A method of marketing a product, comprising:

developing a shared marketing force, said shared marketing force including at least marketing channels, which enable marketing a number of related products;

using said shared marketing force to market a plurality of different products that are made by a plurality of different autonomous producing company, so that different autonomous companies, having different ownerships, respectively produce said related products;

obtaining a share of total profits from each of said plurality of different autonomous producing companies in return for said using; and

obtaining an exclusive right to market each of said plurality of products in return for said using.

Claim 24, which is representative of Applicants’ paradigm claims, reads:

A paradigm for marketing software, comprising:

a marketing company that markets software from a plurality of different independent and autonomous software companies, and carries out and pays for operations associated with marketing of software for all of said different independent and autonomous software companies, in return for a contingent share of a total income stream from marketing of the software from all of said software companies, while allowing all of said software companies to retain their autonomy.

The examiner rejected each of claims 1-68 under 35 U.S.C. §§ 102, 103 and/or 112. The Board issued a superseding rejection under 35 U.S.C. § 101. The Board entered the new § 101 rejection “to allow [the Board] to properly address each separate claim on appeal and to consider the PTO's Interim Guidelines for Examination of Patent Applications for Patent Subject Matter Eligibility [(‘Guidelines’)], . . . which were promulgated after the decision on appeal in this case.” Referring primarily to representative claims 1 and 24, the Board proceeded to clarify the bases for its rejection with reference to the Guidelines.

As to method claims 1-23 and 36-68, the Board conceded that the claims nominally fell within one of the four categories of statutory subject matter-processes. But after detailed analysis, the Board concluded that Applicants’ method claims were directed to an “abstract idea”—not patent-eligible subject matter.

As to paradigm claims 24-35, the Board found that a “paradigm” 1 does not clearly fall within any of the four enumerated categories of statutory subject matter. And considering the paradigm claims’ reference to “a marketing company,” the Board determined:

There is nothing in the record of this case that would suggest that “a marketing company” can be considered to be a process, a machine, a manufacture or a composition of matter. In other words, the paradigm claims on appeal are not directed to statutory subject matter under 35 U.S.C. § 101 because they are not directed to subject matter within the four recognized categories of patentable inventions. Therefore, the paradigm claims, claims 24-35, are not patentable under 35 U.S.C. § 101 for at least this reason.

1      The Board found that “[a] ‘paradigm’ is generally defined as ‘a pattern, example or model.’” (citing Webster’s New World Dictionary (1966)).

DISCUSSION

As this court recently reiterated in Bilski, “[w]hether a claim is drawn to patent-eligible subject matter under § 101 is a threshold inquiry, and any claim of an application failing the requirements of § 101 must be rejected even if it meets all of the other legal requirements of patentability.” Bilski, 545 F.3d at 950; see also Parker v. Flook, 437 U.S. 584, 593 (1978).

As this appeal turns on whether Applicants’ invention as claimed meets the requirements set forth in § 101, we begin with the words of the statute: “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 therefore, subject to the conditions and requirements of this title.”

The statute thus recites four categories of subject matter: processes, machines, manufactures, and compositions of matter. But even if a claim may be deemed to fit literally within one or more of the statutory categories, it may not be patent eligible. As the Supreme Court has repeatedly cautioned: “Phenomena of nature, though just discovered, mental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work.” Gottschalk v. Benson, 409 U.S. 63, 67 (1972); see also Bilski, 545 F.3d at 952 (collecting cases). We thus consider below whether any of Applicants’ claims are drawn to patent-eligible subject matter within any of the four statutory categories.

I. The Method Claims

As to Applicants’ method claims, which at least nominally fall into the category of process claims, this court’s recent decision in Bilski is dispositive. In Bilski, we resolved the question: “what test or set of criteria governs the determination by the PTO or courts as to whether a claim to a process is patentable under § 101, or conversely, is drawn to unpatentable subject matter because it claims only a fundamental principle.” Bilski, 545 F.3d at 952. We stated that the Supreme Court’s machine-or-transformation test is the “definitive test to determine whether a process claim is tailored narrowly enough to encompass only a particular application of a fundamental principle rather than to pre-empt the principle itself.” Id. at 954. As this court phrased the machine-or-transformation test in Bilski: ‘A claimed process is surely patent-eligible under § 101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” Applicants’ method claims do not meet either prong of the machine-or-transformation test.

Applicants’ method claims are not tied to any particular machine or apparatus. Although Applicants argue that the method claims are tied to the use of a shared marketing force, a marketing force is not a machine or apparatus. As this court recently stated in In re Nuijten, 500 F.3d 1346 (Fed. Cir. 2007), a machine is a “‘concrete thing, consisting of parts, or of certain devices and combination of devices.’ This ‘includes every mechanical device or combination of mechanical powers and devices to perform some function and produce a certain effect or result.’” Id. at 1355 (quoting Burr v. Duryee, 68 U.S. (1 Wall.) 531, 570 (1863); Corning v. Burden, 56 U.S. (15 How.) 252, 267 (1853)). Applicants’ method claims are not tied to any concrete parts, devices, or combination of devices.

Nor do Applicants’ methods, as claimed, transform any article into a different state or thing. At best it can be said that Applicants’ methods are directed to organizing business or legal relationships in the structuring of a sales force (or marketing company). But as this court stated in Bilski, “[p]urported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances.” 545 F.3d at 963.

Because Applicants’ method claims fail to meet either prong of the machine-or-transformation test, we affirm the Board’s rejection of claims 1-23 and 36-68 under § 101 as not drawn to patent-eligible subject matter. 3

3       Contrary to the concurrence’s assertion, we do not contend that this court has overturned State Street Bank & Trust Co. v. Signature Financial Group, 149 F.3d 1373 (1998), but merely note that the “useful, concrete and tangible result test” “is insufficient to determine whether a claim is patent-eligible under § 101,” Bilski, 545 F.3d at 959, and “is inadequate,” id. at 960 (reaffirming that “the machine-or-transformation test outlined by the Supreme Court is the proper test to apply” (emphasis added)), and that “those portions of our opinions in State Street and AT&T [Corp. v. Excel Commcns, Inc., 172 F.3d 1352 (Fed. Cir. 1999),] relying on a ‘useful, concrete and tangible result’ analysis should not longer be relied on.” id. at 960 n.19.

The decisions of the Board and the briefing and argument on appeal include extensive discussion of a so-called “useful, concrete, and tangible result” test. To avoid confusion, we clarify here that in Bilski, this court considered whether this “test” is valid and useful and concluded that it is not.4 Specifically, we rejected the viability of the “useful, concrete, and tangible result” language of State Street Bank & Trust Co. v. Signature Financial Group, 149 F.3d 1373 (1998), as a test, because while such an inquiry “may in many instances provide useful indications of whether a claim is drawn to a fundamental principle or a practical application of such a principle,” it inappropriately focuses on the result of the claimed invention rather than the invention itself. Bilski, 545 F.3d at 959.
4       In Bilski, 545 F.3d at 951 n.2, this court also rejected the so-called Freeman-Walter-Abele test, the “technological arts” test, and the “physical steps” test. 545 F.3d at 959, 960, 960-61. Because these “tests” were not subjects of extensive argument in this case, we see no need to revisit them here.

Applicants also ask this court to consider a new test [Ed. note: the Scott Harris test]: “Does the claimed subject matter require that the product or process has more than a scintilla of interaction with the real world in a specific way?” In light of this court’s clear statements that the “sole,” “definitive,” “applicable,” “governing,” and “proper” test for a process claim under § 101 is the Supreme Court’s machine-or-transformation test, see Bilski, passim, we are reluctant to consider Applicants’ proposed test. Suffice it to say that Applicants’ proposed “scintilla of interaction” test begs the question whether even the most abstract of ideas and natural of phenomena interact with the real world. Applicants’ proposed test would lead, therefore, both to ambiguity and to conflict with the Supreme Court precedents discussed above and in Bilski. We thus decline to adopt Applicants’ proposed “scintilla of interaction” test and reaffirm that the machine-or-transformation test is the singular test for a process claim under § 101.

Finally, Applicants’ assertion that the method claims are directed to business methods and should be treated as statutory subject matter in light of State Street is misplaced. “In State Street, as is often forgotten, we addressed a claim drawn not to a process but to a machine.” Bilski, 545 F.3d at 959 n.18 (emphasis in original); see also State Street, 149 F.3d at 1373 (“Today, we hold that the transformation of data, representing discrete dollar amounts, by a machine through a series of mathematical calculations into a final share price, constitutes a [patent-eligible invention] because it produces a useful, concrete and tangible result . . . .” (internal quotation marks omitted) (emphasis added)). The claim at issue in State Street was thus drawn to a patent-eligible machine implementation of what may have otherwise been a non-patent-eligible abstract idea. Moreover, we note that in Bilski this court refused to extend or even to take a broad reading of the holding in State Street, holding that the language employed in State Street “was certainly never intended to supplant the Supreme Court’s [machine-or-transformation] test” and that “those portions of our opinion[ ] in State Street . . . relying solely on a ‘useful, concrete and tangible result’ analysis should no longer be relied on.” Bilski, 545 F.3d at 959-60 & n.19.

For these reasons, we decline to consider Applicants’ method claims other than through the lens of the machine-or-transformation test, upon the application of which we have determined that the claims are not drawn to patent-eligible subject matter. We hold, therefore, that Applicants' method claims are not patentable.

II. The “Paradigm” Claims

Turning now to Applicants’ paradigm claims, this court’s recent decisions in In re Nuijten, 500 F.3d 1346 (Fed. Cir. 2007), cert. denied sub nom. Nuijten v. Dudas, 129 S. Ct. 70 (2008), and in Bilski are instructive. As in Nuijten, Applicants’ paradigm claims force us to consider whether the claimed subject matter fits into any of the four enumerated categories of statutory subject matter. Although we need not resolve the particular class of statutory subject matter into which Applicants’ paradigm claims fall, the claims must satisfy at least one category. Nuijten, 500 F.3d at 1354 (“If a claim covers material not found in any of the four statutory categories, that claim falls outside the plainly expressed scope of § 101 even if the subject matter is otherwise new and useful.”). We hold that they do not.

Applicants’ paradigm claims are not directed to processes, as “no act or series of acts” is required. Nuijten, 500 F.3d at 1355. Applicants do not argue otherwise. Applicants’ marketing company paradigm is also not a manufacture, because, although a marketing company may own or produce tangible articles or commodities, it clearly cannot itself be an “‘article[ ]’ resulting from the process of manufacture.” Nuijten, 500 F.3d at 1356. Again, Applicants do not argue otherwise. And Applicants’ marketing company paradigm is certainly not a composition of matter. Applicants do not argue otherwise.

Applicants do assert, however, that “[a] company is a physical thing, and as such analogous to a machine.” But the paradigm claims do not recite “a concrete thing, consisting of parts, or of certain devices and combination of devices,” Nuijten, 500 F.3d at 1355, and as Applicants conceded during oral argument, “you cannot touch the company.” Recording of Oral Argument at 11:30-11:32, In re Ferguson, No. 2007-1232 (Fed. Cir. Dec. 5, 2007), available at http://oralarguments.cafc.uscourts.gov/mp3/2007-1232.mp3. To the contrary, Applicants do no more than provide an abstract idea—a business model for an intangible marketing company. See Bilski, 545 F.3d at 952 (“The true issue before us then is whether Applicants are seeking to claim a fundamental principle (such as an abstract idea) or a mental process.”). Indeed, it can be said that Applicants’ paradigm claims are drawn quite literally to the “paradigmatic ‘abstract idea.’” Cf. In re Warmerdam, 33 F.3d 1354, 1360 (Fed. Cir. 1994). Applicants’ argument is, therefore, unavailing.

Absent identity with any statutory category, Applicants’ paradigm claims are, therefore, unpatentable as not directed to statutory subject matter.

CONCLUSION

The decision of the Board, entering the rejection of claims 1-68 of the ’823 application for lack of statutory subject matter, is affirmed.


Notes

  1. A dissent by Judge Newman is omitted. She takes exception to the majority's view that Bilski (to which she dissented) (1) overruled prior Federal Circuit law that had rejected the Supreme Court's approach and (2) ushered in as the sole clue the machine-or-transformation test. She insists:

My colleagues err in asserting that the "machine-or-transformation" test is that of the Supreme Court. See Gottschalk v. Benson, 409 U.S. 63, 71 (1972) (“We do not so hold.”). And in their purported “clarification” of the Bilski decision, my colleagues suggest that Bilski overturned not only State Street Bank but also other precedent including that based on the Freeman-Walter-Abele test, the “technological arts” test, and the “physical steps” test. This sweeping rejection of precedent simply enlarges the taint on the thousands of patents that were granted on application of these tests. Indeed, this court in Bilski reaffirmed the holding of State Street Bank that the ‘business method exception’ was unlawful and that business method claims (and indeed all process claims) are 'subject to the same legal requirements for patentability as applied to any other process or method.’” Bilski, 545 F.3d at 960 (quoting State Street Bank, 149 F.3d at 1375-76). Although the Bilski court held that the State Street Bank criterion of “useful, concrete and tangible result” does not provide patent-eligibility if the machine-or-transformation test is not met, the court recognized that the State Street Bank test was directed to processes performed by computer, thus meeting the Bilski test: “In State Street, as is often forgotten, we addressed a claim drawn not to a process but to a machine.” Bilski, 545 F.3d at 959 n.18.

The majority unstated response is (courtesy of Pink Floyd) Welcome to the Machine.

  2. Consider this claim for compliance with the Bilski test:

A method of making a shoe, comprising:

selecting a piece of leather and cutting it to form a flat planar surface approximately the size and shape of a sole of a person's foot;

selecting another piece of leather and cutting it to form a three-dimensional planar, curved surface approximately corresponding in size and shape to an upper part of said person's foot, said curved surface having a distal portion corresponding in shape and size to said person's toes and having a proximal portion in which is located a generally circular aperture corresponding in shape and size to a horizontal cross-section of said person's ankle; and

fastening together said flat planar surface and said curved surface, all around their outer edges.

And this claim:

A method of removing dirt from a soiled garment, comprising:

placing a soiled garment in flowing water; and

shaking said garment for at least five minutes.

In studiously avoiding falling within the machine-or-transformation test, did the foregoing claim slip into claiming a natural principle (flowing water eliminates dirt in textiles)? Or is this a legitimate process claim that discredits the claim of the machine-or-transformation test to being the “sole clue”? If you added beating the clothes with a stick as shown in the picture, would that satisfy the “particular machine” requirement? Such a claim might be expressed in these terms:

A method of removing dirt from a soiled garment, comprising:

submerging a soiled garment in water; and

beating said garment for at least five minutes with a stick.



In re Comiskey
United States Court of Appeals for the Federal Circuit
554 F.3d 967 (Fed. Cir. 2009)

Before MICHEL, Chief Judge, DYK and PROST, Circuit Judges.

DYK, Circuit Judge.

Acting en banc, the court today vacated the September 20, 2007, judgment in this case, and the panel's original opinion, which is reported at 499 F.3d 1365 (Fed. Cir. 2007), was withdrawn. The en banc court reassigned the opinion to the panel for revision. The panel's original opinion is revised as follows:

Appellant Stephen W. Comiskey appeals the decision of the Board of Patent Appeals and Interferences affirming the examiner's rejection of claims 1-59 of his patent application as obvious in view of the prior art and therefore unpatentable under 35 U.S.C. § 103. We do not reach the Board's obviousness rejection of the independent claims under § 103. We conclude that Comiskey's independent claims 1 and 32 and most of their dependent claims are unpatentable subject matter under 35 U.S.C. § 101. With respect to independent claims 17 and 46 (and dependent claims 18-29, 31, 47-57, and 59) and dependent claims 15, 30, 44, and 58, we remand to the PTO to consider the § 101 question in the first instance. We therefore affirm-in-part, vacate-in-part, and remand.

BACKGROUND

I

Comiskey's patent application claims a method and system for mandatory arbitration involving legal documents, such as wills or contracts. According to the application, the claimed “program ... requires resolution by binding arbitration of any challenge or complaint concerning any unilateral document ... [or] contractual document.”

Independent claim 1 recites a “method for mandatory arbitration resolution regarding one or more unilateral documents.” [FN1] Independent claim 32 is practically identical to claim 1. Although the application's written description references “an automated system and method for requiring resolution through binding arbitration” and “a mandatory arbitration system through a computer on a network,” claims 1 and 32 do not reference, and the parties agree that these claims do not require, the use of a mechanical device such as a computer.

1.      Claim 1 states in full:

A method for mandatory arbitration resolution regarding one or more unilateral documents comprising the steps of:

enrolling a person and one or more unilateral documents associated with the person in a mandatory arbitration system at a time prior to or as of the time of creation of or execution of the one or more unilateral documents;

incorporating arbitration language, that is specific to the enrolled person, in the previously enrolled unilateral document wherein the arbitration language provides that any contested issue related to the unilateral document must be presented to the mandatory arbitration system, in which the person and the one or more unilateral documents are enrolled, for binding arbitration wherein the contested issue comprises one or more of a challenge to the documents, interpretation of the documents, interpretation or application of terms of the documents and execution of the documents or terms of the documents;

requiring a complainant to submit a request for arbitration resolution to the mandatory arbitration system wherein the request is directed to the contested issue related to the unilateral document containing the arbitration language;

conducting arbitration resolution for the contested issue related to the unilateral document in response to the request for arbitration resolution;

providing support to the arbitration resolution; and

determining an award or a decision for the contested issue related to the unilateral document in accordance with the incorporated arbitration language, wherein the award or the decision is final and binding with respect to the complainant.

Independent claim 17 recites a “system for mandatory arbitration resolution regarding one or more unilateral documents.” It includes the following limitations: (1) “a registration module” to register the unilateral document and its executor; (2) “an arbitration module” for incorporating arbitration language that requires any contested issue related to the unilateral document be presented to the system; (3) “an arbitration resolution module” that requires “a complainant to submit a request for arbitration resolution”; and (4) “a means for selecting an arbitrator from an arbitrator database” and “providing support to the arbitrator ... where the arbitrator determines an award or a decision ... [that] is final and binding.” [FN3] Independent claim 46 is practically identical to claim 17. Four dependent claims (claims 15, 30, 44, and 58) also explicitly require use of a computer or other machine. Each states, in full: “[t]he method[/system] of claim [1, 17, 32, or 46] wherein access to the mandatory arbitration is established through the Internet, intranet, World Wide Web, software applications, telephone, television, cable, video [or radio], magnetic, electronic communication, or other communication means.”

3.       Claim 17 states in full:

A system for mandatory arbitration resolution regarding one or more unilateral documents comprising:

a registration module for enrolling a person who is executing and one or more unilateral documents associated with the person in a mandatory arbitration system at a time prior to or as of the time of creation of or execution of the one or more unilateral documents;

an arbitration module for incorporating arbitration language, that is specific to the enrolled person, in the previously enrolled unilateral document wherein the arbitration language provides that any contested issue related to the unilateral document must be presented to the mandatory arbitration system, in which the person and the one or more unilateral documents are enrolled, for binding arbitration wherein the contested issue comprises one or more of a challenge to the documents, interpretation of the documents, interpretation or application of terms of the documents and execution of the documents or terms of the documents; and for providing this arbitration language to the enrolled person;

an arbitration resolution module for requiring a complainant to submit a request for arbitration resolution to the mandatory arbitration system wherein the request is directed to the contested issue related to the unilateral document containing the arbitration language; and

a means for selecting an arbitrator from an arbitrator database to conduct an arbitration resolution for the contested issue related to the unilateral document in response to the request for arbitration resolution, for providing support to the arbitrator, and where the arbitrator determines an award or a decision for the contested issue related to the unilateral document in accordance with the incorporated arbitration language, wherein the award or the decision is final and binding with respect to the complainant.

II

Comiskey timely appealed to this court. After oral argument, we requested supplemental briefing directed at the patentability of the subject matter of Comiskey's application under 35 U.S.C. § 101. In the supplemental briefing, Comiskey argued for the first time that we lacked the power to consider a ground for rejection not relied on below. Alternatively, Comiskey argued that his application was patentable under § 101, and that the subject matter of his application did not fall within an exception to patentability, such as an abstract idea, natural phenomena, or law of nature.

The PTO urged that this court could properly consider the § 101 issue. Indeed, the PTO urged that this court resolve the case on this ground to “give the Office needed guidance in this area.” The PTO argued that Comiskey's independent claims were directed at an unpatentable abstract idea, and not a patentable process, because they neither were tied to a particular machine nor operated to change materials to a different state or thing. Rather the claims impermissibly “encompasse[d] a method of controlling how humans interact with each other to resolve a dispute, based on a human arbitrator's perception of the dispute.”

DISCUSSION

We do not reach the ground relied on by the Board below—that the claims were unpatentable as obvious over Ginter in view of Walker, Perry, and “Arbitration Fee Schedule”—because we conclude that many of the claims are “barred at the threshold by § 101.” Diamond v. Diehr, 450 U.S. 175, 188 (1981). It is well-established that “[t]he first door which must be opened on the difficult path to patentability is § 101.” In re Bergy, 596 F.2d 952, 960 (CCPA 1979). Only if the requirements of § 101 are satisfied is the inventor “allowed to pass through to” the other requirements for patentability, such as novelty under § 102 and, of pertinence to this case, non-obviousness under § 103. See id. As the Supreme Court stated in Parker v. Flook, “[t]he obligation to determine what type of discovery is sought to be patented [so as to determine whether it is 'the kind of “discoveries” that the statute was enacted to protect'] must precede the determination of whether that discovery is, in fact, new or obvious.” 437 U.S. at 593 (emphases added).

The PTO acknowledges that the examiner, consistent with his obligation under the cases, must have addressed the predicate issue of patentable subject matter and implicitly concluded that the claims met the requirements of § 101. For the reasons discussed below, we disagree that § 101 is satisfied.

I

We first address Comiskey's argument that we cannot properly address the issue of patentable subject matter. At oral argument, Comiskey admitted that the court “could affirm on [the § 101] ground if in fact [we] came to the conclusion that ... the subject matter of this claim does not address the statutory subject matter.” In his supplemental briefing, Comiskey attempts to “withdraw[ ] any statement made at oral argument which would infer that this Court could even consider a new statutory grounds for rejecti[on].” Comiskey now asserts that “[t]his Court lacks the power to sua sponte raise and thereafter decide a statutory ground of patentability never raised during the agency proceeding below” because our review of the Board's decision is required to be “on the record before the Patent and Trademark Office” under 35 U.S.C. § 144 and the Administrative Procedure Act (“APA”), 5 U.S.C. § 706.

Over sixty years ago in Securities & Exchange Commission v. Chenery Corp., 318 U.S. 80 (1943), the Supreme Court made clear that a reviewing court can (and should) affirm an agency decision on a legal ground not relied on by the agency if there is no issue of fact, policy, or agency expertise. The Court said:

In confining our review to a judgment upon the validity of the grounds upon which the Commission itself based its action, we do not disturb the settled rule that, in reviewing the decision of a lower court, it must be affirmed if the result is correct although the lower court relied upon a wrong ground or gave a wrong reason. ...It would be wasteful to send a case back to a lower court to reinstate a decision which it had already made but which the appellate court concluded should properly be based on another ground within the power of the appellate court to formulate. But it is also familiar appellate procedure that where the correctness of the lower court's decision depends upon a determination of fact which only a jury could make but which has not been made, the appellate court cannot take the place of the jury. Like considerations govern review of administrative orders. If an order is valid only as a determination of policy or judgment which the agency alone is authorized to make and which it has not made, a judicial judgment cannot be made to do service for an administrative judgment.

Id. at 88 (emphases added; internal citations and quotation marks omitted). We have repeatedly applied Chenery and have said that “[w]e may, however, where appropriate, affirm the [agency] on grounds other than those relied upon in rendering its decision, when upholding the [agency's] decision does not depend upon making a determination of fact not previously made by the [agency].” (“[T]he Chenery doctrine is not implicated when the new ground for affirmance is not one that calls for a determination or judgment which an administrative agency alone is authorized to make.”). We note that the APA specifically states that “the reviewing court shall decide all relevant questions of law.” 5 U.S.C. § 706. The Supreme Court has emphasized that in general the PTO should be treated like other administrative agencies, and that patent cases are subject to the same general administrative law legal principles. Dickinson v. Zurko, 527 U.S. 150, 154-55 (1999). Thus, the same rules governing affirmance of agency action on a ground not relied on below necessarily apply in the PTO context as in the administrative context generally.

As Comiskey points out, some of our cases have concluded that “it is inappropriate for this court to consider rejections that had not been considered by or relied upon by the Board.” But these statements referred to situations that required factual determinations not made by the agency, involving “the scope and content of the prior art [and] differences between the prior art and the claims at issue,” which had not been considered by the PTO. We decline to read these cases as rejecting the breadth of the Chenery decision on which they explicitly relied.

It is well-established that “whether the asserted claims ... are invalid for failure to claim statutory subject matter under 35 U.S.C. § 101, is a question of law which we review without deference.” AT & T Corp. v. Excel Comm'ns, Inc., 172 F.3d 1352, 1355 (Fed. Cir. 1999). As a question of law, lack of statutory subject matter is a “ground [for affirmance] within the power of the appellate court to formulate.” Chenery, 318 U.S. at 88. While there may be cases in which the legal question as to patentable subject matter may turn on subsidiary factual issues, Comiskey has not identified any relevant fact issues that must be resolved in order to address the patentability of the subject matter of Comiskey's application. Moreover, since we would review a Board decision on the issue of patentability without deference, the legal issue concerning patentability is not “a determination of policy or judgment which the agency alone is authorized to make.” Chenery, 318 U.S. at 88.

In these circumstances, Chenery not only permits us to supply a new legal ground for affirmance, but encourages such a resolution where, as here, “[i]t would be wasteful to send” the case back to the agency for a determination as to patentable subject matter. 318 U.S. at 88. [FN6] We therefore may consider the patentability of Comiskey's claims under § 101, and we turn to the merits of that question.

6.      The situation is quite different where a party seeks for the first time on appeal to raise a new ground on appeal for setting aside agency action.

II

Comiskey's application may be viewed as falling within the general category of “business method” patents. In State Street Bank, we addressed the “business method” exception to statutory subject matter. State Street Bank involved “a data processing system for managing a financial services configuration of a portfolio established as a partnership,” and “[g]iven the complexity of the calculations, a computer or equivalent device [wa]s a virtual necessity to perform the task.” Id. at 1371. We held that this system was patentable, concluding that patentability does “not turn on whether the claimed subject matter does 'business' instead of something else.” Id. at 1377.

Although it has been suggested that State Street Bank supports the patentability of business methods generally, State Street Bank explicitly held that business methods are “subject to the same legal requirements for patentability as applied to any other process or method.” We must then consider the requirements of § 101 in determining whether Comiskey's claims 1 and 32 for a method of mandatory arbitration for unilateral and contractual documents claim statutory subject matter.

A

The very constitutional provision that authorized Congress to create a patent system, Article I, § 8, also limited the subject matter eligible for patent protection to the “useful Arts.” [FN9] According to the Supreme Court, this constitutional limitation on patentability “was written against the backdrop of the [English] practices-eventually curtailed by the Statute of Monopolies—of the Crown in granting monopolies to court favorites in goods or businesses which had long before been enjoyed by the public.” Graham, 383 U.S. at 5. In the 16th and 17th centuries, the English Crown granted monopolies over entire types of business to specific individuals, for example, the grant by James I to Darcy in 1600 of the exclusive right to manufacture or sell playing cards or the exclusive right to the printing business held by the London guild of booksellers and printers. The purpose of such monopolies “was to enrich the King ... as well as the grantee, at the expense of the community.” With this background in mind, the framers consciously acted to bar Congress from granting letters patent in particular types of business. The Constitution explicitly limited patentability to “the national purpose of advancing the useful arts—the process today called technological innovation.” Paulik v. Rizkalla, 760 F.2d 1270, 1276 (Fed. Cir. 1985) (en banc).

9.       Article I, § 8 states in full: “The Congress shall have Power ... To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” The Supreme Court has concluded that the references to “Science” (i.e., knowledge generally) and “Writings” creates the right to copyright protection and the references to “useful Arts” and “Discoveries” creates the right to patent protection. See Graham v. John Deere Co. of Kansas City, 383 U.S. 1, 5, 86 S.Ct. 684, 15 L.Ed.2d 545 (1966).

Beginning with the first patent act, the Patent Act of 1790, “Congress [ ] responded to the bidding of the Constitution,” Graham, 383 U.S. at 6, by including provisions limiting patentable subject matter. See An Act to Promote the Progress of Useful Arts, Ch. 7, 1 Stat. 109, 110 (1790). The standard used by the Patent Act of 1793, which limited patentability to “any new and useful art, machine, manufacture, or composition of matter, or any new or useful improvement [thereof],” is essentially the same as that used today. An Act to Promote the Progress of Useful Arts; and to Repeal the Act Heretofore Made for that Purpose, Ch. 11, 1 Stat. 318, 319 (1793). The Patent Act of 1952 did replace the word “art” with the word “process” so that current § 101 states:

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.

However, the Supreme Court has made clear that the 1952 language change had no substantive effect, stating that “[a]nalysis of the eligibility of a claim of patent protection for a 'process' did not change with the addition of that term to § 101.” Diehr, 450 U.S. at 184.

Specifically, Supreme Court decisions after the 1952 Patent Act have rejected a “purely literal reading” of the process provision and emphasized that not every “process” is patentable. Flook, 437 U.S. at 589. Instead “[t]he question is whether the method described and claimed is a 'process' within the meaning of the Patent Act.” Benson, 409 U.S. at 64; see also Flook, 437 U.S. at 593 (“[R]espondent incorrectly assumes that if a process application implements a principle in some specific fashion, it automatically falls within the patentable subject matter of § 101.”). “Abstract ideas” are one type of subject matter that the Supreme Court has consistently held fall beyond the broad reaches of patentable subject matter under § 101. The very cases of this court that recognized the patentability of some business methods have reaffirmed that abstract ideas are not patentable. See AT & T, 172 F.3d at 1355; State St. Bank, 149 F.3d at 1373; see also In re Alappat, 33 F.3d 1526, 1542-43 (Fed. Cir. 1994) (en banc).

The prohibition against the patenting of abstract ideas has two distinct (though related) aspects. First, when an abstract concept has no claimed practical application, it is not patentable. The Supreme Court has held that “[a]n idea of itself is not patentable.” Rubber-Tip Pencil, 87 U.S. at 507 (emphasis added). In Benson, the claim was for a method of converting binary-coded decimal numerals into pure binary numerals that was “not limited to any particular art or technology, to any particular apparatus or machinery, or to any particular end use.” 409 U.S. at 64. Since the claim would therefore “wholly pre-empt the mathematical formula and in practical effect would be a patent on the algorithm itself,” the claim was unpatentable because its “practical effect” was to “patent an idea” in the abstract. Id. at 71-72.

Second, the abstract concept may have a practical application. The Supreme Court has reviewed process patents reciting algorithms or abstract concepts in claims directed to industrial processes. In that context, the Supreme Court has held that a claim reciting an algorithm or abstract idea can state statutory subject matter only if, as employed in the process, it is embodied in, operates on, transforms, or otherwise involves another class of statutory subject matter, i.e., a machine, manufacture, or composition of matter. 35 U.S.C. § 101. As the PTO notes, “[t]he Supreme Court has recognized only two instances in which such a method may qualify as a section 101 process: when the process either [1] was tied to a particular apparatus or [2] operated to change materials to a different state or thing.” In Diehr, the Supreme Court confirmed that a process claim reciting an algorithm could state statutory subject matter if it: (1) is tied to a machine or (2) creates or involves a composition of matter or manufacture. There, in the context of a process claim for curing rubber that recited an algorithm, the Court concluded that “[t]ransformation and reduction of an article 'to a different state or thing' is the clue to the patentability of a process claim that does not include particular machines.” Id. (quoting Benson, 409 U.S. at 70); [FN13] see also In re Schrader, 22 F.3d 290, 295 (Fed. Cir. 1994) (holding when a claim does not invoke a machine, “ § 101 requires some kind of transformation or reduction of subject matter”). Thus, a claim that involves both a mental process and one of the other categories of statutory subject matter (i.e., a machine, manufacture, or composition) may be patentable under § 101. See Diehr, 450 U.S. at 184 (holding a process that involved calculations using the “Arrhenius equation” patentable because the claim “involve[d] the transformation of an article, in this case raw, uncured synthetic rubber, into a different state or thing”). For example, we have found processes involving mathematical algorithms used in computer technology patentable because they claimed practical applications and were tied to specific machines.

13.       See also Diehr, 450 U.S. at 184 (“Industrial processes ... are the types which have historically been eligible to receive the protection of our patent laws.”(emphasis added)); Tilghman v. Proctor, 102 U.S. 707, 722 (1880) (“A manufacturing process is clearly an art, within the meaning of the law.”(emphasis added)); Cochrane v. Deener, 94 U.S. 780, 788 (1876) (“A process is a mode of treatment of certain materials to produce a given result. It is an act, or a series of acts, performed upon the subject-matter to be transformed and reduced to a different state or thing.”).

However, mental processes—or processes of human thinking-standing alone are not patentable even if they have practical application. The Supreme Court has stated that “[p]henomena of nature, though just discovered, . . . mental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work.” Benson, 409 U.S. at 67 (emphasis added). In Flook, the patentee argued that his claims did not seek to patent an abstract idea (an algorithm) because they were limited to a practical application of that idea-updating “alarm limits” for catalytic chemical conversion of hydrocarbons. 437 U.S. at 586, 589-90. The Court rejected the notion that mere recitation of a practical application of an abstract idea makes it patentable, concluding that “[a] competent draftsman could attach some form of post-solution activity to almost any mathematical formula.” Id. at 590. Since all other features of the process were well-known, including “the use of computers for 'automatic monitoring-alarming,' ” the Court construed the application as “simply provid[ing] a new and presumably better method for calculating alarm limit values.” Id. at 594-95. The Court held the application unpatentable because “if a claim [as a whole] is directed essentially to a method of calculating, using a mathematical formula, even if the solution is for a specific purpose, the claimed method is nonstatutory.”

Following the lead of the Supreme Court, this court and our predecessor court have refused to find processes patentable when they merely claimed a mental process standing alone and untied to another category of statutory subject matter even when a practical application was claimed. In Schrader we held unpatentable a “method constitut[ing] a novel way of conducting auctions” by allowing competitive bidding on a plurality of related items. 22 F.3d at 291. In doing so, we rejected the patentee's argument that the process used a machine. Two of the alleged machines—a “display” in the front of the auction room and “a closed-circuit television system” for bidders in different cities—were not claimed by the patent, and the third—a “record” in which bids could be entered-could be “a piece of paper or a chalkboard.” Id. at 293-94. We therefore concluded that the patent impermissibly claimed unpatentable subject matter. Similarly, in In re Warmerdam, 33 F.3d 1354, 1359-60 (Fed. Cir. 1994), we held unpatentable a process for controlling objects so as to avoid collisions because the key steps of “'locating' a medial axis” and “ 'creating' a bubble hierarchy” described “nothing more than the manipulation of basic mathematical constructs, the paradigmatic 'abstract idea.' ” A machine was not required, id. at 1358, nor was there any indication that the process operated on a manufacture or composition of matter.

Decisions of our predecessor court are in accord. In re Meyer, 688 F.2d 789, 795-96 (CCPA 1982), held that “a mental process that a neurologist should follow” was not patentable because it was “not limited to any otherwise statutory process, machine, manufacture, or composition of matter.” Similarly, In re Maucorps held that an invention “[u]ltimately ... directed toward optimizing the organization of sales representatives in a business” was unpatentable. 609 F.2d 481, 482, 486 (CCPA 1979); see also Alappat, 33 F.3d at 1541 (“Maucorps dealt with a business methodology for deciding how salesmen should best handle respective customers and Meyer involved a 'system' for aiding a neurologist in diagnosing patients. Clearly, neither of the alleged 'inventions' in those cases falls within any § 101 category.”).

It is thus clear that the present statute does not allow patents to be issued on particular business systems—such as a particular type of arbitration—that depend entirely on the use of mental processes. In other words, the patent statute does not allow patents on particular systems that depend for their operation on human intelligence alone, a field of endeavor that both the framers and Congress intended to be beyond the reach of patentable subject matter. Thus, it is established that the application of human intelligence to the solution of practical problems is not in and of itself patentable.

B

Having considered the governing legal principles, we now turn to Comiskey's application and begin with independent claims 1 and 32 which recite “[a] method for mandatory arbitration resolution” regarding unilateral and contractual documents. Comiskey has conceded that these claims do not require a machine, and these claims evidently do not describe a process of manufacture or a process for the alteration of a composition of matter. Comiskey's independent claims 1 and 32 claim the mental process of resolving a legal dispute between two parties by the decision of a human arbitrator. They describe in essence “conducting arbitration resolution for [a] contested issue” and “determining an award or a decision for the contested issue” through a predetermined “mandatory” arbitration system, and thus claim the use of mental processes to resolve a legal dispute. Thus, like the claims that the Supreme Court found unpatentable in Benson and Flook and the claims found unpatentable in our own cases, Comiskey's independent claims 1 and 32 seek to patent the use of human intelligence in and of itself. Like the efforts to patent “a novel way of conducting auctions” which Schrader, 22 F.3d at 291, found to be directed to an abstract idea itself rather than a statutory category, Comiskey's independent claims 1 and 32 describe an allegedly novel way of requiring and conducting arbitration and are unpatentable.

C

We consider independent claims 17 and 46 separately. They recite the use of “module[s],” including “a registration module for enrolling” a person, “an arbitration module for incorporating arbitration language,” and “an arbitration resolution module for requiring a complainant [or party] to submit a request for arbitration resolution to the mandatory arbitration system.” Claim 17 also recites “a means for selecting an arbitrator from an arbitrator database.” These claims, under the broadest reasonable interpretation, could require the use of a machine as part of Comiskey's arbitration system. See Alan Freedman, The Computer Glossary 268 (8th ed. 1998) (defining module as “[a] self-contained hardware or software component that interacts with a larger system”); id. at 90 (defining database as “any electronically-stored collection of data”). Similarly, even though Comiskey did not separately argue his dependent claims, our decision is based on a different ground than the Board's, and we think it is appropriate to separately consider dependent claims 15, 30, 44, and 58. Each of these claims adds the following limitation to its corresponding independent claim: “wherein access to the mandatory arbitration is established through the Internet, intranet, World Wide Web, software applications, telephone, television, cable, video [or radio], magnetic, electronic communication, or other communications means.”

As to all of these claims, which under the broadest reasonable interpretation recite the use of a machine, we think that the § 101 question should be addressed in the first instance by the PTO. We therefore remand to the PTO to consider whether independent claims 17 and 46 (with dependent claims 18-29, 31, 47-57, and 59) and dependent claims 15, 30, 44, and 58 recite patentable subject matter under § 101.

CONCLUSION

We conclude that Comiskey's independent claims 1 and 32 and dependent claims 2-14, 16, 33-43, and 45 do not claim patentable subject matter. With respect to independent claims 17 and 46 (with dependent claims 18-29, 31, 47-57, and 59) and dependent claims 15, 30, 44, and 58, we remand to the PTO to determine in the first instance whether § 101 is satisfied. If the Board had relied on the new § 101 ground for rejection in the first instance, Comiskey would have had the opportunity to amend his application under 37 C.F.R. § 41.50(b). We think that it is appropriate to afford Comiskey the same protections in this respect as he would have had before the Board with respect to the claims that we have held unpatentable.


Notes

  1.     The en banc decision was not unanimous. Judge Moore objected to the procedural aspects. Judge Newman insisted that “the revised [panel] opinion does not clarify, changes no result, adds no analysis, but simply deletes its reasoning, leaving silence rather than understanding. The court continues to present a broad and ill-defined exclusion of ‘business methods’ from access to the patent system…” Judge Newman also argued that the panel’s decision further limited the patentability of business methods and that this was a disincentive to innovation.

  2.     The revised opinion deleted from the original a passage that suggested that any part of a claim that was nonstatutory subject matter should be considered prima facie obvious: “The routine addition of modern electronics to an otherwise unpatentable invention typically creates a prima facie case of obviousness.” This is much like Flook’s invocation of Morse and Nielson v. Harford for treating as part of the prior art any portion of a claim that is nonstatutory subject matter. (A few years later, as you will see, the opinion of the Supreme Court in Mayo Collaborative Services v Prometheus Labs., Inc.,, 132 S. Ct. 1289 (2012), covers much the same ground.) Much of the revised Comiskey opinion (the history and "useful Arts" part) is lifted from the Dyk concurring opinion in Bilski.

  3.     When the revised opinion remands to the PTO for consideration of whether the computer-implying "module" claims are statutory subject matter, are they serious or is that an illusory promise?

  4.     The revised Comiskey opinion explains the rationale from Benson, Flook, and Diehr that provided the underpinning for Bilski, but it never mentions Bilski. Why doesn’t the revised Comiskey opinion mention the decision that most closely parallels the Comiskey case?



In re Chatfield
United States Court of Customs and Patent Appeals
545 F.2d 152 (CCPA 1976) , cert. denied as untimely filed, 434 U.S. 875 (1977)

RICH, Judge, dissenting, with whom LANE, Judge, joins.

Are programs for general-purpose digital computers patentable subject matter under 35 U.S.C. § 101?

In In re Prater, 415 F.2d 1393 (CCPA 1969), we had both process or method and apparatus or machine claims. It was in that case that we stated an incontrovertible fact and a principle of patent law which, until recently, we have consistently since followed, to the effect that a new program makes an old computer into a new machine, as follows:

In one sense, a general-purpose digital computer may be regarded as but a storeroom of parts and/or electrical components. But once a program has been introduced, the general-purpose digital computer becomes a special-purpose digital computer (i. e., a specific electrical circuit with or without electro-mechanical components) which, along with the process by which it operates, may be patented subject, of course, to the requirements of novelty, utility, and non-obviousness. Based on the present law, we see no other reasonable conclusion.

We applied that principle in a long line of cases that came to us as a result of the policy of the Patent Office to deny patentability to program inventions on the ground of non-statutory subject matter and on any other ground it could find.

Finally, we came to the two software cases in which our decisions were reviewed and reversed by the Supreme Court, Benson and Johnston. Benson involved two method claims and the sole question was whether they were directed to non-statutory subject matter. Johnston involved five apparatus claims directed to “machine systems.” Johnston sought to distinguish his case from Gottschalk v. Benson on the ground that Benson's claims were for process and his were for apparatus, which is no distinction at all in the computer program field because of the option the specification writer has to cast the claims in either format. Johnston persuaded a majority of this court to his point of view. I dissented on the point, saying, “I conclude that the Benson decision requires us to affirm the rejection under section 101.”

In the present case a differently constituted majority of this court is again finding computer program inventions to be subject matter which is patentable within the contemplation of section 101, notwithstanding the Supreme Court's Benson opinion. Clearly the reason for this is that the Benson opinion is open to different interpretations with respect to the patentability of software. Yet nothing was said in Dann v. Johnston to clear up the ambiguity because the Court avoided discussing the patentable subject-matter issue which was before it, preferring to reverse this court on the single ground of obviousness. The seven justices participating in the unanimous opinion said in its second paragraph:

Petitioner and respondent, as well as various amici, have presented lengthy arguments addressed to the question of the general patentability of computer programs.    We find no need to treat that question in this case, however, because we conclude that in any event respondent's system is unpatentable on grounds of obviousness.

The Johnston Court did not leave the statutory subject matter question strictly alone, however, because, in reciting the background of the issues (Part II of opinion) and the decisions below, the Court thus characterized its Benson decision:

In Benson, the respondent sought to patent as a “new and useful process,” — “a method of programming a general-purpose digital computer to convert signals from binary-coded decimal form into pure binary form.” As we observed, “[t]he claims were not limited to any particular art or technology, to any particular apparatus or machinery, or to any particular end use.” Our limited holding was that respondent's method was not a patentable “process” as that term is defined in 35 U.S.C. § 100(b).

That brief observation adds considerably to the already existing ambiguity inherent in the Benson opinion. Does it say Benson's two claims were held non-statutory only because they were not limited to any particular technology, apparatus, or end use?

Does the Supreme Court not regard data processing as a technology, data-processing equipment as apparatus, or the necessary conversion in such apparatus of binary-coded-decimal to pure binary signals as an end use?

The answers to these questions are very important because in the instant case the invention relates only to the operation of data-processing equipment (“computers”) without reference to any other “technology,” “apparatus,” or “end use.” How, then, can this case be distinguished from Benson even when the narrowest possible view of that decision is taken? Just how “limited” was the holding in Benson supposed to be? Benson's claims were in fact limited to a method carried out in data-processing apparatus (including a “reentrant shift register,” claim 8) and to “A data processing method” (claim 13). Benson did not claim a “formula.”

In the Benson opinion, the Court states at the outset that “The question is whether the method described and claimed is a 'process' within the meaning of the Patent Act.” But nowhere in the Benson opinion have I ever, after many attempts, been able to find an express answer to that question, for which reason, as more fully explained in my dissenting opinion in Johnston, I have turned to the competing contentions which were presented to the Supreme Court in Benson, to its decision that we erred in holding the claims statutory, which was our only holding, and have concluded that the members of the Court participating in that decision were unanimous in holding that programs for general-purpose digital computers, at least when claimed as a “process,” are not within the meaning of that category of inventions in the statute. It is my own view that claiming as a “machine” instead of as a “process” is no distinction at all because it is merely a drafter's choice.

My colleagues of the majority take a narrower view of Benson and arrive at an opposite result in these two new cases, as another majority did in Johnston. This, to me, signals an urgent need to settle the question of patent protection for software by higher authority than this court so that the Patent and Trademark Office, the Federal judiciary as a whole, and the data-processing industry (hardware and software both) may know what the law on software patentability is. It is a socioeconomic issue with an impact of considerable magnitude, particularly on the practical operation of the Patent and Trademark Office. It is obviously not going to be finally decided in this court. Two Commissioners (Gottschalk and Dann) have obtained review of our decisions in the Supreme Court and in both instances (Benson and Johnston) obtained reversals; but here we are in two more cases, three-to-two, reversing findings by the Office that program inventions are non-statutory under § 101. It seems to me like taking the problem of school segregation to court on a case-by-case basis, one school at a time.


Notes

  1. Consider the language that Judge Rich quotes from the Johnston opinion:

The Johnston Court did not leave the statutory subject matter question strictly alone, however, because, in reciting the background of the issues (Part II of opinion) and the decisions below, the Court thus characterized its Benson decision:

In Benson, the respondent sought to patent as a "new and useful process," — "a method of programming a general-purpose digital computer to convert signals from binary-coded decimal form into pure binary form." As we observed, "[t]he claims were not limited to any particular art or technology, to any particular apparatus or machinery, or to any particular end use." Our limited holding was that respondent's method was not a patentable "process" as that term is defined in 35 U.S.C. § 100(b).

That brief observation adds considerably to the already existing ambiguity inherent in the Benson opinion. Does it say Benson's two claims were held non-statutory only because they were not limited to any particular technology, apparatus, or end use?

Does the Supreme Court not regard data processing as a technology, data-processing equipment as apparatus...?

In the last line of this passage, Judge Rich omits the adjective “particular” that the Johnston opinion’s quotation included before the word “apparatus.” What does that do to his and our understanding of how the machine-or-transformation test applies? What should you conclude if you put that word back in? Is a programmed general-purpose digital computer a particular apparatus?

Look again at the passage taken from Johnston — “As we observed, ‘[t]he claims were not limited to ... any particular apparatus or machinery....’” Is this statement by the Supreme Court enough to amount to a ruling — a precedent — supporting the position that a programmed general purpose digital computer is not a particular machine that will satisfy the machine or transformation test? We will see another answer to this in 2014 in the Alice case.

Fort Properties, Inc. v. American Master Lease, LLC
United States District Court
2009 U.S. Dist. LEXIS 7217 (C.D. Cal. Jan. 22, 2009)

Andrew J. Guilford, District Judge

ORDER GRANTING MOTION FOR SUMMARY JUDGMENT OF INVALIDITY

Before the Court is a Motion for Summary Judgment of Invalidity filed by Plaintiff Fort Properties, Inc. After considering all papers and arguments submitted, the Court grants Plaintiff's Motion.

BACKGROUND

This case involves claims for patent infringement. Defendant American Master Lease, LLC contends that Plaintiff has infringed U.S. Patent 6,292,788 B1 (the "'788 Patent"). The '788 Patent, owned by Defendant, discusses a business method for creating an investment instrument out of real property. One goal of the patent was to create a better way to invest in real property by providing "safety, a steady income stream, divisibility, ready liquidity, and no involvement in management of the property." Another goal of the patent was to ensure that the invented investment instrument was eligible for tax-deferred treatment under Section 1031 of the Internal Revenue Code. To accomplish these goals, the inventors created a "deedshare," which "represents both a tenant-in-common interest in real estate, and provides the divisibility and liquidity of a traditional security, such as a bond." According to the Abstract:

Holders of the deedshares receive a guaranteed income stream from [a] master lease and yearly depreciation, without having to maintain or manage the real estate. The holders of the deedshares are subject, under the master agreement, to a mechanism that enables the master tenant to purchase, or arrange for the purchase of the deedshares at fair market value (or some other calculable value) at the end of a specified term.

There are forty-one method claims in the '788 Patent. Claims 1, 11, 22, and 32 are independent, and the other thirty-seven claims are dependent. Claims 1, 22, and 32 recite a series of transactions involving acquiring real estate property, aggregating the property, selling the property to more than one entity such that ownership is by tenancy-in-common, and including in the ownership agreement governing the sale a provision that the property may be sold at a specific time. Claim 11 recites a method of performing a tax-deferred exchange of investment real estate and details the exchange of ownership interests among various parties. Most of the dependent claims involve certain provisions to be included in ownership agreements. Claim 12 involves "identifying a combination of deedshares having different predetermined denominations that sum to the second value."

Plaintiff is a real estate company specializing in the sponsorship of tenancy-in-common tax-deferred ownership offerings. Plaintiff filed this suit seeking a declaration that it is not infringing on the '788 Patent, and Defendant filed a counterclaim asserting that Plaintiff is, in fact, infringing on the patent. Now, in the pending Motion, Plaintiff seeks summary judgment that the '788 Patent is invalid based on a recent Federal Circuit decision.

DISCUSSION

Plaintiff argues that the '788 Patent is invalid because it fails to meet the patentability test set forth in In re Bilski , 545 F.3d 943 (Fed. Cir. 2008). The Court agrees and makes its findings under the "clear and convincing" standard.

1. APPLICABLE LAW

The patent statute provides that "[w]hoever 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." 35 U.S.C. § 101. Whether a claim is patentable under Section 101 is a "threshold inquiry," and "any claim of an application failing the requirements of § 101 must be rejected even if it meets all of the other legal requirements of patentability." Bilski , 545 F.3d at 950.

Courts have used varying standards in determining whether a claimed ''process'' is patentable under Section 101. In Bilski , the Federal Circuit clarified the appropriate standard to apply in determining whether a ''process'' is patentable under Section 101. The court determined that "the proper inquiry under § 101 is . . . whether the claim meets the machine-or-transformation test." Bilski , 545 F.3d at 961. The court also reviewed and rejected other tests, such as the "useful, concrete and tangible result" test and the "technological arts" test, finding the tests "no longer valid" and holding that aspects of earlier decisions relying on those tests "should no longer be relied on." Id . at 960-61.

"The machine-or-transformation test is a two-branched inquiry; an applicant may show that a process claim satisfies § 101 either by showing that his claim is tied to a particular machine, or by showing that his claim transforms an article." Bilski , 545 F.3d at 961. The court explained that two considerations were important to analysis under the machine-or-transformation test. First, "the use of a specific machine or transformation of an article must impose meaningful limits on the claim's scope to impart patent-eligibility." Id . Second, "the involvement of the machine or transformation in the claimed process must not merely be insignificant extra-solution activity." Id . at 962.

2. THE ’788 PATENT

Plaintiff argues that the U.S. Patent Office deemed the claims of the ’788 Patent patentable in 2001 based on the "useful, concrete, and tangible result" test rejected by the 2008 Bilski decision. Plaintiff further argues that the ’788 Patent fails the Bilski test because none of its claims are tied to a machine or apparatus and none transform any article or thing.

After a thorough review of the record, the Court is convinced that review of the ’788 Patent is appropriate in this case. Defendant's application to the U.S. Patent Office was declined twice because the examiner found the claims were not "in the technological arts" and thus not patentable under Section 101. The patent examiner who rejected those applications then apparently left the U.S. Patent Office, and the application was assigned to another patent examiner (Millin), who ultimately allowed the claims in April 2001. While the Notice of Allowance did not address the Section 101 issues, Defendant's previous correspondence discussed the "useful, concrete and tangible results" of the claims. In its correspondence with the Patent Office, Defendant also noted that in a March 2001 interview, Millin "explained his view that the claims as written met the statutory requirement of patentable subject matter under 35 U.S.C. § 101, and provided a useful, concrete, and tangible result." The Court finds that Millin’s decision to allow the claims relied in large part on the "useful, concrete, and tangible result" test rejected by Bilski . The Court thus examines the claims of the ’788 Patent under the proper machine-or-transformation test.

2.1 MACHINE

The Court finds that the claims of the ’788 Patent are not "tied to a particular machine or apparatus." See Bilski, 545 F.3d at 954. As Plaintiff points out, Defendant explicitly acknowledged during the patent application process that the recited methods "need not be performed by a computer." In its opposition brief, Defendant acknowledges that "the 'machine' prong of the Benson test is not what gives rise to patentability in [the '788 Patent], but rather the 'transformation of an article.'" The Court thus turns to the "transformation" prong of the machine-or-transformation test.

2.2 TRANSFORMATION

The Court finds that none of the claims of the '788 Patent "transform any article to a different state or thing." See Bilski, 545 F.3d at 963.

The facts of Bilski are instructive. In that case, the Federal Circuit was confronted with a claim for a "method of hedging risk in the field of commodities trading." The court framed the question before it as whether "some so-called business methods, such as that claimed in the present case, [which] involve the manipulation of even more abstract constructs such as legal obligations, organizational relationships, and business risks" qualify as a "transformation or reduction of an article into a different state or thing constituting patent-eligible subject matter." The court determined that those methods are not patentable, holding that "[p]urported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances." Id. at 963. Like the claims at issue in Bilski, the claims of the '788 Patent involve only the transformation or manipulation of legal obligations and relationships. Specifically, the claims of the '788 Patent only transform or manipulate legal ownership interests in real estate. Under Bilski, the Court cannot find that those claims transform an article or thing. Defendant points out that three of the four independent claims (1, 22, and 32) require the "creation of deedshares," arguing that "[t]he creation of the deedshare certainly qualifies as the 'transformation and reduction of an article.'" "Certainly," Defendant argues, "there can be no greater transformation for an article than the very creation of the article itself." But the deedshares themselves are not physical objects or substances. As Plaintiff explains, "what is allegedly created is nothing more than an arrangement of conceptual legal rights, which may or may not be in a printed document." Nor do the deedshares represent physical objects or substances. See Bilski, 545 F.3d at 963. Again, the deedshares represent only legal ownership interests in property. Those ownership rights are not physical objects. Creation of a deedshare does not constitute transformation of an article or thing under Bilski.

The Court finds that the '788 Patent does not satisfy the "transformation" prong of the machine-or-transformation test.

2.3 CONCLUSION

Because the claims of the '788 Patent are not tied to a particular machine and do not transform an article, they are invalid under the test set forth in Bilski. The '788 Patent is invalid. The Proposed Judgment submitted by Plaintiff shall be entered. Plaintiff's Motion is GRANTED.



CyberSource Corp. v. Retail Decisions Inc.
United States District Court for the Northern District of California
--F. Supp. -- (Civ. No. 04-cv-03268, March 23, 2009, 2009 WL 815448 )

Patel, J.

In this patent infringement litigation, plaintiff CyberSource Corporation has asserted claims 2 and 3 of U.S. Patent No. 6,029,154 (“the ’154 patent”) against defendant Retail Decisions, Inc. Defendant brings a motion for summary judgment of invalidity, contending that the patent claims are not drawn to patent-eligible subject matter as required by 35 U.S.C. section 101. Having considered the parties’ arguments and submissions, the court enters the following opinion.

BACKGROUND

I. The ’154 Patent


The patent claims a method and system for detecting fraud in a credit card transaction between a consumer and a merchant over the internet. Claims 2 and 3 are independent claims, but claim 2 recites the steps of claim 3. Claim 3, as amended during reexamination, reads in its entirety:

3. A method for verifying the validity of a credit card transaction over the Internet comprising the steps of:

    {a) obtaining information about other transactions that have utilized an Internet address that is identified with the credit card transaction;

    (b) constructing a map of credit card numbers based upon the other transactions; and

    (c) utilizing the map of credit card numbers to determine if the credit card transaction is valid.

Amended claim 2 reads in its entirety:

2. A computer readable medium containing program instructions for detecting fraud in a credit card transaction between a consumer and a merchant over the Internet, wherein execution of the program instructions by one or more processors of a computer system causes the one or more processors to carry out the steps of:

    (a) obtaining credit card information relating to transactions from the consumer; and

    (b) verifying the credit card information based upon values of plurality of parameters, in combination with information that identifies the consumer, and that may provide an indication whether the credit card transaction is fraudulent,

    wherein each value among the plurality of parameters is weighted in the verifying step according to an importance, as determined by the merchant, of that value to the credit card transaction, so as to provide the merchant with a quantifiable indication of whether the credit card transaction is fraudulent,

    wherein execution of the program instructions by one or more processors of a computer system causes the one or more processors to carry out the further steps of:

      obtaining information about other transactions that have utilized an Internet address that is identified with the credit card transaction;

      constructing a map of credit card numbers based upon the other transactions; and

      utilizing the map of credit card numbers to determine if the credit card transaction is valid.

The last set of steps recited in claim 2 is identical to the three steps recited in claim 3.

LEGAL STANDARDS

I. Patent Validity and Statutory Subject Matter


The first substantive section of the patent statute 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.” 35 U.S.C. § 101. Excluded from patent protection are fundamental principles, including laws of nature, natural phenomena and abstract ideas, even when these may be deemed literally to fall within one or more statutory categories. Diamond v. Diehr, 450 U.S. 175, 185 (1981); see also In re Ferguson, _ F.3d _, 2009 WL 565074 at *3 (Fed. Cir. Mar. 6, 2009). The drawing of a claim to statutory subject matter is a threshold requirement for patentability. Parker v. Flook, 437 U.S. 584, 593 (1978); see also Diehr, 450 U.S. at 188.

The U.S. Court of Appeals for the Federal Circuit recently clarified the proper legal test for determining whether an invention may be considered a statutory “process” under section 101. See In re Bilski, 545 F.3d 943 (Fed. Cir. Oct. 30, 2008) (en banc). The Bilski court held the “machine-or-transformation test” to be the exclusive test for such determinations. Id. at 956. Under this test, a claimed process is atent-eligible “if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” Id. at 954, citing Gottschalk v. Benson, 409 U.S. 63, 70 (1972). An applicant may demonstrate patent eligibility by meeting either prong of the test. Bilski, 545 F.3d at 961. However, the “machine implementation” or “transformation” must “impose meaningful limits on the claim’s scope.” Id. at 961 (citation omitted). In addition, “the involvement of the machine or transformation in the claimed process must not merely be insignificant extra-solution activity.” Id. at 962, citing Flook, 437 U.S. at 590.

The Bilski applicants did not contend that their process met the machine implementation prong of the test; therefore, the court left to future cases the task of “elaborating the precise contours” of that prong. Bilski, 545 F.3d at 962. The facts of Bilski did provide the court an opportunity to elaborate upon the “transformation” prong of the test. The patent at issue in Bilski claimed a method for hedging risk in the field of commodities options trading. The court held that the claims at issue in that case did not meet the section 101 threshold because they did not transform any “article”—i.e., they did not “involve the transformation of any physical object or substance, or an electronic signal representative of any physical object or substance.” Id. at 964. “Purported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances.” Id. at 963. The court also noted that “the application of only human intelligence to the solution of practical problems is no more than a claim to a fundamental principle.” Id. at 965, citing In re Comiskey, 499 F.3d 1365, 1377-1379 (Fed. Cir. 2007) (“Comiskey I”). A mental process is not patent-eligible subject matter. See Bilski, 545 F.3d at 952, 960-961, 965.

DISCUSSION

Defendant contends that claims 2 and 3 of the ’154 patent claim mental processes that fail to meet either the “transformation” or “machine implementation” prongs of the machine-ortransformation test. Plaintiff argues that the claims do not preempt any fundamental principles and attempts to demonstrate that both claims meet one or both prongs of the test. Plaintiff argues, in the alternative, that claim 2 is a “Beauregard claim” not subject to Bilski’s analysis.

The Federal Circuit has characterized claim construction as “an important first step” in a section 101 analysis. Bilski, 545 F.3d at 951. The parties have filed a joint claim construction statement detailing their respective proposed constructions. In this case, ruling on defendant’s section 101 motion does not require that the claims actually be construed. For the purposes of this motion, the court adopts plaintiff’s proposed constructions except where plaintiff has urged the court to adopt a different one. Where plaintiff has so urged, the court adopts the construction preferred by plaintiff, the non-moving party. In other words, the analysis below utilizes the constructions most favorable to plaintiff, as indicated by plaintiff.

I. Transformation

On their face, the claimed methods simply obtain and compare intangible data pertinent to business risks. Plaintiff argues that the methods described in claims 2 and 3 nevertheless meet the transformation prong, because they manipulate both credit card numbers and IP addresses.

Plaintiff asserts that a claim need only manipulate data representing physical objects to meet the transformation prong. According to plaintiff, the fraud verification process manipulates credit card numbers by using them to construct and utilize a “map of credit card numbers.”

At the outset, it must be noted that the respective ordinary meanings of the terms “transformation” and “manipulation” differ. “Transformation” suggests a fundamental change, whereas “manipulation” does not. The Bilski court made one reference to the “manipulation” of certain abstractions and another reference to “transformations or manipulations,” perhaps suggesting some congruence between the two terms. See 545 F.3d at 962-963. Yet these references appear in a discussion explaining why manipulations of abstractions do not meet the transformation prong. See id. There is no indication that the Federal Circuit, having reaffirmed the machine-or-transformation test, intended to weaken the key term “transformation” by equating it with mere “manipulation.” The processes claimed in the ’154 patent unquestionably “manipulate” credit card numbers by using them to build a “map.” But it is equally clear that neither credit card numbers nor credit cards are “transformed.” Plaintiff itself characterizes the step of “constructing a map of credit card numbers based upon the other transactions” as “creat[ing] a data structure or logical association of those credit card numbers.” It is difficult to distinguish this creation of a data structure from the combination of a data gathering step and an algorithm rejected in In re Grams, 888 F.2d 835 (Fed. Cir. 1989). See Bilski, 545 F.3d at 963 (discussing Grams). Simply collecting data into a vague sort of “map” does not amount to a “transformation.”

Even if the court were to hold that “manipulation” suffices to effect a “transformation,” the question would remain whether either claim transforms an “article”—i.e., any physical object or substance, or an electronic signal representative of any physical object or substance. See id. at 964. A credit card number is not a physical object or substance, and plaintiff does not argue to the contrary. It argues, however, that the manipulated credit card numbers represent physical objects:credit cards. Plaintiff’s expert describes, in some detail, the physical characteristics of credit cards, as well as the international standards for, and importance of, those characteristics. There is no dispute that credit cards are physical objects and that their particular physical characteristics have significance in various contexts. Yet a credit card number no more represents a physical credit card than a card represents a number. Both the number and the card represent a common underlying abstraction—a credit card account, which is a series of rights and obligations existing between an account holder or account holders [FN3] and a card issuer. The conclusions of plaintiff’s expert do not raise any genuine issue of fact to the contrary. Indeed, the very premise of the purported invention is the need to verify the authenticity of a credit card number in an environment in which the physical card is unavailable to the merchant. Banks could hypothetically issue credit card accounts and numbers untethered to physical cards, to be used for online purchases only. Under plaintiff’s theory, such a move would magically render its method non-statutory, even though nothing about the method would have changed.

      3.     The court takes judicial notice of the existence of joint credit card accounts. Spouses, for instance, may share such an account. Each spouse has a credit card, but there is only one number. If a credit card number represents a particular physical credit card, which of the two cards does it represent? Plainly, the number does not represent either or both physical cards but rather the one joint account.

The Bilski decision held that transformations of “public or private legal obligations or relationships, business risks, or other such abstractions” do not meet the transformation test. See id. at 963. Options like those described in the Bilski patent do not simply float in the ether. A piece of paper upon which the terms of an option are written is, like a credit card, a physical object. Yet this connection to a physical medium does not create patent eligibility, because an option ultimately represents the abstraction of a legal obligation or business risk. A process purportedly transforming deedshares has likewise been held non-statutory, even though deedshares may be written down and even though they pertain to real estate. Fort Prop.’s, Inc. v. Am. Master Lease, LLC, 2009 U.S. Dist. LEXIS 7217, at * 11 (C.D. Cal. Jan. 22, 2009). Like options or deedshares, credit card accounts represent sets of legal rights and relationships, not “articles.”

Plaintiff relies upon two cases to support its assertion that the manipulation of credit card numbers suffices to transform an “article.” In the case of In re Abele, 684 F.2d 902 (C.C.P.A. 1982), the Federal Circuit’s predecessor court reviewed a claim reciting data produced by a mathematical algorithm along with the limitation “said data is X-ray attenuation data produced in a two dimensional field by a computed tomography scanner.” The court held that claim to be patentable, while rejecting a claim that simply recited the algorithm. The Bilski court approved of Abele’s result (though not the test applied), noting that the data “clearly represented physical and tangible objects, namely the structure of bones, organs, and other body tissues.” Bilski, 545 F.3d at 962-963. Plaintiff contends that a credit card number is related to a physical credit card in the same way that Abele’s data was related to the structure of body tissues. Yet, the Federal Circuit stated that it was “the transformation of the data itself into a visual depiction” that sufficed to meet the transformation prong in Abele. Id. at 963. As long as the claim is “limited to a visual depiction that represents specific physical objects or substances,” there is no concern that a fundamental principle will be wholly preempted. Id. In this case, there is no evidence suggesting that credit card numbers or the claimed “map of credit card numbers,” under either plaintiff’s or defendant’s construction of the phrase, “visually depict” a credit card with particular physical characteristics.

The other case relied upon by plaintiff, Arrhythmia Research Tech., Inc. v. Corazonix Corp., 958 F.2d 1053 (Fed. Cir. 1992), is equally unhelpful. That case also dealt with a diagnostic method and explicitly applied the “Freeman-Walter-Abele ” test rejected in Bilski. Contrary to plaintiff’s assertion, nothing in the post-Bilski case of In re Comiskey, 554 F.3d 967 (Fed. Cir. 2009) (“Comiskey II”), resurrects Arrhythmia’s analysis. See Comiskey II at 979 n.14 and accompanying text (mentioning Arrhythmia). A reasonable jury could not conclude that the patented method’s manipulation of credit card numbers meets the transformation prong of the machine-or-transformation test.

Plaintiff next argues that the court should adopt defendant’s construction of “Internet address” for the purposes of this motion and assume that references to an “Internet address” in the claims refer exclusively to an “Internet Protocol (IP) address.”] An IP address denotes a hardware device such as a host computer, set of computers or a router that is connected to the internet. Thus, an IP address represents a physical object and could potentially meet the transformation prong.

The problem with this argument is that the claimed method does not transform or even manipulate the IP address itself. The limitation containing the term “Internet address,” which is common to claims 2 and 3, reads: “obtaining information about other transactions that have utilized an Internet address that is identified with the credit card transaction.” The information thus obtained is then used to construct a map of credit card numbers. The phrase “that have utilized an Internet address” is a modifier of the word “transactions.” The IP address itself is not an object of transformation; indeed, it would make no sense to change the IP address, since its purpose is to serve as an identifier. Furthermore, an IP address is not a “visual depiction” of a computer in the sense required by the Bilski court’s reading of Abele. See Bilski, 545 F.3d at 963. The claims do not, as a matter of law, meet the transformation prong.

II. Machine Implementation and the Internet

Defendant argues that the methods of claims 2 and 3 could literally be performed on a piece of paper or in one’s mind. A specific machine is neither necessary for the method nor recited in the patent claims, according to defendant. Indeed, the written description includes nary a detail about the “one or more processors” recited by claim 2, and claim 3 does not recite the use of a processor or computer at all. Plaintiff nevertheless contends that both patent claims are tied to a specific machine.

Former vice-president Al Gore did not actually take credit for inventing the internet, and neither does plaintiff; however, plaintiff does contend that the entire internet is the machine implementation of its method. Both claims recite, in their respective preambles, fraud detection “over the Internet.” Accordingly, argues plaintiff, the claims are implemented in the myriad “general and special purpose computers, routers, hubs, switches and other specialized hardware” comprising the internet. The Bilski court specifically left it to future cases to determine “whether or when recitation of a computer suffices to tie a process claim to a particular machine.” 545 F.3d at 962. This court is now presented with the question of whether recitation of “over the Internet” suffices to tie a process claim to a particular machine.

There are at least three reasons why it does not. First, the test requires that a claimed process be tied to “a particular machine.” Id. (emphasis supplied). The purpose of this requirement is to ensure that all uses of a fundamental principle are not preempted in any field. The internet is a network of millions of individual machines. Indeed, the internet was initially conceptualized as a network robust enough to withstand the loss of a large number of particular machines. See Barry M. Leiner et al., A Brief History of the Internet, available at http://www.isoc.org/internet/history/brief.shtml. A distinct feature of the “packet switching” protocols underlying the internet is the capacity of data packets to reroute to reach their intended destinations if a first-attempted route is blocked due to the failure of a particular computer. The internet continues to exist despite the addition or subtraction of any particular piece of hardware. It may be supposed that the internet itself, rather than any underlying computer or set of computers, is the “machine” to which plaintiff refers. Yet the internet is an abstraction. If every computer user in the world unplugged from the internet, the internet would cease to exist, although every molecule of every machine remained in place. One can touch a computer or a network cable, but one cannot touch “the internet.” See Ferguson, 2009 WL 565074 at *5 (holding a company is not a machine because, inter alia, “you cannot touch the company”).

Even if the “over the Internet” limitation could otherwise be considered a machine implementation, the involvement of the internet will not qualify as such where it merely constitutes “insignificant extra-solution activity.” See Bilski , 545 F.3d at 962. A different rule would eviscerate section 101, because any “competent draftsman could attach some form of [extra]- solution activity to almost any mathematical formula,” or, for that matter, mental process. Id. at 957. Plaintiff stresses that the power of the claimed processes resides in the application of fraud tests to more than just the credit card number from the subject transaction. Such processes can be carried out in contexts other than the internet. To give but one example, a merchant taking an order over the telephone could use records or databases to cross-check all credit card numbers associated with that telephone number. An unpatentable mathematical theorem does not become patentable by virtue of a claim limitation stating that the theorem can be usefully applied to surveying techniques. Similarly, an unpatentable mental process for collecting data and weighing values does not become patentable by tossing in references to internet commerce.

Finally, the use of the internet does not impose meaningful limits on the scope of the claims. See Bilski, 545 F.3d at 961 (holding machine implementation or transformation must impose meaningful limits on claim scope). Plaintiff notes that its claims are limited to internet transactions and the use of credit cards, vice debit or gift cards. Yet plaintiff itself states in its opposition, “Credit card transactions over the Internet have become a staple of modern business.” The claims of the ’154 patent preempt the use of fundamental mental processes across an extraordinarily large and important segment of the commercial system. Plaintiff argues that limiting the ’154 patent to the field of online credit card transactions provides a sufficient limit on claim scope, because all possible uses of the process are not preempted.

Otherwise non-statutory subject matter cannot be made patentable simply by limiting it to a particular technological field. See Bilski 545 F.3d at 957, citing Diehr, 450 U.S. at 191-192. A claim need not preempt all possible uses of a process to be found to lack meaningful limits on its scope. See Bilski at 966 (“And while Applicants argue that the scope of this pre-emption is limited to hedging as applied in the area of consumable commodities, the Supreme Court's reasoning has made clear that effective pre-emption of all applications of hedging even just within the area of consumable commodities is impermissible.”). [FN9] The instant claims broadly preempt the fundamental mental process of fraud detection using associations between credit card numbers. A limitation to “only” the vast area of online credit card transactions is not meaningful. Defendant has demonstrated the absence of any genuine issue of material fact regarding the claims' failure to meet either prong of the machine-or-transformation test.

      9.     Relying upon Gottshalk v. Benson, 409 U.S. 63 (1972), plaintiff asserts that a machine implementation or transformation insufficiently limits a claim’s scope only if the claim preempts all uses of an algorithm or mental process. This is a misreading of Benson, which found the claim at issue in that case to be non-statutory. In that particular case, a mathematical formula would have been wholly preempted had the patent claim been approved. Id. at 71-72. Such total preemption was sufficient to invalidate the patent, but the Supreme Court did not hold that it was necessary. [Ed. note: Flook expressly involved non-total preemption.]


III. A “Beauregard Claim”?

Claim 2’s preamble begins: “A computer readable medium containing program instructions . . . .” Plaintiff argues, in the alternative, that this limitation transforms claim 2 from a process claim into a “specialized apparatus” or “Beauregard” claim. [FN10] In plaintiff’s view, such a claim is a product claim to which the machine-or-transformation test does not apply. Plaintiff does not identify which of the three possible section 101 product categories it believes the claim falls into, i.e., machine, manufacture or composition of matter. See 35 U.S.C. § 101. The argument appears to be that, whatever claim 2's statutory category, the Beauregard doctrine exempts claims like this one from the machine-or-transformation inquiry.

      10.     Plaintiff does not characterize claim 2 as claiming “software.”

The case of In re Beauregard, 53 F.3d 1583 (Fed. Cir. 1995), reviewed a rejection by the USPTO Board of Patent Appeals and Interferences (“the Board”) of certain patent claims on the basis of the "printed matter" rule. Id. at 1584. Under that venerable doctrine, printed matter as such is ineligible for patent protection. See U.S. Credit Sys. Co. v. Am. Credit Indem. Co., 59 F. 139, 143 (2d Cir. 1893). This traditional “printed matter” rule concerns statutory subject matter; however, a newer and different, but related, “printed matter” rule holds that the combination of novel printed matter with a prior art substrate may render a claim non-obvious where there is a novel relationship to the substrate. Compare Application of Chatfield, 545 F.2d 152, 157 (C.C.P.A. 1976) (noting patent ineligibility of printed matter under section 101), with In re Gulack, 703 F.2d 1381 (Fed. Cir. 1983) (holding novel relationship between printed matter and prior art substrate rendered claims non-obvious under section 103). Both of these doctrines have been referred to as the “printed matter” rule, which can be a source of confusion. See In re Nuijten, 500 F.3d 1346, 1365-1367 (Fed. Cir. 2007) (Linn, C.J., concurring in part and dissenting in part) (discussing USPTO's confused invocation of “printed matter” doctrine in both 101 and 103 contexts).

The two-paragraph Beauregard opinion merely noted that, during the pendency of the appeal, the Commissioner of Patents and Trademarks had come to share the petitioner’s view “that computer programs embodied in a tangible medium, such as floppy diskettes, are patentable subject matter under 35 U.S.C. § 101,” i.e., are not barred by the traditional printed matter rule. 53 F.3d at 1584. Since the parties had reached agreement on the point, the Federal Circuit found there to be no case or controversy and remanded the case for further proceedings. Id. Plaintiff points to subsequent decisions of the Board referring to the concept of a “Beauregard claim.” See Ex parte Bo Li, 2008 Pat. App. LEXIS 27, at *11 (B.P.A.I. Nov. 6, 2008); Ex parte Van Beek, 2009 WL 112387, at *3 (B.P.A.I. Jan. 16, 2009). Notably, neither of these decisions uses the “specialized apparatus” nomenclature.

The Beauregard case itself was not a decision on the merits of patentability. Indeed, neither Bo Li nor Van Beek cite Beauregard. Those decisions rely instead upon section 2106.01 of the USPTO's Manual of Patent Examining Procedure (MPEP) and the cases of In re Lowry, 32 F.3d 1579 (Fed. Cir. 1994), and In re Nuijten, 500 F.3d 1346 (Fed. Cir. 2007), cert. denied, 129 S.Ct. 70. See Bo Li at *11; Van Beek at *3. MPEP section 2106.01 discusses the patentability of functional and non-functional descriptive material and does not reference the Beauregard case or Beauregard claims at all. It instead largely relies upon Lowry. As for Lowry, that decision reversed a section 103 “printed matter” rejection of certain claimed data structures. 32 F.3d at 1583. The Federal Circuit panel held a computer memory containing a stored data structure to have “patentable weight,” because the data structure imparted a physical organization to the information stored in the memory. Id. at 1582-1583. The court noted that Lowry sought to patent neither the concept of a data model in the abstract nor the content of data resident in a database; rather, Lowry sought to patent data structures that imposed a physical organization on data. Id. The Lowry case was decided before Beauregard and makes no reference to “specialized apparatus” claims. The Nuijten court held that a manipulated electromagnetic signal was neither a “manufacture” nor any other type of statutory subject matter. Nuitjen, 500 F.3d at 1357; see Bilski, 545 F.3d at 951 n.2 (declining to discuss Nuitjen because that case primarily concerned a manufacture, not a process). The Nuitjen majority did not discuss Beauregard claims at all. Judge Linn, writing separately, noted that the USPTO cited to Beauregard and that Beauregard was not decided on the merits. See Nuitjen, 500 F.3d at 1365 & 1366 n.6 (Linn, C.J., concurring in part and dissenting in part). Judge Linn speculated that the USPTO's concession in Beauregard derived from Lowry and, perhaps, In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994) (holding that a general purpose computer operating pursuant to software may represent patentable subject matter). The Alappat case has, in the meantime, been abrogated by Bilski, because it did not apply the machine-or-transformation test. See Bilski, 545 F.3d at 959.

Having reviewed the above tangle of references to “Beauregard” claims and the facts of this case, the court reaches two conclusions. First, there is at present no legal doctrine creating a special “Beauregard claim” that would exempt claim 2 of the ’154 patent from the analysis of Bilski. The USPTO has referred to “Beauregard claims” when assessing computer programs embedded in tangible media, but there is no legal support for the view that Beauregard extends the holding of Lowry. Like Auntie Mame's Uncle Beauregard, the footing of the so-called Beauregard doctrine is anything but sure.

Second, even if Beauregard and the USPTO decisions referring to it could be considered to set out a legal doctrine, and even if such doctrine survives Bilski, it would not provide a basis for plaintiff to avoid summary judgment. If a “Beauregard claim” is anything, it is an exception to the traditional printed matter rule for computer programs embodied in a tangible medium. See Beauregard, 53 F.3d at 1584; Chisum on Patents § 1.02[4][e] (2006) (mentioning Beauregard in discussion of printed matter doctrine and computer-readable memory). Claim 2 claims a process implemented through unspecified program instructions. Indeed, the patent teaches nothing more than the idea of using a programmed computer to implement the process in some way. Claim 2 does not claim a combination of printed matter, or anything analogous to printed matter, with the “computer readable medium” substrate. Following Bilski, the Board has rightly held that simply appending “A computer readable media including program instructions . . .” to an otherwise nonstatutory process claim is insufficient to make it statutory. See Ex parte Cornea-Hasegan, 89 U.S.P.Q.2d 1557, 1561 (B.P.A.I. 2009) (rejecting claim reciting such limitation, under section 101). Like claim 3, claim 2 is subject to the machine-or-transformation test for patent eligibility. As explained above, neither claim meets the test. A reasonable jury could not conclude other than that defendant has clearly and convincingly demonstrated claims 2 and 3 to be non-statutory. Summary judgment in favor of defendant is warranted.

In analyzing Bilski, one is led to ponder whether the end has arrived for business method patents, whose numbers swelled following the decision in State Street Bank & Trust Co. v. Signature Fin. Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998). Without expressly overruling State Street, the Bilski majority struck down its underpinnings. This caused one dissenter, Judge Newman, to write that State Street “is left hanging,” while another dissenter, Judge Meyer, registered “an emphatic 'yes'” to rejecting State Street, and a third, Judge Rader, queried whether the court was willing to decide that the entire field of business patents is “undeserving of incentives for invention.” 545 F.3d at 995, 998, 1014. Although the majority declined say so explicitly, Bilski’s holding suggests a perilous future for most business method patents. [FN15]

      15.     The Federal Circuit has decided two panel decisions since Bilski. One of the decisions discussed Bilski and invalidated certain method and “paradigm” claims to the marketing of products by a marketing force. Ferguson, 2009 WL 565074. The other decision applied Bilski’s rationale to invalidate a method for arbitration of contract disputes but, extraordinarily, did not cite Bilski even once. Comiskey II, 554 F.3d 967. It is hard to know what to make of the Comiskey II panel’s decision to track the rationale of Bilski while declining even to mention it.

The observations of several Justices suggest that this issue may be expected to receive serious consideration by the Supreme Court. See eBay Inc. v. MercExhcange, LLC, 547 U.S. 388, 397 (2006) (Kennedy, J., concurring) (noting the “potential vagueness” and “suspect validity” of some business method patents); Lab. Corp. of Am. v. Metabolite Labs., 548 U.S. 124, 127, 136-137 (2006) (Breyer, J., dissenting from denial of certiorari) (questioning State Street’s adherence to Supreme Court precedent and observing, “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.”). The closing bell may be ringing for business method patents, and their patentees may find they have become bagholders. [FN16]

      16.     “Bagholder” denotes a shareholder left holding shares of worthless stocks.

 
 


Pirate joke

A long time ago, a pirate conceived, reduced to practice, and promptly applied for a patent on a novel method of disposing of unwanted captives — “Walking the plank.” His application for a patent on his claimed invention was rejected. Why? A method of disposing of unwanted captives, comprising:

Selecting a longitudinally extended plank, said plank having a distal end longitudinally distanced from a proximal end;

Removably fastening said proximal end of said plank to an upper surface of a deck of a ship, said proximal end fastened to a location on said upper surface near an outer edge of said deck, said plank extending normal to said outer edge of said upper surface of said deck, whereby said distal end of said plank is distanced from said outer edge of said deck;

Placing an unwanted captive on said proximal end of said plank, said captive facing said distal end of said plank;

Prodding a rear area of said captive with a sword, thereby causing said captive to migrate toward said distal end of said plank; and

Continuing to prod said rear area of said captive with said sword until said captive progresses beyond said distal end of said plank.


[Answer here .]



 
 

Link to next section of chapter 8-D — Bilski in the Supreme Court and Beyond

Return to Table of Contents