AT+T Corp. v. Excel Communication, 1999
This case blew the door wide open for business method patents.
U.S. Patent No. 5,333,184 describes a message record for long-distance telephone calls that is enhanced by adding a primary interexchange carrier (“PIC”) indicator. The addition of the indicator aids long-distance carriers in providing differential billing treatment for subscribers, depending upon whether a subscriber calls someone with the same or a different long-distance carrier. AT+T’s claimed process employed subscribers’ and call recipients’ PICs as data, applied Boolean algebra to those data to determine the value of the PIC indicator, and applied that value through switching and recording mechanisms to create a signal useful for billing purposes.
AT+T in 1996 asserted ten of the method claims against Excel in this infringement suit. The independent claims at issue (claims 1, 12, 18, and 40) included the step of “generating a message record for an interexchange call between an originating subscriber and a terminating subscriber,” and the step of adding a PIC indicator to the message record. Independent claim 1, for example, adds a PIC indicator whose value depends upon the call recipient’s PIC:
1. A method for use in a telecommunications system in which interexchange calls initiated by each subscriber are automatically routed over the facilities of a particular one of a plurality of interexchange carriers associated with that subscriber, said method comprising the steps of:
generating a message record for an interexchange call between an originating subscriber and a terminating subscriber, and
including, in said message record, a primary interexchange carrier (PIC) indicator having a value which is a function of whether or not the interexchange carrier associated with said terminating subscriber is a predetermined one of said interexchange carriers.
Independent claims 12 and 40 add a PIC indicator that shows if a recipient’s PIC is the same as the IXC over which that particular call is being made. Independent claim 18 adds a PIC indicator designed to show if the caller and the recipient subscribe to the same IXC. The dependent claims at issue add the steps of accessing an IXC’s subscriber database (claims 4, 13, and 19) and billing individual calls as a function of the value of the PIC indicator (claims 6, 15, and 21).
The district court concluded that the method claims of the patent implicitly recited a mathematical algorithm. The court was of the view that the only physical step in the claims involves data-gathering for the algorithm. Though the court recognized that the claims require the use of switches and computers, it nevertheless concluded that use of such facilities to perform a non-substantive change in the data’s format could not serve to convert non-patentable subject matter into patentable subject matter. Thus the trial court, on summary judgment, held all of the method claims at issue invalid for failure to qualify as statutory subject matter.
The Federal Circuit stated that because 101 includes processes as a category of patentable subject matter, the judicially-defined proscription against patenting of a “mathematical algorithm,” to the extent such a proscription still exists, is narrowly limited to mathematical algorithms in the abstract.
The Federal Circuit went on to acknowledge that they had been changing the law: Since the process of manipulation of numbers is a fundamental part of computer technology, we have had to reexamine the rules that govern the patentability of such technology. The sea-changes in both law and technology stand as a testament to the ability of law to adapt to new and innovative concepts, while remaining true to basic principles. In an earlier era, the PTO published guidelines essentially rejecting the notion that computer programs were patentable. As the technology progressed, our predecessor court disagreed, and, overturning some of the earlier limiting principles regarding 101, announced more expansive principles formulated with computer technology in mind. In our recent decision in State Street, this court discarded the so-called “business method” exception and reassessed the “mathematical algorithm” exception, both judicially-created “exceptions” to the statutory categories of 101. As this brief review suggests, this court (and its predecessor) struggled to make our understanding of the scope of 101 responsive to the needs of the modern world.
The Supreme Court has supported and enhanced this effort. In Diehr, the Court expressly limited its two earlier decisions in Flook and Benson by emphasizing that these cases did no more than confirm the “long-established principle” that laws of nature, natural phenomena, and abstract ideas are excluded from patent protection. The Diehr Court explicitly distinguished Diehr’s process by pointing out that “the respondents here do not seek to patent a mathematical formula. Instead, they seek patent protection for a process of curing synthetic rubber.” The Court then explained that although the process used a well-known mathematical equation, the applicants did not “pre-empt the use of that equation.” Thus, even though a mathematical algorithm is not patentable in isolation, a process that applies an equation to a new and useful end “is at the very least not barred at the threshold by 101.” In this regard, it is particularly worthy of note that the argument for the opposite result, that “the term ‘algorithm’ . . . is synonymous with the term ‘computer program,'” (Stevens, J., dissenting), and thus computer-based programs as a general proposition should not be patentable, was made forcefully in dissent by Justice Stevens; his view, however, was rejected by the Diehr majority.
In State Street, the Federal Circuit, following the Supreme Court’s guidance in Diehr, concluded that “[u]npatentable mathematical algorithms are identifiable by showing they are merely abstract ideas constituting disembodied concepts or truths that are not ‘useful.’ . . . [T]o be patentable an algorithm must be applied in a ‘useful’ way.” In that case, the claimed data processing system for implementing a financial management structure satisfied the 101 inquiry because it constituted a “practical application of a mathematical algorithm, . . . [by] produc[ing] ‘a useful, concrete and tangible result.'”
The State Street formulation followed the approach taken by the Federal Circuit en banc in In re Alappat. In Alappat, the Federal Circuit concluded that:
[The Court] never intended to create an overly broad, fourth category of [mathematical] subject matter excluded from 101. Rather, at the core of the Court’s analysis . . . lies an attempt by the Court to explain a rather straightforward concept, namely, that certain types of mathematical subject matter, standing alone, represent nothing more than abstract ideas until reduced to some type of practical application, and thus that subject matter is not, in and of itself, entitled to patent protection.
Thus, the Alappat inquiry simply requires an examination of the contested claims to see if the claimed subject matter as a whole is a disembodied mathematical concept representing nothing more than a “law of nature” or an “abstract idea,” or if the mathematical concept has been reduced to some practical application rendering it “useful.” In Alappat, it was held that more than an abstract idea was claimed because the claimed invention as a whole was directed toward forming a specific machine that produced the useful, concrete, and tangible result of a smooth waveform display.
The Federal Circuit stated that it considered the scope of 101 to be the same regardless of the form – machine or process – in which a particular claim is drafted.
In this case, the PIC indicator value was derived using a simple mathematical principle (p and q). But that was not determinative because AT+T did not claim the Boolean principle as such or attempt to forestall its use in any other application.
AT+T was only claiming a process that used the Boolean principle in order to determine the value of the PIC indicator. The PIC indicator represented information about the call recipient’s PIC, a useful, non-abstract result that facilitated differential billing of long-distance calls made by an IXC’s subscriber. Because the claimed process applied 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 fell within the scope of 101.
Excel argued that method claims containing mathematical algorithms are patentable subject matter only if there is a “physical transformation” or conversion of subject matter from one state into another. The physical transformation language appears in Diehr, and was been echoed by the Federal Circuit in Schrader.
The Federal Circuit stated that the notion of “physical transformation” was not an invariable requirement, but merely one example of how a mathematical algorithm may bring about a useful application.
Excel also contended that because the process claims at issue lacked physical limitations, the claims were not patentable subject matter. The Federal Circuit stated that because the claims at issue in this case were directed to a process in the first instance, a structural inquiry was unnecessary.
The Federal Circuit stated that the argument that physical limitations were necessary may have stemmed from the second part of the Freeman-Walter-Abele test. The Federal Circuit stated that the State Street decision questioned the continuing viability of the Freeman-Walter-Abele test, noting that, “[a]fter Diehr and Chakrabarty, the Freeman-Walter-Abele test has little, if any, applicability to determining the presence of statutory subject matter.” Whatever may be left of the earlier test, if anything, this type of physical limitations analysis seems of little value because “after Diehr and Alappat, the mere fact that a claimed invention involves inputting numbers, calculating numbers, outputting numbers, and storing numbers, in and of itself, would not render it nonstatutory subject matter, unless, of course, its operation does not produce a ‘useful, concrete and tangible result.'”
Because the Federal Circuit was now focusing on the inquiry deemed “the ultimate issue” by Alappat, rather than on the physical limitations inquiry of the Freeman-Walter-Abele test, it found the cases cited by Excel to be inapposite. For example, in In re Grams, the court applied the Freeman-Walter-Abele test and concluded that the only physical step in the claimed process involved data-gathering for the algorithm; thus, the claims were held to be directed to unpatentable subject matter. In contrast, our inquiry here focuses on whether the mathematical algorithm is applied in a practical manner to produce a useful result. In re Grams is unhelpful because the panel in that case did not ascertain if the end result of the claimed process was useful, concrete, and tangible.
Similarly, the court in In re Schrader relied upon the Freeman-Walter-Abele test for its analysis of the method claim involved. The court there found neither a physical transformation nor any physical step in the claimed process aside from the entering of data into a record. The Schrader court likened the data-recording step to that of data-gathering and held that the claim was properly rejected as failing to define patentable subject matter. The focus of the court in Schrader was not on whether the mathematical algorithm was applied in a practical manner since it ended its inquiry before looking to see if a useful, concrete, tangible result ensued. Thus, in light of the recent understanding of the issue, the Schrader court’s analysis was as unhelpful as that of In re Grams.
Finally, the decision in In re Warmerdam, was not to the contrary. There the court recognized the difficulty in knowing exactly what a mathematical algorithm is, “which makes rather dicey the determination of whether the claim as a whole is no more than that.” Warmerdam’s claims 1-4 encompassed a method for controlling the motion of objects and machines to avoid collision with other moving or fixed objects by generating bubble hierarchies through the use of a particular mathematical procedure. The court found that the claimed process did nothing more than manipulate basic mathematical constructs and concluded that “taking several abstract ideas and manipulating them together adds nothing to the basic equation”; hence, the court held that the claims were properly rejected under 101. Whether one agrees with the court’s conclusion on the facts, the holding of the case is a straightforward application of the basic principle that mere laws of nature, natural phenomena, and abstract ideas are not within the categories of inventions or discoveries that may be patented under 101.
In his dissent in Diehr, Justice Stevens noted two concerns regarding the 101 issue, and to which, in his view, federal judges have a duty to respond:
First, the cases considering the patentability of program-related inventions did not establish rules that enable a conscientious patent lawyer to determine with a fair degree of accuracy which, if any, program-related inventions will be patentable. Second, the inclusion of the ambiguous concept of an “algorithm” within the “law of nature” category of unpatentable subject matter has given rise to the concern that almost any process might be so described and therefore held unpatentable.
Despite the almost twenty years since Justice Stevens wrote, these concerns remained important in 1999. His solution was to declare all computer-based programming unpatentable. That has not been the course the law took. Rather, it was now clear that computer-based programming constitutes patentable subject matter so long as the basic requirements of 101 are met. Justice Stevens’ concerns can be addressed within that framework.
His first concern, that the rules are not sufficiently clear to enable reasonable prediction of outcomes, should be less of a concern today in light of the refocusing of the 101 issue that Alappat and State Street have provided. His second concern, that the ambiguous concept of “algorithm” could be used to make any process unpatentable, can be laid to rest once the focus is understood to be not on whether there is a mathematical algorithm at work, but on whether the algorithm-containing invention, as a whole, produces a tangible, useful, result.
In light of the above, and consistent with the clearer understanding that our more recent cases have provided, we conclude that the district court did not apply the proper analysis to the method claims at issue. Furthermore, had the court applied the proper analysis to the stated claims, the court would have concluded that all the claims asserted fall comfortably within the broad scope of patentable subject matter under 101. Accordingly, the Federal Circuit held as a matter of law that Excel was not entitled to the grant of summary judgment of invalidity of the ‘184 patent under 101.
Thus, this case marked a clear end to the Freeman-Walter-Abele test and replaced it with a more liberal “tangible, useful result” test. Most significantly, a patent claim, in a software related invention, that had no structural limitations was found to be statutory.