In re Bernard L. Bilski and Rand A. Warsaw, 2008 (Software Patents)
In October 2008, the Federal Circuit reviewed the decision of the Board of Patent Appeals and Interferences that discussed below in a 132 page decision. The Board had sustained a rejection of all eleven claims under 35 U.S.C. 101 as not directed to patent-eligible subject matter. The Federal Circuit affirmed, holding that Bilski’s claims were not statutory under 35 U.S.C. 101.
In this case, the Federal Circuit revived the Benson test, that claimed process is surely patent-eligible under Section 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. The Federal Circuit also stated that the State Street test is no longer valid. The Federal Circuit was reacting to Supreme Court criticism during oral arguments in Laboratory Corp. of America Holdings v. Metabolite Laboratories against the State Street test. This case will make it much harder to procure business method patents. Many business method patents may now be invalid. Only business method patents that survive the machine or transformation test, discussed below, are statutory after Bilski. My definition of a “business method patent” is one where there is no software or hardware involved. Others may have different definitions. For a business method to survive this test will be difficult.
With the Bilski case, the Federal Circuit has changed, and is leaving open the possibility of substantially further changing, the tests for statutory subject matter in the field of software patents and possibly with respect to method claims in all technology areas.
Bilski’s patent application is Serial No. 08/833,892 and relates to commodity trading. Claim 1 is representative and recites:
1. 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.
The claim is for a method of hedging risk in commodities trading.
During examination, the Examiner rejected claims 1-11 under 35 U.S.C. 101 stating that 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. The Examiner decided, therefore, that the invention is not directed to the technological arts.
On appeal, the Board held that the examiner erred to the extent that he relied on a technological arts test because the case law does not support such a test. 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.” The Board stated that 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. However, the Board concluded that Applicants’ claims did not involve any patent-eligible transformation and held 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 preempted 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 they only claimed an abstract idea ineligible for patent protection.
The Federal Circuit started by quoting section 101:
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.
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. Thus, the Federal Circuit stated that the issue before them involves what the term “process” means, and how to determine whether a given claim is a new and useful process.
The Federal Circuit noted that the Supreme Court has held that the meaning of “process” as used in Section 101 is narrower than its ordinary meaning. The Supreme Court has held that a claim is not a patent-eligible process if it claims laws of nature, natural phenomena, or abstract ideas in Diamond v. Dier, 450 U.S. 175, 185 (1981).
The Federal Circuit then looked at the Supreme Court’s Benson decision (see my separate post on Benson)where the Supreme Court held that because an algorithm had no uses other than those that would be covered by the claims (any conversion of BCD to pure binary on a digital computer), the claims pre-empted all uses of the algorithm and thus were effectively drawn to the algorithm itself. This Benson case was a very old case decided at a time when most people believed that software was not patentable. I wonder if the Federal Circuit is trying to go back in time.
The Federal Circuit then stated that the question before us is whether Applicants’ claim recites a fundamental principle and, if so, whether if would pre-empt substantially all uses of that fundamental principle if allowed. The Federal Circuit noted that this inquiry is hardly straightforward. Analogizing to the facts of Diehr or 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.
Continuing its focus on Benson, the Federal Circuit stated that the Supreme Court in that case enunciated a definitive test to determine whether a process claim is tailored narrowly enough to encompass only a particular application rather than to pre-empt the principle itself. A claimed process is surely patent-eligible under Section 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.
The Federal Circuit stated that, 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. 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 pre-emptive footprint of the claim since all uses of the algorithm were still covered by the claim.
The Federal Circuit noted that the Supreme Court explicitly stated in Benson that 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.
The Federal Circuit recognized that the Benson court was equivocal in first putting forward this test and stated that “We do not hold that no process patent could ever qualify if it did not meet the requirements of our prior precedents.” The Federal Circuit then noted that this point was noted in Flook but that this caveat was not repeated in Diehr when the Diehr court reaffirmed the machine-or-transformation test. The Federal Circuit then stated that they believe their reliance on the Supreme Court’s machine-or-transformation test is sound. The Federal Circuit then stated that they recognize that the Supreme Court may ultimately decide to alter or perhaps even set aside this test to accommodate emerging technologies. And the Federal Circuit did not rule out the possibility that they may in the future refine or augment the test or how it is applied.
The Federal Circuit then noted that the Diehr court held that field-of-use limitations are generally insufficient to render an otherwise ineligible process claim patent-eligible, and that the Diehr court stated that insignificant postsolution activity will not transform an unpatentable principle into a patentable process.
The Federal Circuit then noted that the Supreme Court held (in Diehr) that whether a claimed process is novel or non-obvious is irrelevant to the Section 101 analysis, and that it is inappropriate to dissect claims into old and new elements and then to ignore the presence of the old elements in the analysis.
The Federal Circuit then stated that the Freeman-Walter-Abele test is inadequate.
The Federal Circuit then reviewed the much more recent test of “useful, concrete, and tangible result” associated with State Street and stated that this inquiry is insufficient to determine whether a claim is patent eligible under Section 101.
The Federal Circuit then rejected the “technological arts test” because the meanings of the terms technological arts and technology are both ambiguous and ever-changing.
The Federal Circuit then addressed a possible misunderstanding of the decision in Comiskey, noting that some may suggest that Comiskey implicitly applied a new Section 101 test that bars any claim reciting a mental process that lacks significant physical steps. The Federal Circuit stated that they did not so hold and did not announce any new test at all in Comiskey. Rather, they recognized that the Supreme Court held that mental processes, like fundamental principles, are excluded by 101.
The Federal Circuit then stated that the machine-or-transformation test is a two-branched inquiry and certain considerations are applicable to analysis under either branch. First, as illustrated by Benson, 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 much not merely be insignificant extra-solution activity.
In this case, Applicants themselves admit that the language of claim 1 does not limit any process step to any specific machine or apparatus. The Federal Circuit stated that issues specific to the machine implementation part of the test were not before them, and they left to future cases the elaboration of the precise contours of machine implementation as well as answers to particular questions such as whether or when recitation of a computer suffices to tie a process claim to a particular machine.
The Federal Circuit then held that Applicants’ process as claimed does not transform any article to a different state or thing. The claims were therefore non-statutory.
Keep in mind that Bilski and Benson only considered method claims. An open question is how much of a machine is required? A general purpose computer may not be sufficient. The Federal Circuit indicates that the machine must be intimately tied to the claimed steps. The USPTO Board of Appeals has recently held that Beauregard claims are statutory but that doesn’t mean that the Federal Circuit will agree as a general proposition. From the tone of Bilski, I doubt that they will agree as a general proposition that all Beauregard claims are statutory. Examiners at the U.S. Patent and Trademark Office, after State Street, took the position that Beauregard claims were only statutory if they also met the State Street test. Now they will probably use Bilski as the primary test. Also, the U.S. Patent and Trademark Office and the Federal Circuit tend to apply method tests to apparatus claims with respect to 35 U.S.C. 101 when it comes to software. We will have to see how the Federal Circuit treats apparatus claims after Bilski. Also keep in mind that Diamond v. Diehr (which held that which held that the execution of a method, controlled by running a computer program, was statutory–see the summary of this case below) is good Supreme Court law and is more recent than Benson. There are many open questions.