Alice Corp. v CLS Bank International, U.S. Supreme Court 2014

This is the most recent Supreme Court decision on software patents. In this case, the U.S. Supreme Court has made it harder to obtain software patents by siding with CLS Bank.

The software patents concern “the management of risk relating to specified, yet unknown, future events.” In particular, the patents relate to a computerized trading platform used for conducting financial transactions in which a third party settles obligations between a first and a second party so as to eliminate “counter party” or “settlement” risk. Settlement risk refers to the risk to each party in an exchange that only one of the two parties will actually pay its obligation, leaving the paying party without its principal or the benefit of the counter-party’s performance. Alice’s patents address that risk by relying on a trusted third party to ensure the exchange of either both parties’ obligations or neither obligation. For example, when two parties agree to perform a trade, in certain contexts there may be a delay between the time that the parties enter a contractual agreement obligating themselves to the trade and the time of settlement when the agreed trade is actually executed. Ordinarily, the parties would consummate the trade by paying or exchanging their mutual obligations after the intervening period, but in some cases one party might become unable to pay during that time and fail to notify the other before settlement. As disclosed in Alice’s patents, a trusted third party can be used to verify each party’s ability to perform before actually exchanging either of the parties’ agreed-upon obligations.

The software patent claims recited methods of exchanging obligations between parties, data processing systems, and computer- readable media containing a program code for directing an exchange of obligations.

A representative method claim of this software patent is as follows:
33. A method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of:
(a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions;
(b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record;
(c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party’s shadow credit record or shadow debit record, allowing only these transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order; and
(d) at the end-of-day, the supervisory institution instructing ones of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.

A representative apparatus claim of this software patent is as follows:
1. A data processing system to enable the exchange of an obligation between parties, the system comprising:
a data storage unit having stored therein information about a shadow credit record and shadow debit record for a party, independent from a credit record and debit record maintained by an exchange institution; and
a computer, coupled to said data storage unit, that is configured to (a) receive a transaction; (b) electronically adjust said shadow credit record and/or said shadow debit record in order to effect an exchange obligation arising from said trans action, allowing only those transactions that do not result in a value of said shadow debit record being less than a value of said shadow credit record; and (c) generate an instruction to said exchange institution at the end of a period of time to adjust said credit record and/or said debit record in accordance with the adjustment of said shadow credit record and/or said shadow debit record, wherein said instruction being an irrevocable, time invariant obligation placed on said exchange institution.

The district court granted summary judgment in favor of CLS, holding each of the asserted claims of Alice’s software patents invalid under §101.

In the Federal Circuit decision, a ten-member en banc panel released seven different decisions. None of the opinions garnered majority support. Seven of the ten judges agreed that the method and computer-readable medium claims lack subject matter eligibility. Eight of the ten concluded that the software patent claims should rise and fall together regardless of their claim type.

The Supreme Court used its earlier decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc. as a framework. Using this framework, the Court must first determine whether the claims at issue are directed to a patent-ineligible concept. If so, the Court then asks whether the claim’s elements, considered both individually and “as an ordered combination,” “transform the nature of the claim” into a patent-eligible application.

The court stated that the software patent claims at issue are directed to a patent-ineligible concept: the abstract idea of intermediated settlement. Turning to the second step of Mayo’s framework, the court stated that the method claims, which merely require generic computer implementation, fail to transform that abstract idea into a patent-eligible invention. The court stated that simply appending conventional steps, specified at a high level of generality,” to a method already “well known in the art” is not enough to supply the “inventive concept” needed to make this transformation.

Referring to Mayo, the Court than stated that wholly generic computer implementation is not generally the sort of additional feature that provides any practical assurance that the process is more than a drafting effort designed to monopolize the abstract idea itself.

Still applying a Mayo analysis to this software patent, the court noted that, taking the claim elements separately, the function performed by the computer at each step—creating and maintaining “shadow” accounts, obtaining data,adjusting account balances, and issuing automated instructions—is purely conventional. Considered “as an ordered combination,” these computer components add nothing that is not already present when the steps are considered separately.

In summary, a software patent in which conventional steps are computerized is not statutory. Unfortunately, the Supreme Court conflated 35 U.S.C 101 and 35 U.S.C. 103 analyses. They should have addressed these two issues separately.

The court also mentioned its previous software patent decision, Bilski v. Kappos, 561 U. S. 593 (2010). The claims at issue in Bilski described a method for hedging against the financial risk of price fluctuations.
All members of the Court agreed that the patent in Bilski claimed an “abstract idea.” Specifically, the claims described “the basic concept of hedging, or protecting against risk.” The Court explained that “‘hedging is a fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class.’” “The concept of hedging” as recited by the claims in suit was in therefore a patent-ineligible “abstract idea, just like the algorithms at issue in Benson and Flook.” The court stated that it follows from prior cases, and Bilski in particular, that the claims at issue here are directed to an abstract idea.

The court has walked away from sensible software patent precedent in Diamond v. Diehr. In that case, the court said that the novelty of any element or steps is not relevant to a 101 analysis. If you have a computer in the claim, that removes it from the possibility of reading on mental steps, so the claim should be statutory. This court is quite unclear about what makes a claim too abstract.

My belief is that we are moving to a European style patentability analysis for software inventions. This is unfortunate because software per se (without a hardware invention) is valuable and one of the primary fields in which the U.S. dominates and excels. Expect to see more 101 rejections from the U.S. Patent and Trademark Office. It will be easier for an examiner to automatically issue a form rejection under 35 USC 101 whenever a patent application mentions the word “software” than to search for relevant prior art.

The decision can be found here:
http://www.supremecourt.gov/opinions/13pdf/13-298_7lh8.pdf

Bilski et al. v. Kappos Under Secretary of Commerce for Intellectual Property, Supreme Court, 2010 (Software Patents)

In October 2008, the Federal Circuit reviewed the decision of the Board of Patent Appeals and Interferences that sustained a rejection of all eleven of Bilski’s patent claims under 35 U.S.C. 101 as not directed to patent-eligible subject matter. Bilski sought patent protection for a method of hedging against risk in commodity trading. The Federal Circuit affirmed, holding that Bilski’s claims were not statutory under 35 U.S.C. 101. The Federal Circuit revived the Benson test, that a claimed process is 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 rejected its prior test of State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368, 1373 (1998) and AT&T Corp. v. Excel Communications Inc., 172 F.3d 1352, 1357 (1999) for determining whether a claimed invention was a patentable “process” under section 101–whether it produces a “useful, concrete, and tangible result.”

Bilski’s claims recited a series steps but not any machine or computer. 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 remaining claims explain how claims 1 and 4 can be applied to allow energy suppliers and consumers to minimize the risks resulting from fluctuations in market demand for energy.

The Supreme Court affirmed the invalidity of Bilski’s claims. The Supreme Court declined to generally invalidate software patents and instead held that the Federal Circuit’s Machine-or-Transformation test is not the exclusive test to determining if a method is statutory.

The Supreme Court noted that Section 101 specifies four independent categories of inventions or discoveries that are patent eligible: “process[es],” “machine[es],” “manufactur[es],” and “composition[s] of matter.” The Supreme Court noted that they had stated in their earlier decision of Diamond v. Chakrabarty, 447 U.S. 303 that in choosing such expansive terms, Congress plainly contemplated that the patent laws would be given wide scope in order to ensure that ingenuity should receive a liberal encouragement. The Court’s precedents provide three specific exceptions to section 101’s broad principles: “laws of nature, physical phenomena, and abstract ideas.” While not required by the statutory text, these exceptions are consistent with the notion that a patentable process must be “new and useful.” The exceptions have defined the statute’s reach going back 150 years.

The Bilski case involved an invention that is claimed to be a “process” under section 101. 35 USC 100(b) defines “process” as: “process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material.”

The Supreme Court considered two proposed categorical limitations on “process” patents under section 101 that would have, if adopted, barred Bilski’s application: the machine-or-transformation test and the categorical exclusion of business method patents.

The Supreme Court noted that it had more than once cautioned that courts should not read into the patent laws limitations and conditions which the legislature has not expressed. In patent law, as in all statutory construction, unless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning. Adopting the machine-or-transformation test as the sole test for what constitutes a “process” violates these statutory interpretation principles. The Court stated that it was unaware of any “ordinary, contemporary, common meaning” of the definitional terms “process, art or method” of section 100(b) that would require these terms to be tied to a machine or to transform an article.

The Supreme Court’s previous decision Gottschalk v. Benson, 409 U.S. 63, 70 (1972) noted 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. At the same time, however, it explicitly declined to hold that no process patent could ever qualify if it did not meet machine or transformation requirements.

According to the Supreme Court, the machine-or-transformation test is a useful and important clue for determining whether some claimed inventions are processes under section 101. But the machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible “process.” It is true that patents for inventions that did not satisfy the machine-or-transformation test were rarely granted in earlier eras, especially in the Industrial Age, but times change. The machine-or-transformation test would create uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and manipulation of digital signals.

The Supreme Court stated that it was not commenting on the patentability of any particular invention, let alone holding that any of the above-mentioned technologies from the Information Age should or should not receive patent protection.

Section 101 similarly precludes the broad contention that the term “process” categorically excludes business methods. Federal law explicitly contemplates the existence of at least some business method patents. See 35 U.S.C. 273(b)(1).

Even though the Bilski application is not categorically outside of section 101, that does not mean that it is a process under section 101. Rather than adopting categorical rules, the Court resolved this case narrowly on the basis of its decisions in Benson, Flook, and Diehr, which show that Bilski’s claims are not patentable processes because they are attempts to patent abstract ideas. The concept of hedging, described in claim 1 and reduced to a mathematical formula in claim 4, is an unpatentable abstract idea, like the algorithms at issue in Benson and Flook. Allowing Bilski to patent risk hedging would pre-empt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea.

The Court went on to say that Bilski’s remaining claims are broad examples of how hedging can be used in commodities and energy markets. Flook established that limiting an abstract idea to one field of use or adding token postsolution components did not make the concept patentable. That is exactly what the remaining claims in petitioners’ application do.

The Supreme Court concluded by stating that it once again declined to impose limitations on the Patent Act that were inconsistent with the Act’s text. Bilski’s patent application can be rejected under precedents on the unpatentability of abstract ideas. The Court, therefore, did not need to define further what constitutes a patentable “process,” beyond pointing to the definition of that term provided in section 100(b) and looking to the guideposts in Benson, Flook, and Diehr.

The Supreme Court also cautioned that nothing in the opinion should be read as endorsing interpretations of section 101 that the Court of Appeals for the Federal Circuit has used in the past, e.g. State Street, 149 F.3d at 1373; AT&T Corp. 172 F.3d, at 1357. The Supreme Court finished by stating that in disapproving an exclusive machine-or-transformation test, the Supreme Court by no means foreclosed the Federal Circuit’s development of other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text.

In summary, this decision did nothing much to harm software patents. It even stated that business method patents are sometimes acceptable, and are contemplated by the patent laws. However, no clear test was given as to what the test is for statutory subject matter. The machine or transformation test, though not the exclusive test, provides a useful and important clue as to whether a patent claim is statutory.

The Supreme Court decision can be found here:
http://www.supremecourt.gov/opinions/09pdf/08-964.pdf

A memo was released to examiners regarding this decision:
http://ipwatchdog.com/blog/USPTO_bilski_memo_6-28-2010.PDF

The memo says, in part,
“Significantly, the Supreme Court also indicated that a business method is, at least in some circumstances, eligible for patenting under section 101.”

“Examiners should continue to examine patent applications for compliance with section 101 using the existing guidance concerning the machine-or-transformation test as a tool for determining whether the claimed invention is a process under section 101. If a claimed method meets the machine-or-transformation test, the method is likely patent-eligible under section 101 unless there is a clear indication that the method is directed to an abstract idea.”

Thus, there is no significant change in U.S. Patent and Trademark Office practice at this point due to the Supreme Court Bilski decision.

On July 27, 2010, the U.S. Patent and Trademark Office issued a memorandum giving additional guidance related to the Bilski decision:

http://www.uspto.gov/patents/law/exam/bilski_guidance_27jul2010.pdf

June 1, 2009, Supreme Court grants cert. for Bilski

The Supreme Court of the U.S. has agreed to review the Bilski case discussed below. The Bilski case disavowed the controversial State Street Bank decision and severely limited the possibility of obtaining business method patents and put the validity of many into question. It also affects software patents that do not describe a lot of hardware, and, in fact, is relevant to all method patents.

The Bilski decision set forth a requirement that any process claim in a software patent must be tied to a particular machine or apparatus, or transform a particular article into a different
state or thing (“machine-or-transformation” test), to be eligible for patenting under 35 U.S.C.
§ 101.

The requirements for patentability of software has been in flux for 20 years. This History of Software Patents shows how attitudes towards software patents shift like a pendulum.

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.

Ex parte Bilski (Software Patents)

Despite the fairly clear message of previous Federal Circuit cases including, in particular, AT+T Corp. v. Excel, the U.S. Patent and Trademark Office has been particularly hostile against anything that looks like a business method patent application. They even have a two tier review. If an examiner is inclined to allow a business patent application, another examiner reviews the decision. There is a disincentive for the first examiner to allow an application, due to the fear of being criticized. Allowance rates are at near record lows. Applicants having business method patent applications, and even some applicants having software patent applications, are facing long, drawn out, expensive prosecutions. The USPTO is likely reacting to bad publicity generated by the allowance of the Amazon One-Click patent, as well as to PR campaigns and lobbying efforts.

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.

No hardware is required to perform the steps. This is thus what would be called a “pure” business method patent application.

During prosecution, the Examiner used a rejection similar to that used unsuccessfully in the Lundgren case, and stated that “the invention is not directed to the technological arts.”

To reduce the risk of ending up with the same result as in the Lundgren case, the Board of Appeal took the position that Bilski was claiming an “abstract idea”:

“The Board held in Lundgren that the ‘technological arts’ test is not a separate and distinct test for statutory subject matter. Although commentators have read this as eliminating a ‘technology’ requirement for patents, this is not what was stated or intended.”

The Bilski Board also stated that:
AT+T involved a machine-implement process. Machines are physical things that nominally fall within the class of a “machine” in section 101, and the machine-implemented methods inherently act on and transform physical subject matter, such as objects or electrical signals, and nominally fall within the definition of a process under section 101. No machine is required by the present claims. Until instructed otherwise, we interpret State Street and AT+T to address the ‘special case’ of subject matter that nominally falls within section 101, a general purpose machine or machine-implemented process, but which is nonetheless unpatentable because the machine performs an ‘abstract idea.’

This is another case to watch.