Lundgren’s invention related to the economic field of industrial organization and more particularly to the reduction of incentives for industrial collusion by making managerial compensation depend on relative profits rather than absolute profits. If managerial compensation depends only on the profits made by the manager’s own firm, firm managers will attempt to maximize absolute profits. If managerial compensation depends on the profits made by the manager’s own firm relative to the profits made by rival firms, then firm managers will attempt to maximize relative profits. If it is the goal of each firm to maximize relative profits, it is not possible for a group of firms to collude so as to increase the profits of all firms in the group. This eliminates incentives for industry-wide collusion.
Claim 1 was representative:
1. A method of compensating a manager who exercises administrative control over operations of a privately owned primary firm for the purpose of reducing the degree to which prices exceed marginal costs in an industry, reducing incentives for industry collusion between the primary firm and a set of comparison firms in said industry, or reducing incentives for coordinated special interest industry lobbying, said set of comparison firms including at least one firm, said primary firm having the manager who exercises administrative control over said primary firm’s operations during a sampling period, wherein privately owned means not wholly government owned, the method comprising the steps of:
a) choosing an absolute performance standard from a set of absolute performance standards;
b) measuring an absolute performance of said primary firm with respect to said chosen absolute performance standard for said sampling period;
c) measuring an absolute performance of each firm of said set of comparison firms with respect to said chosen absolute performance standard for said sampling period, said measurement of performance for each firm of said set of comparison firms forming a set of comparison firm absolute performance measures;
d) determining a performance comparison base based on said set of comparison firm absolute performance measures by calculating a weighted average of said set of comparison firm absolute performance measures;
e) comparing said measurement of absolute performance of said primary firm with said performance comparison base;
f) determining a relative performance measure for said primary firm based on said comparison of said primary firm measurement of absolute performance and said performance comparison base;
g) determining the managerial compensation amount derived from said relative performance measure according to a monotonic managerial compensation amount transformation; and
h) transferring compensation to said manager, said transferred compensation having a value related to said managerial compensation amount.
The recited steps could be performed manually by a human.
The Examiner rejected the patent application as non-statutory under 35 U.S.C. section 101. On appeal, an appeal panel stated that they found that the claim language recited subject matter that is a practical application of shifting of physical assets to the manager. The remaining claims also recited the same practical application.
Dissatisfied with the outcome of that appeal, the Examining Corps filed a Request for Reconsideration and Rehearing listing two issues: 1. whether the invention as a whole was in the technological arts; and 2. assuming that the invention was in the technological arts, whether transferring compensation to a manager was a practical application. Lundgren filed a response to this Request. An expanded Board remanded to the Examiner so that the Examiner could consider Lundgren’s response and because the Office of the Deputy Commissioner for Patent Examination Policy requested that the case be remanded to the examiner so that issues regarding “technological arts” and “practical application” could be further considered.
The Examiner maintained the rejection under 35 U.S.C. section 101. Lundgren filed a second appeal to the Board.
The Examiner withdrew an assertion that the claims failed to produce a “useful, concrete, and tangible result.” However, the Examiner was of the opinion that there was a separate “technological arts” test for determining whether claims are directed to statutory subject matter in view of In re Musgrave, 431 F.2d 882 (CCPA 1970); In re Toma, 575 F.2d 872 (CCPA 1978); and Ex parte Bowman, 61 USPQ2d 1669 (Bd. Pat. App & Int. 2001)(non-precedential).
In Musgrave, the court reversed a rejection under 35 U.S.C. section 101 because it disagreed with the Board’s opinion that the claims were directed to non-statutory processes because some or all of the steps could also be carried out in or with the aid of a human mind. The Musgrave court went on to observe that all that is necessary to make a sequence of operational steps a statutory ‘process’ within 35 U.S. section 101 is that it be in the technological arts so as to be in consonance with the Constitutional purpose to promote the progress of useful arts.
The Board stated that they did not view the court’s statement in Musgrave to have created a separate “technological arts” test. The Board stated that Toma said as much. Toma court stated that cases such as Musgrave involved what was called at that time a “mental steps” rejection and that court observed “[t]he language which the examiner quoted was written in answer to ‘mental steps” rejections and was not intended to create a generalized definition of statutory subject matter.” Because Ex parte Bowman was non-precedential, the Board found that it was not binding. Finally, the Board noted that the Supreme Court was aware of a “technological arts test” and did not adopt it when it reversed the Court of Customs and Patent Appeals in Gottschalk v. Benson.
Thus, there is no “technological arts” test as far as the Board is concerned. This case could be helpful to attorneys prosecuting business method patent applications which don’t utilize computers or technology.