Ex Parte Lundgren, 2004

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.

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.

State Street Bank & Trust Co. v. Signature Financial Group, Inc., 1998

This case opened the door for business method patents, at least where the business method was implemented in software in a system that included some hardware, like a processor and storage means.

Signature Financial Group, Inc. appealed from a decision of the United States District Court for the District of Massachusetts granting a motion for summary judgment in favor of State Street Bank & Trust Co., finding U.S. Patent No. 5,193,056 invalid on the ground that the claimed subject matter was not encompassed by 35 U.S.C. Section 101.

Signature was the assignee of the ‘056 patent entitled “Data Processing System for Hub and Spoke Financial Services Configuration.” The ‘056 patent is generally directed to a data processing system (the system) for implementing an investment structure which was developed for use in Signature’s business as an administrator and accounting agent for mutual funds. The system facilitates a structure whereby mutual funds (Spokes) pool their assets in an investment portfolio (Hub) organized as a partnership. This investment configuration provides the administrator of a mutual fund with the advantageous combination of economies of scale in administering investments coupled with the tax advantages of a partnership.

The Federal Circuit stated that when independent claim 1 is properly construed in accordance with section 112, paragraph 6, it is directed to a machine, as demonstrated below, where representative claim 1 is set forth, the subject matter in brackets stating the structure the written description discloses as corresponding to the respective “means” recited in the claims.

1. A data processing system for managing a financial services configuration of a portfolio established as a partnership, each partner being one of a plurality of funds, comprising:
a computer processor means [a personal computer including a CPU] for processing data;
b storage means [a data disk] for storing data on a storage medium;
c first means [an arithmetic logic circuit configured to prepare the data disk to magnetically store selected data] for initializing the storage medium;
d second means [an arithmetic logic circuit configured to retrieve information from a specific file, calculate incremental increases or decreases based on specific input, allocate the results on a percentage basis, and store the output in a separate file] for processing data regarding assets in the portfolio and each of the funds from a previous day and data regarding increases or decreases in each of the funds, [sic, funds’] assets and for allocating the percentage share that each fund holds in the portfolio;
e third means [an arithmetic logic circuit configured to retrieve information from a specific file, calculate incremental increases and decreases based on specific input, allocate the results on a percentage basis and store the output in a separate file] for processing data regarding daily incremental income, expenses, and net realized gain or loss for the portfolio and for allocating such data among each fund;
f fourth means [an arithmetic logic circuit configured to retrieve information from a specific file, calculate incremental increases and decreases based on specific input, allocate the results on a percentage basis and store the output in a separate file] for processing data regarding daily net unrealized gain or loss for the portfolio and for allocating such data among each fund; and
g fifth means [an arithmetic logic circuit configured to retrieve information from specific files, calculate that information on an aggregate basis and store the output in a separate file] for processing data regarding aggregate year-end income, expenses, and capital gain or loss for the portfolio and each of the funds.

The Federal Circuit stated that claim 1 was directed to a machine programmed with the Hub and Spoke software and admittedly produces a “useful, concrete, and tangible result” as required by Alappat, 33 F.3d at 1544, 31 USPQ2d at 1557. This rendered it statutory subject matter, even if the useful result is expressed in numbers, such as price, profit, percentage, cost, or loss.

As an alternative ground for invalidating the ‘056 patent under section 101, the lower district court had relied on the judicially-created, so-called “business method” exception to statutory subject matter. The Federal Circuit took this opportunity to lay this ill-conceived exception to rest. Since its inception, the “business method” exception has merely represented the application of some general, but no longer applicable legal principle, perhaps arising out of the “requirement for invention”–which was eliminated by section 103. Since the 1952 Patent Act, business methods have been, and should have been, subject to the same legal requirements for patentability as applied to any other process or method.

The business method exception was never invoked by the Federal Circuit, or the CCPA, to deem an invention unpatentable. Application of this particular exception has always been preceded by a ruling based on some clearer concept of Title 35 or, more commonly, application of the abstract idea exception based on finding a mathematical algorithm. Illustrative is the CCPA’s analysis in In re Howard, 394 F.2d 869, 157 USPQ 615 (CCPA 1968), wherein the court affirmed the Board of Appeals’ rejection of the claims for lack of novelty and found it unnecessary to reach the Board’s section 101 ground that a method of doing business is “inherently unpatentable.” Id. at 872, 157 USPQ at 617.(12)

Similarly, In re Schrader, 22 F.3d 290, 30 USPQ2d 1455 (Fed. Cir. 1994), while making reference to the business method exception, turned on the fact that the claims implicitly recited an abstract idea in the form of a mathematical algorithm and there was no “transformation or conversion of subject matter representative of or constituting physical activity or objects.”

The Federal Circuit stated that even the case frequently cited as establishing the business method exception to statutory subject matter, Hotel Security Checking Co. v. Lorraine Co., 160 F. 467 (2d Cir. 1908), did not rely on the exception to strike the patent. In that case, the patent was found invalid for lack of novelty and “invention,” not because it was improper subject matter for a patent. The court stated “the fundamental principle of the system is as old as the art of bookkeeping, i.e., charging the goods of the employer to the agent who takes them.” “If at the time of [the patent] application, there had been no system of bookkeeping of any kind in restaurants, we would be confronted with the question whether a new and useful system of cash registering and account checking is such an art as is patentable under the statute.”

The Federal Circuit stated that this case was no exception. The district court had announced the precepts of the business method exception as set forth in several treatises, but noted as its primary reason for finding the patent invalid under the business method exception as follows:

If Signature’s invention were patentable, any financial institution desirous of implementing a multi-tiered funding complex modelled (sic) on a Hub and Spoke configuration would be required to seek Signature’s permission before embarking on such a project. This is so because the ‘056 Patent is claimed [sic] sufficiently broadly to foreclose virtually any computer-implemented accounting method necessary to manage this type of financial structure.

Whether the patent’s claims are too broad to be patentable is not to be judged under section 101, but rather under sections 102, 103 and 112. Assuming the above statement to be correct, it has nothing to do with whether what is claimed is statutory subject matter.

In view of this background, it comes as no surprise that in the most recent edition of the Manual of Patent Examining Procedures (MPEP) (1996), a paragraph of section 706.03(a) was deleted. In past editions it read:

Though seemingly within the category of process or method, a method of doing business can be rejected as not being within the statutory classes. See Hotel Security Checking Co. v. Lorraine Co., 160 F. 467 (2nd Cir. 1908) and In re Wait, 24 USPQ 88, 22 CCPA 822 (1934).

MPEP section 706.03(a) (1994). This acknowledgment is buttressed by the U.S. Patent and Trademark 1996 Examination Guidelines for Computer Related Inventions which now read:

Office personnel have had difficulty in properly treating claims directed to methods of doing business. Claims should not be categorized as methods of doing business. Instead such claims should be treated like any other process claims.

The Federal Circuit agreed that this was precisely the manner in which this type of claim should be treated. Whether the claims are directed to subject matter within section 101 should not turn on whether the claimed subject matter does “business” instead of something else.

In re Grams, 1989

The invention in this case related to a method of testing a complex system to determine whether the system condition is normal or abnormal and, if it is abnormal, to determine the cause of the abnormality. As disclosed in the specification, the invention is applicable to any complex system, whether it be electrical, mechanical, chemical, biological, or combinations thereof.

The Federal Circuit stated that, intuitively, one might conclude that § 101’s “any…process” would include the diagnostic method claimed by the applicants. Indeed, even without physical step present in the claims, application of the algorithm in other steps of the claim seemed to be a type of “process” that the Supreme Court recognized as much in Flook.

The Federal Circuit stated that Flook made clear, however, as did its forerunner, Benson, that even though the application of an algorithm to data is a “process” in the literal sense, it is not one that is contemplated by § 101, i.e., it is “nonstatutory subject matter.” Thus, mathematical algorithms join the list of non-patentable subject matter not within the scope of § 101, including methods of doing business, naturally occurring phenomenon [sic], and laws of nature. Construing § 101 as excluding mathematical algorithms seems somewhat at odds with the liberal view of that section expressed in a more recent Supreme Court opinion, Diamond v. Chakrabarty. There, the Court decided that a living man-made microorganism fell within the terms manufacture” or “composition of matter” in § 101. In choosing such “expansive terms,” stated the Court, “modified by the comprehensive word ‘any,’ Congress plainly contemplated that the patent laws would be given wide scope.” The Court went so far as to note that Congress intended statutory subject matter to include “anything under the sun that is made by man.”

Chakrabarty expressly rejects the argument that patentability in a new area, “microorganisms, cannot qualify as patentable subject matter until Congress expressly authorizes such protection.” Although the Court distinguished Flook in its opinion, the court’s rejection of this argument seems to reflect a change from Flook’s admonition that “we must proceed cautiously when we are asked to extend patent rights into areas wholly unforeseen by Congress.”

The Federal Circuit noted that another case, Diehr, repeats the “anything under the sun” statement of Chakrabarty but then went on to say that notwithstanding those statements in Diehr and Chakrabarty, Benson remains the law. Indeed, it is cited in both Diehr and Chakrabarty, with no apparent attempt to overrule or disapprove of it. Thus, “an algorithm, or mathematical formula … like a law of nature … cannot be the subject of a patent.”

The Federal Circuit stated that on the other hand, the mere presence of a mathematical exercise, as a step or steps in a process involving nonmathematical steps, should not slam the door of the PTO upon an applicant. Thus, if there are physical steps included in the claim in addition to the algorithm, the claim might be eligible for patent protection. As stated in In re Walter:

Once a mathematical algorithm has been found, the claim as a whole must be further analyzed. If it appears that the mathematical algorithm is implemented in a specific manner to define structural relationships between the physical elements of the claim (in apparatus claims) or to refine or limit claim steps (in process claims), the claim being otherwise statutory, the claim passes muster under § 101.

Though satisfaction of the Walter test necessarily depicts statutory subject matter, failure to meet that test does not necessarily doom the claim. As stated in Abele, “Walter should be read as requiring no more than that the algorithm be ‘applied in any manner to elements or process steps,'” That statement is followed by this proviso: “provided that its application is circumscribed by more than a field of use limitation or non-essential post-solution activity.” Thus, if the claim would be “otherwise statutory,” albeit inoperative or less useful without the algorithm, the claim likewise presents statutory subject matter when the algorithm is included.

In all instances, this critical question must be answered: “What did applicants invent?” And in answering this inquiry:

Each invention must be evaluated as claimed: yet semantogenic considerations preclude a determination based solely on words appearing in the claims. In the final analysis under § 101, the claimed invention, as a whole must be evaluated for what it is. Hence, the analysis requires careful interpretation of each claim in light of its supporting disclosure.

The Court stated that, though that analysis can be difficult, it is facilitated somewhat if, as here, the only physical step involves merely gathering data for the algorithm. As stated in In re Christensen, 478 F.2d 1392, 1394 (CCPA 1973):

Given that the method of solving a mathematical equation may not be the subject of patent protection, it follows that the addition of the old and necessary antecedent steps of establishing values for the variables in the equation cannot convert the unpatentable method to patentable subject matter.

The reason for this was explained in In re Sarkar, 588 F.2d at 1335:

No mathematical equation can be used, as a practical matter, without establishing and substituting values for the variables expressed therein. Substitution of values dictated by the formula has thus been viewed as a form of mathematical step. If the steps of gathering and substituting values were alone sufficient, every mathematical equation, formula, or algorithm having any practical use would be per se subject to patenting as a “process” under § 101. Consideration of whether the substitution of specific values is enough to convert the disembodied ideas present in the formula into an embodiment of those ideas, or into an application of the formula, is foreclosed by the current state of the law.

Whether § 101 precludes patentability in every case where the physical step of obtaining data for the algorithm is the only other significant element in mathematical algorithm–containing claims is a question we need not answer. Analysis in that area depends on the claims as a whole and the circumstances of each case. Rather, we address only the claims and other circumstances involved here.

The sole physical process step in Grams’ claim 1 is step [a], i.e., performing clinical tests on individuals to obtain data. The specification does not bulge with disclosure on those tests. To the contrary, it focuses on the algorithm itself, although it briefly refers to, without describing, the clinical tests that provide data. Thus, it states: “The [computer] program was written to analyze the results of up to eighteen clinical laboratory tests produced by a standard chemical analyzer that measures the levels of the chemical and biological components listed.” The specification also states that “[t]he invention is applicable to any complex system, whether it be electrical, mechanical, chemical or biological, or combinations thereof.” From the specification and the claim, it is clear to us that applicants are, in essence, claiming the mathematical algorithm, which they cannot do under Benson. The presence of a physical step in the claim to derive data for the algorithm will not render the claim statutory.

The Court then distinguished Abele. Allowed claim 6 in Abele required operation of an algorithm on X-ray attenuation data, with a subsequent display. The data were available for the algorithm only after the production and detection steps, i.e., after an X-ray beam was passed through an object using a CAT scanner, and detected upon exit. The court concluded that in the absence of the algorithm, “the production, detection, and display steps would still be present and would result in a conventional CAT-scan process.” Thus, the production and detection steps were not viewed as mere antecedent steps to obtain values to solve the algorithm. In Abele, therefore, the algorithm served to improve the CAT-scan process. As such, the algorithm satisfied the Walter guideline of “refining a step in a process that is otherwise statutory,” and hence, it presented statutory subject matter. In this case, because algorithm steps [b]-[e] do not operate to change any aspect of the physical process of step [a], the claim does not satisfy the Walter guideline. Though this by itself is not dispositive (see discussion of Walter, supra), patentability here is precluded by the fact that physical step [a] merely provides data for the algorithm.

In re Pardo, 1982

In this case, the CCPA stated that any process, machine, manufacture, or composition of matter constitutes statutory subject matter unless it falls within a judicially determined exception to section 101.

This was an case in which the CCPA took the position that an invention can be statutory whether or not the novelty resides in the software.