In re Petrus A.C.M. Nuijten, 2007 (Software Patents)

This case has been decided by the Court of Appeals for the Federal Circuit.

The decision marks the death of signal claims.The issue on appeal was whether the Board of Appeals erred when it affirmed the Patent Examiner’s final rejection of Claims 14 and 22-24 of Mr. Nuijten’s patent application under 35 U.S.C. 101 as being directed to non-statutory subject matter. More specifically, the Court was to decide whether the invention of a signal, which is otherwise patentable when stored in a physical storage medium, is in and of itself patentable subject matter. The case relates to U.S. Patent Application Serial No. 09/211,928 for an invention “Embedding Supplemental Data in an Encoded Signal” which relates to signal watermarking. The apparatus claims were found to be statutory and allowable over the prior art.

Independent Claim 14, which is the subject of the appeal, recites:

14. A signal with embedded supplemental data, the signal being encoded in accordance with a given encoding process and selected samples of the signal representing the supplemental data, and at least one of the samples preceding the selected samples is different from the sample corresponding to the given encoding process.

The court could not fit a ‘signal’ into any of the four categories (process, machine, manufacture, or composition of matter).

Because a signal does not fit within a predefined category, the Federal Circuit concluded that a signal is not statutory subject matter.

The decision can be found here: http://www.fedcir.gov/opinions/06-1371.pdf

p.s., The applicant filed a petition for certiorari in June 2008 to overturn the Federal Circuit’s decision.

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.

Ex parte Rice (Software Patents)

After the Beauregard case, many commentators took the position that signal claims should also be statutory. Software developers have an interest in being able to protect against infringers who transfer software over the Internet. Such software would not be embodied in a computer readable medium (Beauregard). The U.S. Patent and Trademark Office was allowing patent applications including claims directed to a “carrier wave” embodying computer program code to perform various functions.

Ex parte Rice is a Board of Appeals decision for a patent application directed to a “spread Spectrum Transceiver.” The invention was directed to an electromagnetic signal” and an “electromagnetic signal” produced by a certain process. One representative claim was:

2. An assembly of simultaneously transmitted electromagnetic signals, said signals being related to each other in said assembly so as to communicate information to a receiver, said signals being structured so as to contain corresponding subsets of a set of binary spreading-code sequences, at least one subset of said set of binary spreading-code sequences containing more than one of said binary spreading-code sequences, each subset of said set of binary spreading-code sequences embodying a corresponding portion of said information.

After losing one appeal, independent claims were changed from reciting “signals” to “electromagnetic signals.”

The claims were rejected under 35 U.S.C. section 101 as being directed to nonstatutory subject matter. The examiner concluded that the claimed “electromagnetic signals” were nonstatutory subject matter because such signals were “transitory and ephemeral.”

The examiner stated that signals are neither a manufacture nor a composition of matter. The examiner made the same arguments in a previous appeal.

Appellant referred to a paper by Stephen G. Kunin, Deputy Assistant Commission for Patent Policy & Projects, titled Computer Program Product Claim, presented at a “Partners in Patents V Conference” sometime between October 22, 1996, and May 18, 2000, which indicated that the transitory nature of a signal did not make it nonstatutory subject matter, referring by example to U.S. Patent 3,156,523 to element 95 and citing In re Breslow, 616 F.2d 516 (CCPA 1980)(reversing the Board’s conclusion that compounds were not patentable subject matter because they were “transitory and ephemeral in nature”.

The Board of Appeals agreed that signals did not become unpatentable subject matter just because of their “transitory and ephemeral nature.” The Board said that there is no reason why the time of existence should affect a subject matter’s status under the four statutory categories of “process, machine, manufacture, or composition of matter,” or the three exceptions for “laws of nature, natural phenomena, and abstract ideas.”

The Board also noted that Mr. Kunin’s reasoning was incorporated into the Manual of Patent Examining Procedure section 2106 (8th ed. Aug. 2001), page 2100-14: “[A] signal claim directed to a practical application of electromagnetic energy is statutory regardless of its transitory nature. See O’Reilly, 56 U.S. at 114-19; In re Breslow, 616 F.2d 516, 519-21, 205 USPQ 211, 225-26 (CCPA 1980).”

Unfortunately, this decision was not written for publication and was not binding precedent. The U.S. Patent and Trademark Office apparently no longer agrees with this position. Though this is not a Federal Circuit case, it is being included here to show the change of attitude and to contrast with the Nuijten case.

2005 Interim Guidelines for Subject Matter Eligibility

The following guidelines were provided by Robert Weinhardt, Business Practice Specialist in Technology Center 3600 to assist Examiners determine whether business method patent applications are or are not statutory subject matter. Because this may turn out to be an important historic document, it is reproduced below in its entirety. Note that signals and rules of games are stated to be per se non-statutory.

Interim Guidelines

* Purpose: To assist examiners in determining whether a claim is directed to statutory subject matter under 35 U.S.C. § 101.
* Published in the O.G. 11/22/2005
* Period for public commentary runs until June 30, 2006.
* Submit comments via email addressed to: [email protected]

Additional submission information found in the Federal Register Vol. 70, No. 243, 75451-75452 (Tues, Dec. 20, 2005)

The Interim Guidelines, hereinafter “Guidelines,” are intended to assist examiners in determining whether a claim is directed to statutory subject matter under 35 USC 101. They were posted on the USPTO web site on October 26, 2005, and published in the Official Gazette on November 22, 2005. These Guidelines are based on the USPTO’s current understanding of the law and are believed to be fully consistent with binding precedent of the Supreme Court, the Federal Circuit and the Federal Circuit’s predecessor courts.

These Guidelines do not constitute substantive rulemaking and hence do not have the force and effect of law. The Guidelines set forth the procedures USPTO personnel will follow when examining applications. USPTO personnel are to rely on these Guidelines in the event of any inconsistent treatment of issues between these Guidelines and any earlier provided guidance, including existing MPEP 2106, from the USPTO.

The Guidelines are not meant to be all encompassing for every possible scenario that may occur. Instead, they are intended to provide the rationale examiners and other USPTO personnel should follow to determine whether statutory subject matter is being claimed on a case-by-case basis.
Interim Guidelines Intro
What’s In:

* Statutory Categories
* Judicial Exceptions
* Practical Application
* Preemption

There were numerous tests being applied by examiners to determine whether patent eligible subject matter was being claimed. The Guidelines clarify the analysis to be applied and illustrate the prior tests not to be applied.

The statutory categories of invention. USPTO personnel must first identify whether the claim falls within one of the four enumerated categories of patentable subject matter recited in section 101 (process, machine, manufacture or composition of matter);

Judicial Exceptions. Claims directed to nothing more than abstract ideas (such as mathematical algorithms), natural phenomena, and laws of nature are not eligible and therefore are excluded from patent protection.

Practical Application. To be patent eligible, claims including limitation(s) that set forth subject matter excluded by a judicial exception must be for a practical application, e.g. of an abstract idea, law of nature, or natural phenomenon. A practical application results, for example, if the claimed invention “transforms” an article or physical object to a different state or thing; or if the claimed invention produces a useful, concrete and tangible result.

Preemption. Even when a claim applies an abstract idea as part of a seemingly patent eligible product or process, USPTO personnel must ensure that it does not in reality provide patent protection for every substantial practical application (including undisclosed applications) of the abstract idea. That would be, in effect, a patent on the abstract idea itself. Notice how this criterion meshes with 112, first paragraph.
What’s Out:

* “Not in the Technological Arts”
* Freeman-Walter-Abele
* Mental Steps or Human Steps
* Machine Implemented
* Data Transformation

The following tests previously applied by some examiners are not determinative of patent-eligible subject matter and should not be used as rationale for rejecting claims under 35 USC 101.

The “Not in the technological arts” criterion. USPTO personnel should no longer rely on the technological arts test to determine whether a claimed invention is directed to statutory subject matter. There are no other recognized exceptions to eligible subject matter other than laws of nature, natural phenomena, and abstract ideas.

Freeman-Walter-Abele. USPTO personnel should not rely on the Freeman-Walter-Abele test, i.e., “data gathering steps” or “insignificant post solution activity,” to determine whether a claimed invention is directed to statutory subject matter.

Mental steps or human steps. Even if all the steps of a claimed process can be carried out in the human mind, examiners must still determine whether the claimed process produces a useful, concrete, and tangible result, i.e., apply the practical application test set forth in State Street. The fact that some or all steps of a claimed process can be performed by a human is likewise not an appropriate rationale for rejection. To be patent-eligible, however, the steps must produce either a physical transformation or a useful, concrete and tangible result.

Machine implemented. Whether a claim recites a machine implemented process is not determinative of whether that process claim is statutory. Thus, a finding that a claim fails to recite a computer-implemented process is not determinative in whether that claim passes muster under § 101.

Data transformation. Identifying that a claim transforms data from one value to another is not by itself sufficient for determining whether the claim is eligible for patent protection.

Claims previously rejected under any of the above rationale are not necessarily patent-eligible (i.e., statutory). A rejection may still be reasonable under 101 after applying the appropriate tests set forth in the Interim Guidelines.
Prerequisites to Analysis Under 101
Determine what applicant invented

* Review the spec and claims.
* Identify and understand:
o Any utility and/or practical application asserted by applicant;
o The meaning of claim terms; and Claim scope.

Conduct a thorough search.

* What is known in the art can contribute to understanding the invention.

Prior to any analysis under §101, it is critical that the examiner determine what applicant invented and is seeking to patent. This starts by a review of the specification and the claims. From this, the examiner needs to identify and understand:

Any utility and/or practical application asserted by the applicant. The claimed invention as a whole must be useful and accomplish a practical application. The applicant is in the best position to explain why an invention is believed useful. Accordingly, a complete disclosure should contain some indication of the practical application for the claimed invention, i.e., why the applicant believes the claimed invention is useful. MPEP 2107 provides details for the analysis of utility, but can be summarized in that practical application must be specific, substantial and credible.

The meaning of claim terms. The claims define the property rights provided by a patent, and thus require careful scrutiny. USPTO personnel must always remember to use the perspective of one of ordinary skill in the art in determining the meaning of claim terms. Claims and disclosures are not to be evaluated in a vacuum. The goal of claim analysis is to identify the boundaries of the protection sought by the applicant and to understand how the claims relate to and define what the applicant has indicated is the invention. Only where an explicit definition is provided in the disclosure by the applicant for a term will that definition control interpretation of the term as it is used in the claim. The courts have indicated that such a definition constitutes an unambiguous surrender of subject matter outside such a definition.

Claim scope. The variance in claim scope among the claims must be ascertained. This often provides guidance as to applicant’s intent for what is to be included in the coverage of some claims with respect to others. Likewise, the specification may provide evidence of what Applicant intends to be included within the metes and bounds of particular terms used in the claims.

Conduct a thorough search. What is known in the art can contribute to understanding the invention. Because the perspective of one of ordinary skill in the art is used in the analysis, the result of such a search will contribute to USPTO personnel’s understanding of the invention.
Analysis Under 101

The prerequisites having been completed, now the analysis can begin. Analysis for determining patent eligible subject matter under §101 is a 4 step process:

1. Does the claimed invention fall within one of the four statutory categories?
2. Does the claimed invention fall within a judicial exception?
3. Does the claimed invention provide a practical application?
4. Does the claimed invention wholly preempt all substantial applications of a judicial exception?

All four steps must be applied to each and every claim to form a complete analysis.
1) Statutory Categories
What do we grant patents for?

* 35 U.S.C. §101 reads: “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 therefore, subject to the conditions and requirements of this title.”

First step, answer the question, “Does the claimed invention fall within one of the four categories of invention?”

Note that it does not matter which of the four statutory categories of invention as long as it falls within one of the four. The analysis is the same regardless to which category the claim is directed.

The statutory categories of invention are set forth in 35 USC 101, which reads, “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 therefore, subject to the conditions and requirements of this title.”

* A “machine”, “manufacture”, and “composition of matter” all define things or products.
* A “process” defines actions i.e. inventions that set forth a series of steps or acts to performed.

A “machine”, “manufacture”, and “composition of matter” all define things or products.

A “process” defines actions i.e. inventions that set forth a series of steps or acts to performed. This is often done in the form of method claims. This is not to be confused with a manufacture (e.g., memory, computer-readable medium) having instructions stored in or on it for causing steps to be performed when the instructions are executed. Such claims are directed to the manufacture. Likewise, a machine that is claimed in terms of statements of intended use or field of use, “adapted to/for” or “configured to/for” clauses, “wherein” clauses, or “whereby” clauses is a claim directed to the machine. If it appears the claim is directed to multiple statutory categories of invention, see the analysis in MPEP 2173.05(p).
Not in One of the Statutory Categories

Some examples of things that are not included in one of the statutory categories of invention are:

1. Literary works, per se, including story lines and movie plots.
2. Rules to play a game, per se.
3. Legal agreements, per se. For example, a claim to an insurance policy, as contrasted with the method of creating the characteristics of such a policy, would not be patent eligible subject matter.
4. Signals, per se. This includes signals carrying instructions or other functional descriptive material and is covered more thoroughly in Annex IV of the Guidelines.
5. A computer program, logic or language, per se.

These are only a few of the myriad of examples of subject matter which applicants have sought to patent but are not currently believed to be patent eligible subject matter under §101.
If Not, Don’t Stop

* If the examiner can establish that a claim does not fall into a statutory category, that does not preclude complete examination for all other conditions of patentability.
* The examiner must continue with the 101 analysis and must still examine the claims for compliance with 102, 103 and 112.

Even if the examiner can establish that a claim does not fall into a statutory category and sets forth a reasonable position in a rejection that the claims are non-statutory, that does not preclude complete examination for all other conditions of patentability. The examiner must continue with the §101 analysis, including that for double patenting, and do a complete analysis under §112. A search must be completed based on the claims as best understood, and any applicable prior art used to formulate rejections under §102 or §103. In short, don’t stop or short circuit the examination. Make sure to include all appropriate rejections and objections at the time of the first action on the merits.
2) Judicial Exceptions
Does the claimed invention fall within a judicial exception?

Despite the apparent sweeping breadth of 35 USC 101, and the often quoted “anything under the sun that is made by man.” statement made by the Supreme Court in Diamond v. Chakrabarty, 447 U.S. 303, 308-09, 206 USPQ 193, 197 (1980), the Supreme Court has identified three judicial exception categories of nonstatutory subject matter.

They are:

* Laws of nature, per se;
* Natural phenomena, per se; and
* Abstract ideas, per se.

Judicial Exception Examples

Examples of Judicial Exceptions are:

* Laws of nature
o e=mc2; f=ma
* Natural phenomena
o the heat of the sun; electricity; a new mineral; electromagnetism (Charles Morse)
* Abstract ideas
o mathematical algorithms; legal rights

While it’s not likely you would see a claim in the exact form listed in any of the above examples, it is quite possible that you may encounter a product claim with characteristics that are nothing more than a law of nature, a method claim which includes steps to an abstract idea, or a composition of matter claim which turns out to include a natural phenomena. Such claims are common and further analysis is required to determine if they are attempting to, per se, claim a judicial exception.
If Yes, Don’t Stop

* If a judicial exception is found in the claim, further analysis under 101 is required.
* If a judicial exception is not found in the claim, the claim must fall within a statutory category and meet the other conditions of 101.

Even if the examiner can establish that a judicial exception is found in the claim, further analysis is required to determine whether a practical application of the exception is being claimed and whether preemption applies. A complete examination for all other conditions of patentability must occur. The examiner must continue with the §101 analysis, including double patenting, and do a complete analysis under §112. A search must be completed based on the claims as best understood, and any applicable prior art used to formulate rejections under §102 or §103. In short, don’t stop the examination. The reason is easily seen – the subject matter rejection may be overcome by amendment, leaving the remaining issues on the table unless the examiner has raised them already.

If a judicial exception is not found in the claim, and the claim does fall within a statutory category, it is considered eligible for patenting but must still meet the other conditions of 101, e.g., utility.
3) Practical Application

* Two ways to provide a practical application of a judicial exception:
o Physical Transformation,

o OR Produce A Useful, Concrete, and Tangible Result

Does the claimed invention provide a practical application of a judicial exception?

As mentioned previously, even if the claim does not appear to fall within a statutory category of invention, the analysis under §101 must continue to determine if the claim recites a practical application. If not, that would be further rationale in support of the rejection. Likewise, even if a claim recites a judicial exception, the analysis must continue. The next step in the analysis is to determine if the claim recites a practical application of the exception or just the judicial exception. A claim directed to a practical application of the exception may be directed to patent eligible subject matter, while a claim directed to the exception itself is not. A claim is directed to a practical application when there is either a physical transformation or when a useful, concrete and tangible result is produced. An easily seen instance of such a result is a physical transformation performed by the process or machine claimed, so looking for a physical transformation as a result of the claimed subject matter is an efficient manner of passing this test.
Physical Transformation

* The claimed invention transforms an article or physical object to a different state or thing.
* If transformation is found, this ends the analysis for statutory subject matter.
* Transformation of data is not “physical transformation,” nor are physical acts necessarily a “physical transformation.”
* Example: manufacturing a tire by curing rubber.

Physical transformation occurs when the claimed invention transforms an article or physical object to a different structural state or thing. Physical transformation is an indication that the claim is statutory because such a transformation itself is a useful, tangible and concrete result. However, data transformation is not a physical transformation. Data, by definition, is intangible, so the claim must go further to have a tangible result. Thus, manipulation of data in a computer is not, in and of itself, sufficient for establishing that a claim is statutory. Likewise, a physical act is not necessarily a physical transformation. A physical act may, however, provide a useful, concrete and tangible result to establish patent-eligible subject matter. An example of physical transformation rendering a practical application of a judicial exception statutory is a claim to manufacturing a tire by curing rubber, where the curing time is calculated according to a mathematical equation.

* Even if a judicial exception is a limitation of the claimed invention, e.g. a law of nature, if it is applied in the physical transformation, a practical application is provided.
* The claims still need to be checked for utility under 101 however.

Inclusion of a judicial exception as a limitation of a claimed invention does not preclude the claim from being statutory where the claim as a whole is directed to a practical application because a physical transformation has taken place. However, the claim still needs to be checked to determine if it meets the utility requirement under 35 USC 101. For example, claims directed to production of excess energy or perpetual motion may arguably involve a physical transformation, yet they would raise the issue of lacking utility and/or inoperative to be addressed under 101.
Useful, Concrete, Tangible

* If no physical transformation appears in the claim, check for a “useful, concrete and tangible result”.
* The focus is on the result, not the steps or structure used to produce the result.
* A useful, concrete and tangible result must be either specifically recited in the claim or flow inherently therefrom.

If no physical transformation appears in the claim then the next step in the analysis is to determine if the claim is otherwise directed to a useful, concrete and tangible result. The focus is on the result of the claim as a whole, not the individual steps or structure used to produce the result.

A useful, concrete and tangible result must be either specifically recited in the claim or flow inherently therefrom. To flow inherently therefrom, it must occur. If there is a reasonable exception or it is merely likely that it would occur, it does not “flow inherently therefrom” and the claim would need to be amended to specifically recite the result.

* Even if a judicial exception is a limitation of the claimed invention, e.g. a law of nature, if it is applied to produce a useful, concrete and tangible result, a practical application is provided.

* The claimed invention as a whole must satisfy the utility requirement of 101:
o specific,
o substantial, and
o credible utility.
* These criteria require evaluation of the specification and the knowledge in the art.

When no physical transformation is found, the first factor of the second test for practical application is a determination of whether the claimed invention produces a useful result. For an invention to be “useful” it must satisfy the utility requirement of section 101. The USPTO’s official interpretation of the utility requirement provides that the utility of a claimed invention has to be (i) specific, (ii) substantial and (iii) credible. See MPEP 2107 for further guidance on these 3 points.

Determining whether the claimed invention is specific, substantial and credible also requires evaluation of the specification and knowledge in the art, hence the need for the prerequisites of determining what applicant invented and conducting a thorough search prior to analysis under 101.

The disclosure may have met the requirements for utility, but what’s claimed does not produce a result that reflects it or is too preliminary in and of itself to be a useful result. In these instances, the claimed invention may not provide a useful result even though an appropriate utility has been disclosed, and a rejection as non-statutory would be appropriate.

* A complete disclosure should contain some indication of why the claimed invention is useful.
* If the claimed invention does not fulfill any of the disclosed utilities, determine if the utility would have been recognized by those in the art.

When checking the disclosure to determine what applicant invented, a complete disclosure should contain some indication of why the claimed invention is useful.

If the specification discloses a practical application of a 101 judicial exception, but the claim is broader than the disclosure such that it does not require a practical application, then the claim must be rejected.

If the claimed invention does not produce a useful result, i.e. fulfill any of the disclosed utilities, determine if any utility of the claimed result would have been recognized by those in the art as being specific, substantial and credible. If no utility for the result would have been recognized, then the claim must be rejected as non-statutory for failing to comply with 35 USC 101, i.e., not providing a useful, concrete and tangible result.
“Concrete”

* Usually, a claimed invention is not concrete when a result cannot be assured or is not reproducible.
* Concrete is not a requirement that the result must be 100% accurate (e.g., a claim directed to estimating, predicting or approximating something does not necessarily lack concreteness)
* May require a determination of the level of ordinary skill in the art.

The second factor in this test for practical application is a determination of whether the claimed invention produces a concrete result.

Usually, this question arises when a result cannot be assured. In other words, the process must have a result that can be substantially repeated. Note that the focus is on the result, not the steps themselves. For example, concrete data processing steps could still produce an unrepeatable result if the data being processed is subjective. However, the mere fact that the result is an estimate, prediction or other approximation that may not ultimately be found to be accurate is not a determinative factor for concreteness. Thus, an assured result refers to repeatability and ability to achieve a result rather than ultimate accuracy of the result.

As with the useful test, the prerequisites of determining what applicant invented and conducting a thorough search prior to analysis under 101 are needed in order to ascertain whether a particular result can be assured.
Enablement

* In instances where the invention cannot be used as intended without undue experimentation, an appropriate rejection of the claim as being nonstatutory under 35 U.S.C. 101 should be accompanied by a lack of enablement rejection under 35 U.S.C. 112 first paragraph.

When a rejection under §101 is made for lacking concreteness and the invention cannot operate as intended without undue experimentation because of the lack of repeatability or predictability, the §101 rejection should be accompanied by a lack of enablement rejection under 35 U.S.C. § 112, first paragraph.

Note that contrary to rejections made for lack of utility or inoperativeness under §101 which are always accompanied by a §112, first paragraph, rejection, the only time a §112, first paragraph rejection necessarily accompanies a §101 non-statutory rejection is when the issue is a lack of concreteness.
“Tangible”

* “Real world” result.
* Not necessarily tied to a machine; not a duplicate of “physical transformation”.
* In other words, the opposite of “tangible” is “abstract”.
* Thoughts are not “real world” results.
* Example: Calculating a price of an item to sell and then conveying the calculated price to a potential customer

The third and final factor in this test for practical application is a determination of whether the claimed invention produces a tangible result. The tangible requirement does not necessarily mean that a claim must either be tied to a particular machine or apparatus, or must operate to change articles or materials to a different state or thing. To be tangible the claim must recite more than a § 101 judicial exception, in that the process claim must set forth a practical application of that § 101 judicial exception to produce a real-world result.

If the result is merely a thought, this is not a tangible or real-world result. For example, merely determining or calculating a price may not be held to be a tangible result, instead reasonably being interpreted as just a thought or a computation within a processor; however, calculating a price of an item to sell and then conveying the calculated price to a potential customer would be a tangible result.
Descriptive Material and Practical Application

Computer-data related products such as software, data structures and collections of data are also evaluated for a practical application.

Computer-data related products are classified into one of two groups, either

1. functional descriptive material,

2. or non-functional descriptive material.

Functional Descriptive Material

* “Functional descriptive material” includes data structures and computer programs which impart functionality when employed as a computer component.
* The definition of “data structure” is “a physical or logical relationship among data elements, designed to support specific data manipulation functions.”
o See The New IEEE Standard Dictionary of Electrical and Electronics Terms 308 (5th ed. 1993).

Functional descriptive material includes data structures and computer programs which impart functionality when employed as a computer component.

Computer programs may be explicitly claimed as, for example, a series of code or instructions for performing functions or may be implicitly claimed as, for example, a system or a tool or a logic or a module. Where there is no evidence in the specification that a term or phrase which may be interpreted as software, hardware or combinations thereof necessarily includes hardware, it should be interpreted in its broadest reasonable sense as software.

The definition of “data structure” from the 5th edition of the IEEE Standard Dictionary of Electrical and Electronics terms is “a physical or logical relationship among data elements, designed to support specific data manipulation functions.”

Note that mere use of the term “data structure” does not mean a data structure is being claimed. The elements of the data structure must be evaluated to determine if, when taken as a whole, they constitute a data structure in accordance with the IEEE definition (may be statutory) or are a mere compilation of data (non-statutory).

* Functional Descriptive material per se is not statutory.
o Cf. In re Warmerdam, disembodied data structure claim.
* Functional Descriptive material in combination with an appropriate computer readable medium must be capable of producing a useful, concrete and tangible result when used in a computer system.
o Cf. In re Warmerdam – data structure stored in a computer memory, and In re Lowry, 32 USPQ2d 1031 (Fed. Cir. 1994) – data structure in a “computer readable medium”.
o The “computer readable medium” must be physical structure, not a signal, which permits the functionality to be realized with the computer.

Functional descriptive material, per se, is not statutory. This is exemplified in In re Warmerdam 31 USPQ2d 1754 where the rejection of a claim to a disembodied data structure was affirmed. Thus a claim to a data structure, per se, or other functional descriptive material, including computer programs, per se, is not patent eligible subject matter.

Functional descriptive material claimed in combination with an appropriate computer readable medium to enable the functionality to be realized is patent eligible subject matter if it is capable of producing a useful, concrete and tangible result when used in the computer system. Compare Warmerdam to In re Lowry 32 USPQ2d 1031 where a memory with a data structure that increased computing efficiency was patentable.

The computer readable medium must be physical structure which provides the functional descriptive material in usable form to permit the functionality to be realized with the computer. A program product which does not explicitly include such a medium, a program per se, a signal or other type of transmission media that fails to include the hardware necessary to realize the functionality (e.g., a transmitter or a receiver), and a piece of paper with the functional descriptive material written on it are all examples of media which are not believed to enable the functionality to be realized with the computer.
Non-Functional Descriptive Material

* Non-functional descriptive material per se is an abstract idea, and therefore is not statutory.
* Non-Functional Descriptive Material is not statutory even if in combination with a physical medium.
o No useful, concrete or tangible result is produced since there is no functionality.

Examples of Non-Functional Descriptive Material

* Music
* Literature
* Art
* Photographs
* Data formats, frames or packets
* Data base per se
* Mere arrangements of facts or compilations of data
* Share price on a disk

Even when non-functional descriptive material is stored to be read or outputted by a computer without any functional interrelationship, they do not impart functionality to the computer, i.e., they are not computer components.

This last example is a reference to the State Street decision. While the CAFC determined that a claim to an apparatus that produced a share price and allocated funds in accordance therewith produces a useful, concrete and tangible result, a claim just to the result itself in this case is non-functional descriptive material.

These examples are merely stored to be read or outputted by a computer without any functional interrelationship with the computer, and thus they do not impart any functionality to the computer. That is, they are not computer components. Again, consider In re Lowry, the data structure functioned as a computer component and increased computing efficiency.
Practical Application

* A claim to a proper computer readable medium (not e.g. a signal) encoded with functional descriptive material that can function with a computer to effect a useful, concrete and tangible result (e.g. running an assembly line or executing a stock transaction) satisfies the practical application test.

Another example of a practical application within the context of computer related inventions is a claim to a computer program on a computer readable medium where the program when executed causes the computer to produce a useful, concrete and tangible result. Please take note that it is possible for a computer program on a computer readable medium to not include a practical application and thus be non-statutory. For example, a computer program on the requisite computer readable medium which merely sets forth generic instructions for solving the mathematical equation e=mc2 does not satisfy the practical application test. On the other hand, a claim to an algorithm that imparts increased efficiency to a computer in computing a particular equation may satisfy such a test. Therefore, a claim to a proper computer readable medium (not e.g. a signal or program listing on paper) encoded with functional descriptive material that can function with a computer to effect a useful, concrete and tangible result (e.g. running an assembly line or executing a stock transaction) satisfies the practical application test. Note that the specification may provide evidence as to what Applicant intends to be included within the metes and bounds of the claimed medium. If there is evidence the medium is intended to cover embodiments which are non-statutory, i.e., the medium is not limited to those media which fall within a statutory category of invention and enable the functionality of what’s stored thereon to be realized, the claim must be so rejected. At this time, if Applicant provides no evidence of intent, the reasonable interpretation of computer or machine readable medium conveyed to one of ordinary skill is appropriate tangible physical articles or objects.
If Yes, Don’t Stop

Finding a practical application does not end the analysis under 101.
4) Preemption

* A claim may not preempt abstract ideas, laws of nature or natural phenomena.
* Further, a claim may not preempt every “substantial practical application” of an abstract idea, law of nature or natural phenomena because it would in practical effect be a patent on the judicial exceptions themselves.

Does the claimed invention wholly preempt a judicial exception?

Even if the claimed invention recites a seemingly practical application of a judicial exception (for instance an abstract idea or mathematical formula), the examiner must ensure that the claim does not in reality seek patent protection for every substantial practical application of the claimed judicial exception. A claim may not preempt abstract ideas, laws of nature or natural phenomena.

Therefore, a claim may not preempt every “substantial practical application” of an abstract idea, law of nature or natural phenomena because it would in practical effect be a patent on the judicial exceptions itself.

* Thus, even though a practical application is found in the claim, we must determine if every “substantial practical application” is being claimed.
* If every substantial practical application is being claimed, the claim is non-statutory under 101.

Thus, even though a practical application is found in the claim, we must determine if every “substantial practical application” is being claimed. Here is an example of a claim which preempts an abstract idea. A computer comprising: memory; and a processor, where the processor is programmed to perform mathematical algorithm AxBxCxD, where A, B, C and D are real numbers. In this case, even though the claim recites a seemingly statutory apparatus (that is a computer with memory and a processor), the claim in reality provides patent protection for every substantial practical application of the mathematical algorithm itself.

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.

1996 Examination Guidelines for Computer Related Inventions

After In re Beauregard, the U.S. Patent and Trademark Office issued its Examination Guidelines for Computer Related Inventions. This marked a real turning point in that now internal PTO guidelines were published that applicants could use when arguing with Examiners. Examiners were being told that they could actually allow certain software patents. Though many were still reluctant. Because these guidelines are an important piece of history, and not easy to find on the USPTO website, I have placed a copy on my web server and it is available here:

https://www.patentsusa.com/1996_guidelines.pdf

The most relevant points (in my opinion) of these guidelines are as follows (keep in mind that this was only the Patent Office’s interpretation):

The utility of an invention must be within the “technological” arts. A computer-related invention is within the technological arts. A practical application of a computer-related invention is statutory subject matter.

1. Non-Statutory Subject Matter
Claims to computer-related inventions that are clearly non-statutory fall into the same general categories as non-statutory claims in other arts, namely natural phenomena such as magnetism, and abstract ideas or laws of nature which constitute “descriptive material.” Descriptive material can be characterized as either “functional descriptive material” or “non-functional descriptive material.” In this context, “functional descriptive material” consists of data structures[27] and computer programs which impart functionality when encoded on a computer-readable medium. “Non-functional descriptive material” includes but is not limited to music, literary works and a compilation or mere arrangement of data.

Both types of “descriptive material” are non-statutory when claimed as descriptive material per se. When functional descriptive material is recorded on some computer-readable medium it becomes structurally and functionally interrelated to the medium and will be statutory in most cases. When non-functional descriptive material is recorded on some computer-readable medium, it is not structurally and functionally interrelated to the medium but is merely carried by the medium. Merely claiming non-functional descriptive material stored in a computer-readable medium does not make it statutory. Such a result would exalt form over substance. Thus, non-statutory music does not become statutory by merely recording it on a compact disk. Protection for this type of work is provided under the copyright law.

Data structures not claimed as embodied in computer-readable media are descriptive material per se and are not statutory because they are neither physical “things” nor statutory processes. Such claimed data structures do not define any structural and functional interrelationships between the data structure and other claimed aspects of the invention which permit the data structure’s functionality to be realized. In contrast, a claimed computer-readable medium encoded with a data structure defines structural and functional interrelationships between the data structure and the medium which permit the data structure’s functionality to be realized, and is thus statutory.

Similarly, computer programs claimed as computer listings per se, i.e., the descriptions or expressions of the programs, are not physical “things,” nor are they statutory processes, as they are not “acts” being performed. Such claimed computer programs do not define any structural and functional interrelationships between the computer program and other claimed aspects of the invention which permit the computer program’s functionality to be realized. In contrast, a claimed computer-readable medium encoded with a computer program defines structural and functional interrelationships between the computer program and the medium which permit the computer program’s functionality to be realized, and is thus statutory. Accordingly, it is important to distinguish claims that define descriptive material per se from claims that define statutory inventions.

Natural Phenomena Such as Electricity and Magnetism
Claims that recite nothing but the physical characteristics of a form of energy, such as a frequency, voltage, or the strength of a magnetic field, define energy or magnetism, per se, and as such are non-statutory natural phenomena.[33] However, a claim directed to a practical application of a natural phenomenon such as energy or magnetism is statutory.

2. Statutory Subject Matter

(a) Statutory Product Claims
If a claim defines a useful machine or manufacture by identifying the physical structure of the machine or manufacture in terms of its hardware or hardware and software combination, it defines a statutory product.

Claims that Encompass Any Machine or Manufacture Embodiment of a Process
Office personnel must treat each claim as a whole. The mere fact that a hardware element is recited in a claim does not necessarily limit the claim to a specific machine or manufacture. If a product claim encompasses any and every computer implementation of a process, when read in light of the specification, it should be examined on the basis of the underlying process.

A claim limited to a specific machine or manufacture, which has a practical application in the technological arts, is statutory. In most cases, a claim to a specific machine or manufacture will have a practical application in the technological arts.

Statutory Process Claims

To be statutory, a claimed computer-related process must either:
(1) result in a physical transformation outside the computer for which a practical application in the technological arts is either disclosed in the specification or would have been known to a skilled artisan, or
(2) be limited by the language in the claim to a practical application within the technological arts.

If a physical transformation occurs outside the computer, it is not necessary to claim the practical application. On the other hand, it is necessary to claim the practical application if there is no physical transformation or if the process merely manipulates concepts or converts one set of numbers into another.

A claimed process is clearly statutory if it results in a physical transformation outside the computer, i.e., falls into one or both of the following specific categories (“safe harbors”).

(i) Safe Harbors
– Independent Physical Acts (Post-Computer Process Activity)

A process is statutory if it requires physical acts to be performed outside the computer independent of and following the steps to be performed by a programmed computer, where those acts involve the manipulation of tangible physical objects and result in the object having a different physical attribute or structure. Thus, if a process claim includes one or more post-computer process steps that result in a physical transformation outside the computer (beyond merely conveying the direct result of the computer operation, the claim is clearly statutory.

Examples of this type of statutory process include the following:

– A method of curing rubber in a mold which relies upon updating process parameters, using a computer processor to determine a time period for curing the rubber, using the computer processor to determine when the time period has been reached in the curing process and then opening the mold at that stage.
– A method of controlling a mechanical robot which relies upon storing data in a computer that represents various types of mechanical movements of the robot, using a computer processor to calculate positioning of the robot in relation to given tasks to be performed by the robot, and controlling the robot’s movement and position based on the calculated position.

– Manipulation of Data Representing Physical Objects or Activities (Pre-Computer Process Activity)

Another statutory process is one that requires the measurements of physical objects or activities to be transformed outside of the computer into computer data,[42] where the data comprises signals corresponding to physical objects or activities external to the computer system, and where the process causes a physical transformation of the signals which are intangible representations of the physical objects or activities.

Examples of this type of claimed statutory process include the following:

– A method of using a computer processor to analyze electrical signals and data representative of human cardiac activity by converting the signals to time segments, applying the time segments in reverse order to a high pass filter means, using the computer processor to determine the amplitude of the high pass filter’s output, and using the computer processor to compare the value to a predetermined value. In this example the data is an intangible representation of physical activity, i.e., human cardiac activity. The transformation occurs when heart activity is measured and an electrical signal is produced. This process has real world value in predicting vulnerability to ventricular tachycardia immediately after a heart attack.
– A method of using a computer processor to receive data representing Computerized Axial Tomography (“CAT”) scan images of a patient, performing a calculation to determine the difference between a local value at a data point and an average value of the data in a region surrounding the point, and displaying the difference as a gray scale for each point in the image, and displaying the resulting image. In this example the data is an intangible representation of a physical object, i.e., portions of the anatomy of a patient. The transformation occurs when the condition of the human body is measured with X-rays and the X-rays are converted into electrical digital signals that represent the condition of the human body. The real world value of the invention lies in creating a new CAT scan image of body tissue without the presence of bones.

– A method of using a computer processor to conduct seismic exploration, by imparting spherical seismic energy waves into the earth from a seismic source, generating a plurality of reflected signals in response to the seismic energy waves at a set of receiver positions in an array, and summing the reflection signals to produce a signal simulating the reflection response of the earth to the seismic energy. In this example, the electrical signals processed by the computer represent reflected seismic energy. The transformation occurs by converting the spherical seismic energy waves into electrical signals which provide a geophysical representation of formations below the earth’s surface. Geophysical exploration of formations below the surface of the earth has real world value.

If a claim does not clearly fall into one or both of the safe harbors, the claim may still be statutory if it is limited by the language in the claim to a practical application in the technological arts.

(ii) Computer-Related Processes Limited to a Practical Application in the Technological Arts
There is always some form of physical transformation within a computer because a computer acts on signals and transforms them during its operation and changes the state of its components during the execution of a process. Even though such a physical transformation occurs within a computer, such activity is not determinative of whether the process is statutory because such transformation alone does not distinguish a statutory computer process from a non-statutory computer process. What is determinative is not how the computer performs the process, but what the computer does to achieve a practical application.

A process that merely manipulates an abstract idea or performs a purely mathematical algorithm is non-statutory despite the fact that it might inherently have some usefulness. For such subject matter to be statutory, the claimed process must be limited to a practical application of the abstract idea or mathematical algorithm in the technological arts. For example, a computer process that simply calculates a mathematical algorithm that models noise is non-statutory. However, a claimed process for digitally filtering noise employing the mathematical algorithm is statutory. Examples of this type of claimed statutory process include the following:

– A computerized method of optimally controlling transfer, storage and retrieval of data between cache and hard disk storage devices such that the most frequently used data is readily available.

– A method of controlling parallel processors to accomplish multi-tasking of several computing tasks to maximize computing efficiency.

– A method of making a word processor by storing an executable word processing application program in a general purpose digital computer’s memory, and executing the stored program to impart word processing functionality to the general purpose digital computer by changing the state of the computer’s arithmetic logic unit when program instructions of the word processing program are executed.

– A digital filtering process for removing noise from a digital signal comprising the steps of calculating a mathematical algorithm to produce a correction signal and subtracting the correction signal from the digital signal to remove the noise.

Non-Statutory Process Claims
If the “acts” of a claimed process manipulate only numbers, abstract concepts or ideas, or signals representing any of the foregoing, the acts are not being applied to appropriate subject matter. Thus, a process consisting solely of mathematical operations, i.e., converting one set of numbers into another set of numbers, does not manipulate appropriate subject matter and thus cannot constitute a statutory process.

In re Beauregard, 1995

Beauregard was a very important case in the History of Software Patents. In re Beauregard is the case that opened things up completely for software patents. It signaled the end of the U.S. Patent and Trademark Office’s resistance to allow patent applications that contained algorithms.

Beauregard’s invention, described in U.S. Patent Application Serial No. 07/521,858, now U.S. Patent No. 5,710,578 (to IBM), related to graphical raster displays, and to a system and method for filling in the area defined by the boundaries of a polygon that is being displayed on a graphical raster display system. The software patent relates to accurately filling a polygon by including the points in an algorithm, called the Bresenham algorithm, that define the boundaries of a polygon in the resulting filled polygon.

The claims of this software patent recited “a computer usable medium” on which was stored “computer readable program code means,” i.e., a particular piece of computer software for filling a polygon displayed on a graphics display device. Claim 22 was representative:

Claim 22. An article of manufacture comprising:
a computer usable medium having computer readable program code means embodied therein for causing a polygon having a boundary definable by a plurality of selectable pels on a graphics display to be filled, the computer readable program code means in said article of manufacture comprising:
computer readable program code means for causing a computer to effect, with respect to one boundary line at a time, a sequential traverse of said plurality of selectable pels of each respective said boundary line;
computer readable program code means for causing the computer to store in an array during said traverse a value of an outer pel of said boundary of said plurality of selectable pels for each one of a plurality of scan lines of said polygon; and
computer readable program code means for causing the computer to draw a fill line, after said traverse, between said outer pels having said stored values, for each said one of said scan lines.

The USPTO Board rejected the claims using a variant of the printed matter rejection similar to that used in Lowry.

The California Multimedia and Software Patent Alliance filed a Amicus brief that asserted the following points, which were representative of the points raised by those who believed software patents were necessary:

The issue of whether a computer usable medium on which a particular piece of computer software is stored is protectable under the patent system is a particularly important one to the California multimedia and software industry for three reasons.

First, the copyright laws, perceived by many to be the most appropriate means for achieving protection of computer software, are inadequate. Under the abstraction/filtration/comparison test, which has been adopted in various forms by both the Ninth and Second Circuits as the appropriate method of defining the protectable aspects of computer software under the copyright laws, the ideas behind (or functions performed by) software are not protectable under the copyright laws. Thus, the scope of protection available is narrow and undefined.

Many other groups also filed Amicus briefs supporting Beauregard.

The Patent and Trademark Office filed a Motion to Dismiss stating that it was in agreement with the applicant that its claims recited statutory subject matter. The Federal Circuit noted that the parties were in agreement and that no case or controversy existed. The Federal Circuit vacated the Board of Appeals’s decision and remanded.

This was good news indeed for applicants and an important turning point in the history of software patents.

In re Trovato, 1994

Just when it seemed like at least the Federal Circuit supported patents for software related inventions came the troubling case of In re Trovato.

The problem of finding the shortest distance between two points is a recurring one, and is of particular interest to students of the computer science field known as graph theory. Trovato’s inventions work within this area, attempting to solve the “shortest path problem” by finding the optimal path between two locations, whether in terms of distance, cost, capacity, time or other criteria. The inventions model possible object movements in the real world–the “physical task space”–by a graph called a “configuration space.” Each node of the graph represents a discrete state, or set of conditions, such as location or orientation. Edges connect the graph nodes and indicate the cost of transferring from one state to another.

Representative claims of the application included method claims 1 and 2, which recite:

1. A method for determining motion of an object comprising the steps of:
a) storing a configuration space data structure representing a physical task space, the configuration space data structure including representations of the object and its environment; and
b) propagating cost waves, in the configuration space data structure, to fill the configuration space data structure with cost values according to a space variant metric.

2. The method of claim 1, further comprising the steps of:
a) deriving a sequence of object pose representations within the configuration space data structure, using the cost values, which representations represent physical poses defining a least cost path from a start pose to a goal pose in the physical task space; and
b) providing a series in electronic form usable by the object to follow the path.

Claim 33 provides an example of an apparatus claim within the application:

33. Apparatus for planning a least cost path comprising:
a) means for storing a discretized representation of a physical task space;
b) means for assigning at least one respective cost to at least one neighboring position of any given position, based on
i) a cost assigned to the given position; and
ii) a measure which varies according to position within the discretized representation, so that a least cost path from the neighboring position to the given position is established;
c) means for starting the assigning means at a first position of known cost;
d) means for causing the assigning means to iterate, so that all positions within the discretized representation are assigned respective costs, in waves propagating outward from the first position; and
e) means for identifying a least cost path between two positions in the discretized representation based on the respective costs.

These claims were somewhat similar in style to those of Alappat. However, there was not as much detail in the specification as to the structure behind each means.

The court upheld application of the Freeman-Walter-Abele test.

The Federal Circuit found both method and machine claims to be unstatutory subject matter. and stated that Trovato’s applications failed to explain how the claimed inventions actually employ the numbers to control movement, and that the absence of even a cursory description of how the computed values were implemented further indicated that the claimed methods comprised only numerical manipulation.

After this case, the best solution seemed to be to write claims to recite some sort of tangible product or to apply results to a physical solution, and to try to recite structure to better define respective means.

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