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08.10

By Nathan J. Bailey and Monica Ullagaddi

January’s issue of IEEE-USA Today’s Engineer provided an overview of the Supreme Court oral argument in Bilski v. Kappos, while noting that “interested parties are holding out hope that the Supreme Court will provide a more concrete answer” to the question “what is patentable?”  Well, so much for hope.  While the Supreme Court might have provided some answers, its ruling in Bilski also left much to be decided. 

Ultimately, the Court recognized that the Federal Circuit’s “machine-or-transformation” test [i] could be useful, but rejected the idea that such a test should be the sole test for determining patentability of a process.  So for the time being, it appears that business methods and software are patentable, or at least not categorically denied protection.          

How We Got Here

The patent application in Bilski sought protection for an invention directed at hedging against the risk of price fluctuations in the energy market.  Claim 1 described a series of steps instructing how to hedge risk and claim 4 turned the concept of claim 1 into a mathematical formula.  While those responsible for reviewing the claims of the petitioner’s patent application were each of the opinion that the invention could not be considered patent eligible, they diverged on their reasons for deciding the same.

The patent examiner rejected the application on the grounds that the invention “is not implemented on a specific apparatus and merely manipulates [an] abstract idea and solves a purely mathematical problem without any limitation to a practical application, [and] therefore, the invention is not directed to the technological arts.”  The Board of Patent Appeals and Interferences affirmed, concluding that the claimed invention (1) involved only mental steps that do not transform physical matter and (2) was directed to an abstract idea.  The United States Court of Appeals for the Federal Circuit affirmed the Board’s judgment, applying the “machine-or-transformation” test to determine the claims unpatentable.    

What Happened

On appeal, the Supreme Court of the United States [ii] affirmed the judgment of the Federal Circuit, but provided a different rationale for the same conclusion.  The Court held that the petitioner’s patent application did not include patentable processes, but rather attempted to patent abstract ideas.  In so doing, the Supreme Court reflected on proposed limitations on “process” patents under 35 U.S.C. §101 that would deny patenting the petitioner’s claimed invention: the “machine-or-transformation” test and the categorical prohibition of business method patents. 

Relying on Gottschalk v. Benson, 409 U.S. 63 (1972) and Parker v. Flook, 437 U.S. 584 (1978), the Court concluded that the “machine-or-transformation” test is not the only test for determining eligibility of patentable subject matter under 35 U.S.C. § 101.  Rather, the Supreme Court reasoned that the test is “a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101.”  The Court also determined that the Federal Circuit violated two principles of statutory interpretation by reading limitations and conditions into the patent laws that the legislature had not intended.  The Court indicated that it was unaware of any ordinary, contemporary common meaning of the term “process” that would require transformation of an article or any tie to a machine. 

The Court noted that the “machine-or-transformation” test may well provide a sufficient basis for evaluating processes similar to those in the Industrial Age, but that there were reasons to doubt whether the test should be the sole criterion for determining the patentability of inventions in the Information Age.  The Court agreed with numerous amicus (friends of the Court) briefs that argued that the “machine-or-transformation” test would create uncertainty as to the patentability of software, advanced diagnostic medicine techniques and inventions based on linear programming, data compression and the manipulation of digital signals. 

The Court’s recognition of this argument provides indication that the Court believes software to be patentable; although the Court did note that it was not “holding that any of the above-mentioned technologies from the Information Age should or should not receive patent protection.”  With respect to the patentability of previously unforeseen inventions, the Court described Section 101 as a “dynamic provision designed to encompass new and unforeseen inventions” and noted that Section 101’s terms suggest that new technologies may call for new inquiries.

The Court also reasoned that a “categorical rule denying patent protection for inventions in areas not contemplated by Congress . . . would frustrate the purposes of patent law.”  According to the Court, “[in] deciding whether previously unforeseen inventions qualify as patentable ‘process[es]’, it may not make sense to require courts to confine themselves to asking the questions posed by the machine-or-transformation test.” 

The Supreme Court acknowledged the challenge of striking a balance between “protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles”, but stopped short of defining any framework for determining or “tak[ing] a position on where that balance ought to be struck.”

The Court also rejected the Federal Circuit’s holding that the statutory category of process as defined under 35 U.S.C. § 101 must exclude all business methods, thus rejecting the argument that business methods are “categorically outside of the scope of 35 U.S.C. § 101” insofar as federal law “explicitly contemplates the existence of at least some business method patents.”  The Court reasoned that “the Patent Act leaves open the possibility that there are at least some processes that can be fairly described as business methods that are within patentable subject matter under 35 U.S.C. § 101.”

Reviewing the facts of Benson, Flook and Diamond v. Diehr, 450 U.S. 175 (1981), the Court decided that the patent application at issue fell outside the scope of 35 U.S.C. § 101 insofar as it sought to claim an abstract idea.  The Court limited the decision to consider the patent application unpatentable merely to its attempt to patent abstract ideas and declined to further define “what constitutes a patentable ‘process’, beyond pointing to the definition of that term provided by §100(b) and looking to the guideposts in Benson, Flook and Diehr.”  The Court closed with the statement “we by no means foreclose the Federal Circuit’s development of other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text.”

The Bottom Line          

The Court’s ruling in Bilski does what most Court opinions do: provides rationale for a decision under the current set of facts, but leaves open questions that many wish were answered under more than one set of facts.  The Bilski decision thus moves the ball along to the next case, which will most likely come with the same anticipation and the same result: continued confusion followed by a sliver of clarity after multiple district courts begin to apply its logic.  Better luck next time — but for now we at least know that some business methods are patentable, and that software may be patentable, or at least that neither are categorically denied protection. 

Footnotes

[i] The machine-or-transformation test set forth by the Federal Circuit in In Re Bilski, 545 F.3d 943 (Fed. Cir. 2008), stated that a “claimed process is surely patent eligible under 35 U.S.C. §101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.”

[ii] Justice Kennedy delivered the opinion of the Court. If you are interested in reading the entire opinion, it can be found at http://www.supremecourt.gov/opinions/09pdf/08-964.pdf.

Nathan J. (“Nate”) Bailey is a member of IEEE-USA’s Intellectual Property Committee. He holds a J.D. from Southern Illinois University School of Law and an M.S. in electrical and computer engineering from Southern Illinois University. He currently practices as an intellectual property attorney with the law firm Greenblum & Bernstein, P.L.C., mainly focusing on patent litigation. He can be reached at nbailey@gbpatent.com.

Monica Ullagaddi is a patent attorney at Greenblum & Bernstein, P.L.C., where she currently prepares and prosecutes patent applications in the networking and telecommunication arts.  She holds a J.D. from Howard University School of Law, and M.S. and B.S. degrees in electrical and computer engineering from Carnegie Mellon University.  She can be reached at mullagaddi@gbpatent.com.

Comments may be submitted to todaysengineer@ieee.org.