Patent-Eligible Subject Matter in the United States - The Court of Appeals Decision in In re Bilski
The long-awaited decision of the Court of Appeals for the Federal Circuit (CAFC) in the case of In re Bilski was handed down on October 30, 2008. Despite the anticipation that the decision might effect dramatic changes in the law, the court in a 9-3 decision, played it safe and left to the Supreme Court whether there should be any change in the law on this subject. Perhaps smarting from previous suggestions by the Supreme Court last year in KSR v. Teleflex that the Federal Circuit had deviated from Supreme Court precedent, in its opinion on Bilski, the majority of the Federal Circuit in a decision authored by Chief Judge Michel quoted extensively from prior Supreme Court decisions dating back to 1853. In its decision the court set out a rule that a process is eligible for patent protection under 35 USC § 101 if:
(1) it is tied to a particular machine or apparatus, or
(2) it transforms a particular article into a different state or thing.
The invention in question in the case was essentially a method of hedging risk in commodities trading. The main claim reads as follows:
A method of managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of:
(a) initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said consumer;
(b) identifying market participants for said commodity having a counter-risk position to said consumers; and
(c) initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions.
The case came to the Court of Appeals on appeal from the United States Patent and Trademark Office (USPTO). The examiner had rejected the claim on the basis that the claimed invention was merely a manipulation of an abstract idea and was not directed to the technological arts. This being the case, it was not subject matter that was eligible for patent protection. The USPTO Board of Patent Appeals and Interferences disagreed with the examiner’s view that there was a separate “technological arts” test for patent eligibility, but held that since the claimed invention related to an abstract idea and did not produce any “useful, concrete and tangible result” it did not relate to patent-eligible subject matter.
None of the members of the Court of Appeals for the Federal Circuit disagreed with the conclusions reached below. However, with the exception of Judge Rader, they did not agree with the reasoning used.
In reaching its decision as noted above, the majority looked at three recently-proposed alternative approaches to whether inventions of the type claimed could constitute patent-eligible subject matter.
First it looked at the Freeman-Walter-Abele test that had held sway from 1982 -1994. This required a two step analysis:
(1) determining whether the claim recites an algorithm and then:
(2) determining whether that algorithm is “applied in any manner to physical elements or process steps”.
The Bilski court found the Freeman-Walter-Abele test to be inadequate, at least because it did not look at the claim as a whole, but required dissecting the claim into parts and too limited in its approach to what might be patent-eligible.
The second test looked at was that which had been set out in the decisions in In re Alappat (1994) and in State Street Bank and Trust v. Signature Financial Group (1998), where the court had held that patent-eligibility turned on whether the process produced a “useful, concrete and tangible” result. The Bilski court found this test to be inadequate too because this inquiry, although relevant to whether something was eligible for patent protection, was insufficient to reach a final determination.
The third test looked at was the so-called ”technological arts” test that had been used by the examiner in the Bilski case and had been at least a factor in some USPTO Appeal Board decisions, it having been suggested that the basis given in the U.S. Constitution for granting patents is that they should promote the useful arts and at the time the Constitution was written, it was clear that “useful arts” meant technology. The Bilski court rejected this test, noting that “no such test has ever been explicitly adopted by the Supreme Court”.
What tests then had the Supreme Court adopted? In Gottschalk v. Benson (1972), the Supreme Court had held:
Phenomena of nature, though just discovered, mental processes and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work.
In that case, the Supreme Court had also noted:
the transformation and reduction of an article to a different state or thing is the clue to the patentability of a process claim that does not include particular machines.
In Parker v. Flook (1978) the Supreme Court had noted that such a principle might need to be qualified, pointing out that:
The notion that post-solution activity [i.e. activity after solution of the equation or algorithm set out in the claim], no matter how conventional or obvious in itself, can transform an unpatentable principle into a patentable process exalts form over substance.
In Diamond v. Diehr (1981), the Supreme Court had held that:
an application of a law of nature or a mathematical formula to a known structure of process may well be deserving of patent protection.
The reason for this was that such application did not pre-empt the use of the formula or law of nature, but only one application of it. Such a limitation had to be a genuine one as to the mode of application and not a mere field of use limitation.
Putting all of this together, the majority concluded that the tests adopted by the Supreme Court could be stated that a process is eligible for patent protection if:
(1) it is tied to a particular machine or apparatus, or
(2) it transforms a particular article into a different state or thing.
The majority also extracted two further requirements from the Benson and Flook cases that use of a specific machine or transformation of an article must impose meaningful limits on the claim’s scope and that use of such machine or transformation must not be merely an “insignificant extra-solution activity”.
Since the claims before it did not relate to any particular machine, the court did not address further what was required to meet the first of these options and in particular did not consider whether a general purpose computer when programmed could become “a particular machine or apparatus”.
On the second option, the majority did attempt some guidance as to what it meant by “articles” that were to be the subject of transformation. After noting that “it is virtually self-evident that a process for a chemical or physical transformation of physical objects or substances is patent-eligible subject matter”, the court went on:
The raw materials of many information-age processes are electronic signals and electronically-manipulated data. And some so-called business methods, such as that claimed in the present case, involve the manipulation of even more abstract constructs such as legal obligations, organizational relationships, and business risks. Which, if any, of these processes qualify as a transformation or reduction of an article into a different state or thing constituting patent-eligible subject matter? … we see no reason to expand the boundaries of what constitutes patent eligible transformations of articles.
Having stated that it saw no need to expand the boundaries of what constitutes patent-eligible subject matter set out in its prior case law, the court gave an example from prior case law where electronic transformation of data did lead to patent eligible subject matter, namely, one of the claims in the Abele (1982) case. In that case, transformation of X-ray attenuation data into a particular visual depiction of a physical object was found sufficient for patent eligibility. On the other hand, insignificant additional steps, such as adding a mere data gathering step to a process that was otherwise unpatentable does not involve a transformation such as to make the overall process patentable.
Furthermore, while repudiating the “useful, concrete and tangible” test of State Street, the court expressly upheld that part of the State Street decision that had held that there was no bar on the grant of patent protection for business methods as such. However, while dismissing the idea that the presence or absence of physical steps is relevant to a determination of whether the test set out has been met, the majority pointed out that “a claimed process wherein all of the process steps may be performed entirely in the human mind is obviously not tied to any machine and does not transform any article into a different state or thing”. Consequently, such a process would not be patent-eligible.
Based on the conclusion that the claim “does not involve the transformation of any physical object or substance or an electronic signal representative of any physical object or substance” the court concluded that … “the claim fails the machine or transformation test and is not drawn to patent-eligible subject matter.”
The views of the dissenters can be set out briefly as follows:
Dissent by Judge Newman: The problem with Bilski's claim is that it was too broad, not that it was an unpatentable process as such. By adding further limitations on the simple word “process”, which she does not believe to be required by the Supreme Court decisions relied upon by the majority, she believes the majority decision throws into doubt the patentability of inventions that apply electronic and photonic technologies and handle data and information in novel ways.
Dissent by Judge Mayer: The decision is too complicated. State Street should have been over-ruled and patents confined to technological inventions.
Dissent by Judge Rader: The Court should simply have upheld the USPTO Board of Patent Appeals on the ground that Bilski was trying to patent an abstract idea.
In conclusion therefore, it does not seem that the court’s decision has done all that much to clarify the law. It has made it clear that there is no need for an invention to be “technological” in order to be patentable and has also made it clear that the process must either involve a machine or actually do something to articles or data rather than just move them around in order to be patentable. The exact nature of what constitutes an “article” or what constitutes a “manipulation” has, however, been explained simply by examples rather than by definition, thereby leaving open many questions which it had been hoped would have been settled by this decision. Although the principle that business methods may be patentable survives, it is not at all clear what type of manipulation of what type of articles will be needed to meet the test now set out. The court basically said that certain of its prior decisions were correct: rejecting claims to graphically displaying variances of data from average values in Abele, but allowing such claims when the data were X-ray attenuation data and the representations were of physical objects; rejecting claims to a combination of a data gathering step and execution of an algorithm in In re Grams (1989); and rejecting claims to a method of conducting an auction in In re Schrader (1994). However, it made no comment on whether the outcome had been correct in State Street (which in any case was decided on the basis that what was claimed was a machine) or in AT&T v. Excell (1999) which had been squarely decided on the basis that what was claimed was a process giving rise to a useful, concrete and tangible result. Whether the manipulations carried out in AT&T would meet the requirements of the new test is not clear. Although the fact that in AT&T the court referred to the Grams and Schrader cases as “unhelpful” and they are now given as examples of what falls outside patent-eligible subject matter is probably an indication of the majority’s view.
It seems therefore that until matters are clarified, there may be a reversion to writing claims as “machine” claims rather than as process claims. Whether the meaning of the statutory term ”machine” may ultimately be rewritten in a more limited manner as a “process”, as has now been done, remains to be seen.
Editor's note: For the decision of the Supreme Court in connection with In Re Bilski, see Bilski v. Kappos