Intellectual Property Law

Court Clarifies Patent Eligibility Standard for Inventions Involving Process Steps

By Brian Wm. Higgin

• In Re Bilski (Fed. Cir.; October 30, 2008)

     In In Re Bilski, the Court of Appeals for the Federal Circuit in Washington, DC, sitting en banc, considered the issue of whether certain so-called business methods and other “processes” are eligible for patent protection. Less than a day after the court’s eagerly-anticipated decision, general and legal news media outlets proclaimed the end of patent protection for software-related business methods, and shortly thereafter business associations called for patent reform legislation to expand the Patent Act’s scope to reestablish protections for software inventions. It may take days and perhaps weeks for the debate to subside over exactly how far the Bilski court swung the pendulum away from the pro-patent apex. What is clear, however, is that Bilski did not do away with business methods and general software process patents entirely, although it did tighten the patent eligibility standard for inventions involving processes.

     Section 101 of the Patent Act identifies four categories of patent-eligible subject matter: processes, machines, manufactures, and compositions of matter. The patent claims at issue in Bilski involved a computerized process, specifically a method of hedging risk in the field of commodities trading. 

     Drawing extensively from the Supreme Court’s holding and analysis in Diamond v. Diehr, 450 U.S. 175 (1981) and Gottschalk v. Benson, 409 U.S. 63, 67 (1972), the Federal Circuit recognized that “the question before us then is whether Applicants' claim recites a fundamental principle [i.e., "laws of nature, natural phenomena, and abstract ideas"] and, if so, whether it would pre-empt substantially all uses of that fundamental principle if allowed.” The definitive test, the court said, involves a determination of whether a process claim is tailored narrowly enough to encompass only a particular application of a fundamental principle rather than to pre-empt the principle itself.

     A claimed process, the court said, is patent-eligible under § 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.

     Thus, a claimed process involving a fundamental principle that uses a particular machine or apparatus would not pre-empt uses of the principle that do not also use the specified machine or apparatus in the manner claimed, and therefore would be potentially protectable under the patent laws. And, a claimed process that transforms a particular article to a specified different state or thing by applying a fundamental principle would not pre-empt the use of the principle to transform any other article, to transform the same article but in a manner not covered by the claim, or to do anything other than transform the specified article, and therefore would also be potentially protectable under the patent laws.

     The court recognized two corollaries to the machine-or-transformation test. First, a mere field-of-use limitation added to a process claim is generally insufficient to render an otherwise ineligible process claim patent-eligible. Also, “insignificant postsolution activity” will not convert an unpatentable principle into a patentable process (e.g., recording bids in an auction without citing the manner of recording may be “extra-solution activity”).  The court also noted that the inquiry into whether a claim is eligible under § 101 does not involve whether the claim is also novel and not obvious under §§ 102 and 103, and also eligibility is not defeated by an individual step or limitation that by itself would be ineligible, one must look at the claim as a whole.

     But what exactly does “machine or apparatus” and “transform” mean in the context of the two-part machine-or-transformation inquiry? Because the claims at issue in Bilski did not limit any process step to any specific machine or apparatus, the court did not elaborate as to the factual evidence important in determining whether a process claim is sufficiently tied to a machine or apparatus.

Transformative process steps

     The court did, however, considered in detail the “transformative” step. A claimed process is patent-eligible, the court said, if it transforms an article into a different state or thing. This transformation must be central to the purpose of the claimed process. Physical transformation of physical objects or substances is patent-eligible subject matter. The transformation of raw data stored in a computer into a particular visual depiction of a physical object on a display is sufficient to render that more narrowly-claimed process patent-eligible (even if the underlying physical object being displayed is not transformed). On the other hand, a data gathering step added to a claim does not convert an algorithm into a patent-eligible process. Also, purely mathematical optimization algorithms are also not patent-eligible.  Moreover, Bilski’s claimed transactions involving the exchange of legal rights is not drawn to patent-eligible subject matter.

State Street

     Finally, with regard to the court’s earlier State Street decision, in which it announced the "useful, concrete, and tangible result" test relied upon extensively by the courts and the PTO to determine patent eligibility, the decision has been criticized as causing a flood of patent applications upon the PTO for a wide variety of non-technological inventions involving such things as processes for calculating indices, conducting arbitration, tax-planning, and performing legal methods. In Bilski, the court said that in many instances, the “useful, concrete, and tangible result” test may provide useful indications of whether a claim is drawn to a fundamental principle or a practical application of such a principle, however, the inquiry is insufficient to determine whether a claim is patent-eligible under § 101. Moreover, the test was “never intended to supplant the Supreme Court's test.” This holding has many believing that State Street was overturned, when in fact it was not. The court said that those portions of State Street that relied solely on the “useful, concrete, and tangible result” test should not longer be relied upon.

Full post as published by Maryland Intellectual Property Law Blog on October 31, 2008 (boomark / email).