Intellectual Property Law

After many eagerly anticipated months, the Federal Circuit fulfilled Judge Michel?s promise and issued its en banc opinion in In re Bilski just as the World Series concluded.  In this 132-page opinion, the Court tackled the fundamental question of what types of processes constitute patentable subject matter under 35 U.S.C. § 101.  The controversial test enunciated by the majority attempts to create some baseline requirements for a patent-eligible process, but the dissenters suggest that the test stifles innovation and creates more confusion than clarity.

The Case

The case first arose when the applicants, Bernard L. Bilski and Rand A. Warsaw, appealed the Patent Office?s rejection of their claim for a method of hedging risk in the field of commodity trading.  The patent examiner had initially determined that Bilski?s invention was not patentable subject matter under §101 because it was ?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.?  Op. at 3.  The Board of Patent Appeals and Interferences affirmed.  A Federal Circuit panel heard argument in October 2007, but before disposition, the Court sua sponte ordered en banc review. 

35 U.S.C. § 101 establishes a threshold inquiry as to whether a patent claim describes patentable subject matter:

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 therefor, subject to the conditions and requirements of this title.

As the statute makes clear, ?any new and useful process? is patentable, but In re Bilski tested what that concept encompassed.  To answer this question, the Federal Circuit, following a noticeable trend in its recent opinions, deferred to U.S. Supreme Court precedents to select the proper test for determining a patentable process.  Known as the ?machine-or-transformation test,? the Bilski Court announced that a claimed process is patent-eligible if ?(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or a thing.?  Op. at 10 (emphasis in original).  The Court further stated that a machine or transformation must impose ?meaningful limits.?  Op. at 24.  Additionally, any claimed transformation must be ?central to the purpose of the claimed process.?  Op. at 25-26.

The en banc panel further advised that the two prongs of the machine-or-transformation test must be reconciled with the core idea of whether the claim seeks to pre-empt the entire use of a fundamental principle[1](not patentable) or only foreclose others from using a particular application of that fundamental principle (patentable).  Yet, immediately after its attempt to provide clarity in this area, the Bilski Court waffles.  ?Future developments in technology and the sciences may present difficult challenges to the machine-or-transformation test ? thus, we recognize the Supreme Court may ultimately decide to alter or perhaps even set aside this test to accommodate emerging technologies.?  Op. at 14-15. 

Adding to the complexity of the matter, the Federal Circuit revealed two corollaries to the machine-or-transformation test.  First, including a limitation on a field-of-use will not necessarily salvage an unpatentable claim if that claim covers all uses of a fundamental principle in one field.  The Court referred to the U.S. Supreme Court?s decision in Gottschalk v. Benson as an example.  The applicant in Benson claimed the process of converting data in a binary-coded decimal format to pure binary format via an algorithm programmed onto a digital computer.  409 U.S. 63, 65 (1972).  The claim was not patentable subject matter because ?the mathematical formula involved here has no substantial practical application except in connection with a digital computer,? thus, if patented, the claim ?would wholly pre-empt the mathematical formula and in practical effect would be a patent on the algorithm itself.?  Id. at 71-72. 

The second corollary states that an applicant cannot circumvent the machine-or-transformation test by drafting the claim to include ?insignificant post-solution activity? that seeks to demonstrate practical applications for the claimed invention.  Op. at 16-17.  For instance, the majority noted that a claim stating the Pythagorean theorem can be applied to surveying techniques constitutes an example of a claim including ?insignificant post-solution activity.?  Op. 16. 

Practical Implications

                The two prongs of the machine-or-transformation test helps define what is a patentable process, but its exact application still gives rise to a number of questions.  The requirement that any machine or transformation described in a process claim must impose ?meaningful limits? is imbued with ambiguity.  Similarly, the question of whether a claim includes an ?insignificant post-solution activity? fails to provide the necessary clarity to patent drafters and businesses.  The complicated layers of analysis imposed by the machine-or-transformation test suggest that this test is fundamentally flawed.  Requiring a process to be sufficiently tied to a machine or transformed in a meaningful manner will be both over-inclusive and under-inclusive in terms of what subject matter can receive patent protection.  The Court?s musing about whether future technological innovations will require an alteration or wholesale change of the machine-or-transformation test only further invites challenges concerning whether a new technology warrants a new patent-eligibility test for processes.

                While observers wondered if the Bilski Court would categorically exclude business methods or software from patent protection, the Court eschewed the categorical approach in favor of the machine-or-transformation test.  Nonetheless, the test does raise questions about whether certain subject matter will have a more difficult time meeting the threshold test under §101.  For instance, software algorithms stand a greater risk of being deemed unpatentable subject matter because manipulating electromagnetic pulses as data may not qualify as a transformation (see In re Nujitsen, 500 F.3d 1346 (Fed. Cir. 2007)), and simply tying an algorithm to a computer may not constitute a ?meaningful limit? to the claim.  Judge Rader, in his dissent, specifically expressed this concern: ?Today?s software transforms our lives without physical anchors.  This court?s test not only risks hobbling these advances, but precluding patent protection for tomorrow?s technologies.?  Rader Dissent at 9-10.  Judge Newman also feared, in her dissent, that information systems technologies, often implemented via computer-implemented algorithms, will also lose patent protection under this new test.  Newman Dissent at 30.

                Business method patents, which Judge Mayer advocated abolishing in his dissent, will also face new hurdles.  But whether the machine-or-transformation test truly curtails the number of business method patents remains debatable.  Most business methods are implemented on a computer or automated machinery.  Certainly, patent drafters will include machine or computer components in all future business method patents.[2]  One could also argue that many business methods actually transform a good or idea from one form to another.  While litigants in the future may raise §101 challenges to business method patents, the usage of re-exam proceedings will certainly continue to grow with this opinion.  Parties can efficiently challenge many existing business method patents as being an unpatentable process under the machine-or-transformation test by pursuing a re-examination through the PTO.  In fact, a re-exam challenge based on §101 will likely be more economical than current re-exam challenges based on §102 anticipation or §103 obviousness arguments, which often require expensive prior art searches.

                In the end, this opinion presents new hurdles and obstacles to patent drafting.  Any process claim, especially a business method, must either (1) be tied to a machine, apparatus, or some structure, or (2) describe a transformation that is central to the claimed process.  Yet, at the same time, a single process claim cannot encompass every permutation of performing that process in a given field because the Patent Office will reject such a claim as improperly claiming a fundamental principle.  This rules creates a tension between a patentee?s normal desire to draft broad claims with the Bilski Court?s warning that overly broad claims in a given field constitutes unpatentable subject matter.  This tension may lead applicants to increase the number of claims filed in order to cover various permutations of a claimed process in a single patent.  Applicants may also file more means-plus-function claims, especially in the software industry, to protect their inventions.  But drafting more means-plus-function claims presents an imperfect solution as litigants may begin to argue the failure to properly disclose a structure or computer-implemented algorithm as the corresponding structure for a claimed function constitutes both a violation of §112 definiteness requirement and §101 patentability threshold.

                Although the Bilski opinion takes a major step in trying to constrain the number of business method patents, it appears that parties will have to litigate over the various ambiguities found within the multiple layers of the machine-or-transformation test.

Today's Blogger:  James W. Morando and Eugene Y. Mar