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Bilski Decision Keeps Innovation Engines Humming

July 7, 2010

Innovators should keep engines humming uninhibited based on the recent Bilski ruling by the Supreme Court of the United States.1 This decision is good news for many industries and technologies and for the U.S. and global economies. Although the Bilski Court found that business method claims broadly directed to a method of hedging risk in the energy industry were not patent-eligible subject matter as being an improper attempt to patent an "abstract idea," the Court also carefully stated that some types of business methods may be patent eligible as long as the claimed business method does not take an improper approach. When affirming the Federal Circuit's conclusion that Bilski's business method claims are not patent-eligible subject matter, the Supreme Court stated that the machine-or-transformation test suggested by the Federal Circuit for business method claims is not the sole test for evaluating patent eligibility, and therefore, the Federal Circuit improperly interpreted the Supreme Court's precedent to this extent. Instead, the Court suggested that lower courts should more closely follow the Supreme Court's precedent as guideposts to future patent-eligibility of business method claims. With reference to its guideposts, the Court strikes the right balance between incentive to innovate, limited protection, and enhanced business competition. This approach should keep innovation engines humming for some time.

History of Bilski et al. v. Kappos

Bilski's patent application sought patent protection for a claimed invention that explains how buyers and sellers of commodities in the energy market can protect, or hedge, against the risk of price changes. The key claims in Bilski's application described a series of steps instructing how to hedge risk in the energy industry. The patent examiner rejected Bilski's claims explaining that the claimed 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, therefore, the invention is not directed to the technological arts."2 The Board of Patent Appeals and Interferences affirmed, finding that the application involved only mental steps that do not transform physical matter and was directed to an abstract idea.3 The Federal Circuit heard the case en banc and affirmed the lower court's decision rejecting Bilski's claims, holding that "[a] claimed process is surely 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."4 Concluding that the "machine-or-transformation test" was "the sole test governing §101 analyses," and thus the “test for determining patent eligibility of a process under §101,"5 the Federal Circuit applied the test and held that petitioners’ claims were not patent-eligible.6 When appealed by Bilski, the Supreme Court granted certiorari, and oral arguments occurred in November 2009.7

Supreme Court Affirms Abstract Ideas, Laws of Nature, and Physical Phenomena Analysis

The Supreme Court stated that business method claims broadly directed to a method of hedging risk are not patent-eligible subject matter and effectively relied on its precedent and statutory interpretation to categorize Bilski's particular business method claims as an improper attempt to patent an "abstract idea." According to the Court, however, some types of business methods may be patent eligible as long as the claimed method is not an attempt to claim an abstract idea (or a law of nature or a physical phenomenon). The Court suggested that, in the future, lower courts should more closely follow the Supreme Court's precedent as guideposts to the future patent-eligibility of business method type claims.

Impact of Decision Enhances Patent Eligibility for Future Technological Advances

While leaving the door open for patent-eligibility of some types of business method claims, the Supreme Court reconciled its statutory language, its precedent, and its interpretation of Congress' broad statutory language to allow for future technology changes in many different fields of endeavor and over time. The Court, for example, seemed careful to leave intact the patent-eligibility of method claims to software, advanced diagnostic medicine techniques, linear programming, data compression, manipulation of digital signals, and other technological advances that may have business aspects to them. This approach in the Court's decision allows various business developments in various technological fields of endeavor to continue unbridled and unimpeded by the Bilski decision. This openness of the Court to future technological advances is good news for many types of industries where innovation is important to continued progress and where patent protection enhances business investment.

Guidance for Future Patent-Eligibility Analysis

Where do lower courts and those who want patent protection on some types of business methods or other innovative technology go from here? Well, the Bilski decision makes clear that the old "useful, concrete, and tangible results" test used in State Street Bank to analyze a process or method claim is not acceptable to the Court to determine patent eligibility in future cases. Although the Court limited the role of the "machine or transformation" test proposed by the Federal Circuit, the Court was careful to indicate this type of analysis can provide an important "clue" or "investigative tool" as to the eligibility of claims in a patent application or an issued patent. In other words, when determining whether claims are directed to an abstract idea (or laws of nature or physical phenomena as the case may be), it can be surmised that the machine-or-transformation analysis may have a role in future determinations of patent eligible subject matter, but there should be more to such determinations. In addition to the machine-or-transformation analysis, further analysis likely will be directed to whether a claim arises to the level of being an attempt to claim a principle in the abstract, i.e., an abstract idea (a law of nature or a physical phenomenon) or a patentable application of a principle. The line between a process that is patent eligible and one that is not patent eligible will not always "shimmer with clarity."8

Using guideposts from Supreme Court precedent, the following illustration is an example of what this precedent indicates:

A Continuum of Process Claims

As indicated in the chart, the application of a principle to a known process or a machine may or may not result in patent eligible subject matter—it seems to be a matter of degree. Where a principle is claimed abstractly and has no practical application or involves mental steps of human thinking, it does not appear to be patent eligible. If, on the other hand, a process claim has a practical application and does not involve mental steps of human thinking, then the claim has met an initial threshold and should be further investigated using some type of machine-or-transformation analysis. If the claim should be found to satisfy this machine-or-transformation analysis, then it likely will be found to be patent-eligibile subject matter at that stage.

Notably, immediately after the Bilski decision, the Patent Office indicated that it will continue to use its previous guidelines for determining patent eligibility of business method claims, which include using a type of machine-or-transformation analysis, while the impact of the Bilski decision is further analyzed.9 If a process claim does not pass the machine-or-transformation analysis, however, the work in determining whether the claim is patent eligible still is not done. At that stage, courts likely will look to Supreme Court precedent in attempts to postulate on what may or may not be patent eligible subject matter for process claims that do not pass the machine-or-transformation analysis (i.e., those claims that still arguably in some manner are directed to laws of nature, physical phenomena, or abstract ideas)—this part will not be easy.

In the past, and including the Bilski decision, the Supreme Court has relied on Gottschalk v. Benson to determine whether a process claim includes—"a principle, in abstract, [which] is a fundamental truth; an original cause, a motive."10 If a process claim includes such a principle, then now both Bilski and Flook indicate that limiting such a principle, e.g., a formula, to a particular industry or technological environment also is not going to be enough to make such a claim patent eligible. The Supreme Court in Bilski also relied on Flook for the position that if a process claim also includes post-solution activity, no matter how conventional or obvious in itself, such post-solution activity will not transform an unpatentable principle into a patentable process, especially where the application considered as a whole contains no patentable invention. The Court in Diamond v. Diehr, as the Court re-affirmed in Bilski, stated that an application of a law of nature or mathematical formula to a known structure or process may well be deserving of patent protection, and the claimed invention may need to be considered as a whole.11

Importantly, the Bilski Court noted that with even more people trying to innovate, and thus seeking patent protections for their inventions, the patent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles. As these diagrams indicate, the Court, however, did not state where this balance should be struck. They did, however, state that if a high enough bar is not set when considering patent applications of this sort, i.e., those having process claims directed to abstract ideas, then patent examiners and courts could be flooded with claims that would put a chill on creative endeavor and dynamic change.

Conclusion

In terms of "take-aways" based on the Bilski decision, applicants for future process claims should avoid claims that are pure abstractions (as in Bilski and Benson). Additionally, keep in mind that insignificant limitations will not make a principle in the abstract (e.g., an abstract idea) suddenly patent eligible (as in Bilski, Benson, and Flook)—for example, by relying on general-use computers; general field, technology, or industry limitations; using known techniques as inputs; and including token post-solution activity. Remember, when analyzing a process claim that the machine-or-transformation analysis is a useful and important clue, an investigative tool, but not the "sole" test. Claims including principles, such as formulae or algorithms may be patent eligible, however, where other elements of the claim establish a significant application of such principles to what is, when reading a claim as a whole, a new and useful process. Diehr, 450 U.S. at 187-88, 191-93.

The following is a diagram that illustrates these important "take-aways" from the Bilski decision:

(A) a principle in the abstract; (B) a principle in the abstract plus insignificant limitations;
(C) process tied to a particular machine or apparatus, or a process transforming a particular article into a different state or thing; and (D) a significant application of the principle to what is, when reading the claim as a whole, a new and useful process.

Despite categorizing Bilski's particular claims as being directed to an abstract idea, the Supreme Court's decision supports the patent-eligibility of various types of new technological advances and yet continues to provide for a zone (i.e., abstract ideas, laws of nature, natural phenomena) of no patent protection for investigative research and other developmental activities. This balancing approach in the Bilski decision allows the United States to maintain a competitive edge in innovation and in an ever changing global economy and suggests plenty of freedom and protection for future innovation. This is good for business and for both the U.S. and global economies and should not have an adverse impact on investment in future technology.

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1 Bilski et al. v. Kappos, 561 U.S. ____ (2010), opinion issued June 28, 2010.

2 Bilski v. Kappos, 545 F.3d 943, 950 (Fed. Cir. 2008), 95 U.S.P.Q.2d 1001 (U.S. Jan. 28, 2009) (No. 08-964) (citing Ex Parte Bilski, No. 2002-2257, 2006 WL 5738364, 3 (B.P.A.I. Sept. 26, 2006)).

3 Id., (citing Ex Parte Bilski at 8).

4 See In re Bilski, 545 F.3d 943, 954, 959–960, and n.19 (Fed. Cir. 2008) (en banc). The Court rejected its prior test for determining whether a claimed invention was a patentable "process" under §101—whether it produces a "useful, concrete, and tangible result"—as articulated in State Street Bank & Trust Co. v. Signature Fin. Group, Inc., 149 F.3d 1368, 1373 (1998), and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352, 1357 (1999).

5 Id., at 955-956.

6 Id., at 963–966.

7 Bilski v. Kappos, 545 F.3d 943, 950 (Fed. Cir. 2008), petition for cert. granted, 129 S. Ct. 2735 (June 1, 2009) (No. 08-964).

8 Parker v. Flook, 437 U.S. 584, 589 (1978).

9 See, Memorandum from Acting Associate Commissioner For Patent Examination Policy Robert W. Bahr to Patent Examining Corps re: Supreme Court Decision in Bilski v. Kappos (June 28, 2010); see also Memorandum from Acting Deputy Commissioner for Patent Examination Policy Andrew H. Hirshfeld to TC Directors re: New Interim Patent Subject Matter Eligibility Examination Instructions (August 24, 2009); and Subject Matter Eligibility of Computer Readable Media, 1351 O.G. 212 (Feb. 23, 2010).

10 Gottschalk v. Benson 409 U.S. 63 (1972).

11 450 U.S. 175, 187-88 (1981).