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Supreme Court Upholds Patentability of Software and Business Methods

June 28, 2010

In Bilski v. Kappos, an inventor had filed a patent application for a process of buying a commodity at a low price under a periodic contract and selling it at a higher price. Setting aside the question of whether the claimed invention was even remotely new, the Patent Office rejected it because it was not “patent eligible subject matter.” According to the patent office the applicant claimed an invention so broadly that it was an abstract idea of hedging rather than a particular invention for carrying out the idea. Notably, it was a pure process that made no mention of a computer or any other physical objects that would be used to perform the process.

The patent statutes expressly provide that methods, or processes, are patentable. 35 U.S.C. § 101 provides: “Inventions patentable. 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.”

The statute further defines four categories of patent-eligible subject matter: processes, machines, manufactures, and compositions of matter. With regard to computer software, patents are typically written as “process” or “methods” for performing a series of steps that correspond to a computer algorithm. Thus, the issue of patent-eligible subject matter generally involves what the term “process” in § 101 means, and how to determine whether a given claim is a “new and useful process.”

The term “process” could be construed quite broadly. In 1952, at the time Congress amended § 101 to include “process,” the ordinary meaning of the term was: “[a] procedure . . . [a] series of actions, motions, or operations definitely conducing to an end, whether voluntary or involuntary.” WEBSTER’S NEW INTERNATIONAL DICTIONARY OF THE ENGLISH LANGUAGE 1972 (2d ed. 1952). Likely all process claims in issued patents or pending applications would meet this definition of “process.”  But the Supreme Court has held that the meaning of “process” as used in § 101 is narrower than its ordinary meaning. See Flook, 437 U.S. at 588-89 (“The holding [in Benson] forecloses a purely literal reading of § 101.”). Specifically, the Court has held that a claim is not a patent-eligible “process” if it claims “laws of nature, natural phenomena, [or] abstract ideas.” Diamond v. Diehr, 450 U.S. 175, 185, 101 S. Ct. 1048, 67 L. Ed. 2d 155 (1981) (citing Flook, 437 U.S. at 589, and Gottschalk v. Benson, 409 U.S. 63, 67, 93 S. Ct. 253, 34 L. Ed. 2d 273 (1972)). Such fundamental principles are “part of the storehouse of knowledge of all men . . . free to all men and reserved exclusively to none.” Funk Bros. Seed Co. v. Kalo Inoculant Co., 333 U.S. 127, 130, 68 S. Ct. 440, 92 L. Ed. 588, 1948 Dec. Comm’r Pat. 671 (1948); see also Le Roy v. Tatham, 55 U.S. (14 How.) 156, 175, 14 L. Ed. 367 (1852) (“A principle, in the abstract, is a fundamental truth; an original cause; a motive; these cannot be patented, as no one can claim in either of them an exclusive right.”). “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.” Benson, 409 U.S. at 67; see also Comiskey, 499 F.3d at 1378-79 (holding that “mental processes,” “processes of human thinking,” and “systems that depend for their operation on human intelligence alone” are not patent-eligible subject matter under Benson).

It has been difficult to reconcile the line of authority articulating when processes are patentable and when they are not. Regardless of whether cases are consistent on their facts, the Supreme Court has enunciated a test to determine 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 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. See Benson, 409 U.S. at 70 (“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.”); Diehr, 450 U.S. at 192 (holding that use of mathematical formula in process “transforming or reducing an article to a different state or thing” constitutes patent-eligible subject matter); see also Flook, 437 U.S. at 589 n.9 (“An argument can be made [that the Supreme] Court has only recognized a process as within the statutory definition when it either was tied to a particular apparatus or operated to change materials to a ‘different state or thing’”); Cochrane v. Deener, 94 U.S. 780, 788, 24 L. Ed. 139, 1877 Dec. Comm’r Pat. 242 (1876) (“A process is . . . an act, or a series of acts, performed upon the subject-matter to be transformed and reduced to a different state or thing.”). 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 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. In general, this enunciation is referred to as the “machine or transformation test.”

Though articulated by the Supreme Court, it was not necessarily advanced as being exclusive. In Benson, 409 U.S. at 71, the Court held: “It is argued that a process patent must either be tied to a particular machine or apparatus or must operate to change articles or materials to a ‘different state or thing.’ We do not hold that no process patent could ever qualify if it did not meet the requirements of our prior precedents.”  One alternate test was whether the claimed process produced a useful, concrete, and tangible result.

In its review of the Bilski rejection, the Court of Appeals for the Federal Circuit (one level below the Supreme Court) revisited the “useful, concrete, and tangible result” language associated with State Street, 149 F.3d at 1373 (“Today, we hold that the transformation of data, representing discrete dollar amounts, by a machine through a series of mathematical calculations into a final share price, constitutes a [patent-eligible invention] because it produces ‘a useful, concrete and tangible result’ . . . .”); see also Alappat, 33 F.3d at 1544 (“This is not a disembodied mathematical concept which may be characterized as an ‘abstract idea,’ but rather a specific machine to produce a useful, concrete, and tangible result.”); AT&T, 172 F.3d at 1357 (“Because the claimed process applies the Boolean principle to produce a useful, concrete, tangible result without pre-empting other uses of the mathematical principle, on its face the claimed process comfortably falls within the scope of § 101.”). The basis for this language in State Street and Alappat was that the Supreme Court has explained that “certain types of mathematical subject matter, standing alone, represent nothing more than abstract ideas until reduced to some type of practical application.” Alappat, 33 F.3d at 1543; see also State St., 149 F.3d at 1373. To be sure, a process tied to a particular machine, or transforming or reducing a particular article into a different state or thing, will generally produce a “concrete” and “tangible” result as those terms were used in our prior decisions. But while looking for “a useful, concrete and tangible result” may in many instances provide useful indications of whether a claim is drawn to a fundamental principle or a practical application of such a principle, Bilski held that inquiry to be insufficient to determine whether a claim is patent-eligible under § 101. And it was certainly never intended to supplant the Supreme Court’s test. Therefore, the court also concluded that the “useful, concrete and tangible result” inquiry is inadequate and reaffirmed that the machine-or-transformation test outlined by the Supreme Court is the proper test to apply.

Some amici to Bilski urged a “technological arts” test, but that test was rejected as being too vague, at least in part because the contours of what would be deemed technology is ever-changing. Similarly, the CAFC rejected specific exclusions such as business method exclusions, reasoning that every application should be evaluated the same way. Accordingly, business methods and software would remain patentable so long as it meets the machine or transformation test. Further, the articulation of physical steps in the process is not determinative. Rather, the issue remains whether there is a machine or transformation required by the claimed invention.

In its review of the case, the Supreme Court disagreed with the Federal Circuit Court of Appeals regarding the “machine or transformation” test. Instead, the Court concluded that it was sufficient to state that abstract ideas and mathematical formulas per se are not patentable, but particular applications of such concepts would be patentable even if not tied to a machine or transformation. The decision leaves open the possibility that the courts will further refine the tests for patentability of processes, including software and business methods. At the same time, it should be viewed as an endorsement of the general proposition that software and business methods remain patentable, and that the Supreme Court is unlikely to issue any decisions changing that status any time soon.

filed in: Intellectual Property

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Lawrence D. Graham

Lawrence D. Graham

Our attorneys regularly produce substantive memoranda and news, addressing legal advancements in Trademarks, Intellectual Property, Patents and Litigation.

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