This past summer, the U.S. Supreme Court issued its decision in
Bilski v. Kappos, an appeal that posed the large questions of whether methods of doing business were patentable and what prevailing test should be employed when evaluating the patentability of process patents.
Despite the numerous amicus briefs and the fervent lead-up to oral argument,
Bilski was more subdued than monumental. In its wake, the decision clarified certain aspects of patent litigation. However, it also created uncertainties for inventors who seek to patent software methodologies and financial processes; generated strategic concerns for certain patent licensors and licensees; and ultimately left the task of fashioning patentability standards to the U.S. Patent and Trademark Office and the U.S. Court of Appeals for the Federal Circuit.
This article discusses
Bilski generally, the USPTO's response, the interpretation of the decision by subsequent courts, and some considerations about the effect of the future, post-
Bilski landscape.
In
Bilski v. Kappos, 130 S.Ct. 3218 (2010), the Supreme Court ruled that the Federal Circuit's machine-or-transformation test is not the sole test for patent eligibility under §101 of the Patent Act because any ordinary, contemporary meaning of "process" under the act would not necessarily require it to be "tied to a particular machine" or "transform an article."
The Court affirmed the circuit's holding of unpatentability and found the patentee's claims, which sought to patent both the concept of hedging risk and the application of that concept to energy markets, were attempts to patent abstract ideas, not patentable processes.
Most notably, the Court rejected the Federal Circuit's holding
[FOOTNOTE 1] that the "machine-or-transformation test" is the exclusive test for determining patentability of a process under §101, instead holding that the test remains a "useful and important clue," but not the "sole test" for determining whether an invention is a patent-eligible process under §101.
Instead, the Court stated that the inquiry should be whether the claimed invention falls within the definition of statutory subject matter and is not merely a law of nature, physical phenomena, or an abstract idea.
Yet, the Court did not offer an example of an invention that would not be tied to a machine or transform an article and still pass the subject matter test, limiting its holding to the fact that the patent-at-issue disclosed an abstract idea and was invalid.
The Court also refused to interpret the Patent Act to categorically exclude business methods: The act "leaves open the possibility that there are at least some processes that can be fairly described as business methods that are within patentable subject matter under §101."
[FOOTNOTE 2]
The Court noted that even if a particular business method fit into the statutory definition of a process, such a claim must still clear the statutory requirements for patentability, namely that any claimed invention be novel, nonobvious, and fully and particularly described.
In closing, the Court reiterated its cautious approach to avoid imposing limitations on the Patent Act that are inconsistent with the text: "The patent application here can be rejected under our precedents on the unpatentability of abstract ideas. The Court, therefore, need not define further what constitutes a patentable 'process,' beyond pointing to the definition of that term provided in -- the Patent Act and looking to the guideposts in [prior Supreme Court decisions]."
USPTO RESPONSE
To aid patent examiners in determining subject matter eligibility under 35 U.S.C. §101 in light of
Bilski, the USPTO issued its "
Interim Guidance for Determining Subject Matter Eligibility for Process Claims in View of Bilski v. Kappos," 75 Fed. Reg. 43922 (July 27, 2010). The interim guidance represents the USPTO's current understanding of the law and may be looked to by courts, but it does not constitute substantive rule making and does not have the force of law.
Generally speaking, it states that the machine-or-transformation test will remain a useful starting point for determining whether a claimed method is a patent-eligible process under §101.
The interim guidance also provides additional factors to aid in the determination of whether a claimed method that fails the machine-or-transformation test can nonetheless be patent-eligible, and whether a claimed method that meets the machine-or-transformation test can nonetheless be declared patent-ineligible.
Interestingly, the guidance also notes that the presence of a general concept can be a clue that a patent claim is drawn to an abstract idea, particularly in the face of the following factors: (1) the extent to which use of the concept would pre-empt its use in other fields; (2) the extent to which the claim is so abstract and sweeping as to cover both known and unknown uses of the concept; (3) the extent to which the claim is a statement of the problem versus a description of a particular solution to the problem; (4) whether the concept is disembodied or whether it is implemented in some tangible way; (5) whether the performance of the process is observable and verifiable rather than subjective or imperceptible.
According to the guidance, claims directed to abstract ideas were not patentable prior to
Bilski, so subject matter eligibility outcomes are not likely to change in most cases, though in some rare cases, "factors beyond those relevant to machine-or-transformation may weigh for or against a finding that a claim is directed to an abstract idea."
[FOOTNOTE 3]
It is anticipated that the factors will be modified in the face of new precedential case law and that new factors may be developed in the future, particularly for emerging technologies.
THE LOWER COURTS
The wisdom in
Bilski was couched more in the negative than the positive -- the machine-or-transformation test is not the sole test for patentability of process patents, the patent-at-issue was not patentable because it was directed to an abstract idea.
The issue of what software and technological processes are patentable will now be fleshed out by the lower courts and the Federal Circuit. For example, in
Ultramercial, LLC v. Hulu, LLC, 2010 WL 3360098 (C.D. Cal. Aug. 13, 2010), the patent-at-issue disclosed a method for allowing internet users to view copyrighted material free of charge in exchange for watching certain advertisements. The court granted the defendant's motion to dismiss based upon invalidity, finding that the plaintiff's patent did not disclose patentable subject matter, failing both the machine-or-transformation test and the prohibition against patenting abstract ideas.
The court rejected the patentee's argument that the patent was tied to a machine because of its application to the internet and certain programmed computers. It stressed that the machine must limit the invention in a meaningful way, and that in this case, the concept of advertisement-media exchange does not become patentable simply because the patentee allegedly limited its application to the internet.
Lastly, the court ruled that, much like the patent in
Bilski, the plaintiff's patent reciting a method allowing an internet user to sit through a sponsored message in lieu of paying to see media, was an abstract idea, a concept that "public television channels have used -- for years to provide free (or offset the cost of) media to their viewers."
In another post-
Bilski decision, a district court declined to use the machine-or-transformation test because not only was it no longer the exclusive test of patentability, it was also not necessarily an appropriate way to assess the patentability of product claims.
In
Chamberlain Group Inc. v. Lear Corp., 2010 WL 4884448 (N.D. Ill. Nov. 24, 2010), the plaintiff asserted infringement claims against the defendant over patents covering garage door opening systems. The defendant proffered, among other defenses, that the asserted claims are directed to unpatentable subject matter.
The court stated that the principal question was whether the claimed subject matter fell within at least one category of statutory subject matter. The court held that the plaintiff's claims constituted patentable subject matter because the mathematical algorithms underlying the asserted claims were directed at a physical product (i.e., garage opener transmitter and receiver) that was used for a specific purpose.
Echoing the USPTO's interim guidance, the court also noted that the patentee did not purport, in any way, to preclude the use of the mathematical algorithms that operated within the garage door opener system for other purposes or other fields of use.
ANOTHER FEDERAL CIRCUIT CASE
Most recently, last month in
Research Corporation Technologies v. Microsoft Corp., 2010 WL 4971008, the Federal Circuit reversed a lower court ruling of invalidity of the plaintiff's patents, which concerned a process for rendering a "halftone image" in digital computer displays and printer images.
Taking a wide look at
Bilski, the court stated that the Supreme Court emphasized that the §101 patent-eligibility inquiry is only a threshold test, a "coarse eligibility filter," and should not become a substitute for a patentability analysis based upon an analysis of prior art or other substantive statutory requirements.
In quoting Justice John P. Stevens's concurrence in
Bilski, the court stated: "In other words, Section 101 does not permit a court to reject subject matter categorically because it finds that a claim is not worthy of a patent."
As in
Bilski, the Federal Circuit focused its inquiry on whether the plaintiff's patent was an unpatentable abstract idea. Echoing the Supreme Court's reluctance to provide a rigid formula or definition for abstractness, the court also refused to define abstract beyond recognizing that any disqualifying characteristic should "exhibit itself so manifestly" as to override the broad statutory categories of eligible subject matter.
The court held that the plaintiff's software patents were not abstract because they presented functional and palpable applications in the field of computer technology. The court recognized that while the patents incorporated algorithms and formulas that controlled the digital displays, they did not make the invention so abstract as to be unpatentable because patents do not lose eligibility if several steps of a process use a mathematical equation.
Importantly, the court noted that the patentees did not seek to patent a mathematical formula for any and all future uses, but rather only for a process of half-toning in computer applications.
LOOKING AHEAD
While the U.S. Supreme Court did not explicitly ban business method patents, going forward, it is likely that software-related and financial service patents will be more scrutinized, with increased focus on whether such patents are unpatentable abstract ideas.
Accused patent infringers may recalculate their strategies concerning whether to litigate and seek a re-examination or invalidation of the plaintiff's patent or settle on a reasonable royalty.
Similarly, in the patent licensing arena, licensors of many method patents were certainly relieved by the Court's limited ruling, yet some patent licensees may seek to renegotiate licensing fees or offensively move to invalidate a licensor's patents.
On the judicial side, following
Bilski, courts and patent examiners are left to develop workable standards for determining patent eligibility beyond the machine-or-transformation test. In the end, modern inventions may call for new inquiries and the challenge will be in applying the machine-or-transformation test or other similar tests to software processes and emerging technologies.
As Justice Anthony Kennedy stated, courts face a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others could discover by independent, creative application of general principles.
The Supreme Court may take up other important patent cases in the near future. Indeed, it has accepted the appeal of the Federal Circuit's decision in
Microsoft Corp. v. I4I Ltd., 598 F.3d 831 (Fed. Cir. 2010). The appeal concerns the legal standard litigants must meet to successfully challenge a patent, namely whether the appeals court erred in holding that Microsoft's invalidity defense must be proved by clear and convincing evidence.
Commentators are also watching the Federal Circuit's consideration of
Fort Properties, Inc. v. American Master Lease, LLC, 609 F. Supp. 2d 1052, stay lifted by No. 2009-1242 (Fed. Cir. Dec. 1, 2010). In that appeal, the circuit will review the lower court's pre-
Bilski ruling that the defendant's patent, which discusses a business method for creating an investment instrument out of real property, did not satisfy the "transformation" prong of the machine-or-transformation test.
Richard Raysman is a partner at Holland & Knight and Peter Brown is a partner at Baker & Hostetler. They are co-authors of "Computer Law: Drafting and Negotiating Forms and Agreements" (Law Journal Press).
::::FOOTNOTES::::
FN1 In Re Bilski, 545 F.3d. 943 (Fed. Cir. 2008). Regarding the Federal Circuit's
State Street [State Street Bank & Trust Co. v. Signature Financial Group Inc., 149 F. 3d 1368, 1373 (1998)] test, which the Federal Circuit repudiated in its
Bilski opinion, the Supreme Court's majority opinion in
Bilski neither explicitly endorsed nor rejected it, writing that "nothing in today's opinion should be read as endorsing interpretations of §101 that the Court of Appeals for the Federal Circuit has used in the past. See, e.g.,
State Street, 149 F. 3d, at 1373 -- "
Bilski, 130 S.Ct. at 3231. However, the two concurring opinions (which were signed on by five justices) explicitly rejected the
State Street "useful, concrete and tangible result test." For example, Stevens wrote that it "would be a grave mistake to assume that anything with a 'useful, concrete and tangible result,' may be patented." Id. at 3232, n. 1.
FN2 It should be noted that Stevens, whose concurring opinion was joined by three other justices, would have found methods of doing business to be unpatentable: "In the absence of any clear guidance from Congress, we have only limited textual, historical, and functional clues on which to rely. Those clues all point toward the same conclusion: that petitioners' claim is not a "process" within the meaning of §101 because methods of doing business are not, in themselves, covered by the statute. In my view, acknowledging as much would be a far more sensible and restrained way to resolve this case."
FN3 The Board of Patent Appeals and Interferences, which reviews adverse decisions of USPTO patent examiners, issued several post-
Bilski decisions. While commentators might argue over whether the board has taken a hard line interpretation of the proscription against patenting abstract ideas or rightly rejected certain applications based upon vague, inexact claim language, it is clear that the board's approach is clearly being informed by the Supreme Court. See Ex Parte Proudler, No. 2009-006599 (B.P.A.I. July 7, 2010) (Board found the software inventor's application that contained general recitations to computers and other abstract functionalities was insufficient to bring the claims within the ambit of statutory subject matter); Ex Parte Birger, No. 2009-006556 (B.P.A.I. July 12, 2010) (Board rejected a software, digital communications-related invention because, among other things, the claimed invention was abstract and not directed to statutory subject matter).
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