Written by Andrea M. Augustine (Partner at Foley & Lardner LLP and faculty member for the upcoming PLI Patent Litigation program) and Kevin J. Malaney (Associate at Foley & Lardner LLP)

On June 28, 2010, the U.S. Supreme Court issued its much anticipated opinion in Bilski v. Kappos.  In Bilski, the Court affirmed the judgment of the Court of Appeals for the Federal Circuit, In re Bilski, 545 F.3d 943 (Fed. Cir. 2008) (en banc), that the claims in question did not qualify for patent protection.  In doing so, the Court unanimously rejected the Federal Circuit’s determination that the “machine-or-transformation” test was the exclusive test for “process” patent eligibility.  But instead of establishing what test should be applied in future cases, the Court left this question open and simply relied on previous Supreme Court case law and the Patent Act to hold Applicants’ claims ineligible for patent protection.  Despite the uncertainty regarding the appropriate test, Bilski does provides some guidance as to what “process” claims are eligible for patent protection.  Because of the open questions that remain, future cases will be closely watched and studied for clarification and application of the Court’s holdings.  In the meantime, observers, advocates, and pundits will review the fine details and history of In re Bilski in search of guidance on the future of business method patents and patent applications.

Road to the Supreme Court

U.S. Patent and Trademark Office Proceedings

In 1997, Bernard Bilski and Rand Warsaw (collectively, the “Applicants”) filed a patent application with the U.S. Patent & Trademark Office (“USPTO”) claiming methods directed to hedging risk in energy markets.  As an example, Claim 1 of the filed application claims the following:

A method for managing the consumption of risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of:

(a) initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said consumers;

(b) identifying market participants for said commodity having a counter-risk position to said consumers; and

 (c) initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions.

Ex parte Bilski, No. 2002-2257, 2006 Pat. App. LEXIS 51 at *1-2 (B.P.A.I. Sept. 26, 2006) (“BPAI Decision”).  This type of claim is commonly referred to as a “business method claim.”

After five years of prosecution, the Patent Examiner finally rejected all of Applicants’ claims stating that the invention as claimed “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.”  Id. at *3-4.  As such, the Examiner found that Applicants’ invention was not patent-eligible subject matter pursuant to the requirements of 35 U.S.C. § 101.  The Applicants subsequently appealed this final rejection to the Board of Patent Appeals and Interferences (“BPAI”).

Applicants’ Appeal to the BPAI

On appeal, the BPAI affirmed the Examiner’s final rejections of Applicants’ claims on September 26, 2006.  In doing so, the BPAI identified three different grounds of rejection, each directed to alternate reasoning as to why Applicants’ claims were not patentable subject matter under 35 U.S.C. § 101:

(1)        Applicants’ claims were not patentable subject matter because the methods merely “transformed the non-physical financial risks and legal liabilities.”  Accordingly, the claims did not define a statutory “process” under 35 U.S.C. § 101 using the “transformation” test.  BPAI Decision at *52-53. 

(2)        Applicants’ claims were not patentable subject matter because the claimed steps “preempted” “any and every possible way of performing the steps” of the method.  Id. at *57-60.  As such, the BPAI held that the claim was so broad as to be directed to an “‘abstract idea’ itself, rather than a practical implementation of the concept.”  Id.  Consequently, the claims were ineligible for patent protection pursuant to 35 U.S.C. § 101.  This “abstract idea” test is based on the Supreme Court’s opinion in Diamond v. Diehr, 450 U.S. 175 (1981).

(3)        Finally, Applicants’ claims were not patentable subject matter because the invented algorithm did not recite a “practical application” nor produce a “useful, concrete, and tangible result.”  A previous Federal Circuit case – State Street Bank & Trust Co. v. Signature Financial Group, Inc. – proffered the “useful, concrete, and tangible result” test as a test for determining patent eligibility pursuant to 35 U.S.C. § 101.  See State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1999).

Applicants’ Appeal to the Federal Circuit

After the BPAI’s affirmance, Applicants next appealed to the Federal Circuit.  The case was initially argued to a three judge panel of the Federal Circuit on October 1, 2007.  Thereafter, the judges of the Federal Circuit sua sponte decided that the case should instead be heard en banc.  As a result, the parties argued to the Federal Circuit sitting en banc on May 8, 2008.  Finally, on October 30, 2008, the en banc Federal Circuit issued a lengthy opinion comprised of a majority opinion (penned by Chief Judge Michel and joined by Judges Lourie, Schall, Bryson, Gajarsa, Linn, Dyk, Prost, and Moore), a concurring opinion (written by Judge Dyk and joined by Judge Moore), and three dissenting opinions (one each by Judges Newman, Mayer, and Rader).  See In re Bilski, 545 F.3d 943 (Fed. Cir. 2009) (hereinafter, “Bilski Fed. Cir.”).

The majority opinion began, not surprisingly, with the plain language of 35 U.S.C. § 101.  Section 101 states that:

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

35 U.S.C. § 101.

Applying this to Applicants’ invention, the Federal Circuit concluded that whether Applicants’ invention is patentable comes down to whether the invention qualifies as a “process” under 35 U.S.C. § 101.  Bilski Fed. Cir., 545 F.3d at 951.  With this in mind, the Federal Circuit reviewed Supreme Court precedent that previously spoke to the question of patentable “processes” pursuant to 35 U.S.C. § 101.  Id. at 951-955.  Considered cases included: Gottschalk v. Benson, 409 U.S. 63 (1972), Parker v. Flook, 437 U.S. 584 (1978), and Diamond v. Diehr, 450 U.S. 175 (1981).  In its review of this case law, the Federal Circuit identified the “machine-or-transformation” test^[1] as the unifying test that was consistent with the holdings of the considered Supreme Court precedent. 

With the “machine-or-transformation” test in hand, the Federal Circuit then reviewed its own precedent, including the seminal “business method” patent case, State St. Bank & Trust Co. v. Signature Fin. Group, 149 F.3d 1368 (Fed. Cir. 1998) (hereinafter, “State Street”).  In State Street, the Federal Circuit explicitly affirmed the validity of “business method” patents.  In doing so, the Federal Circuit created the “useful, concrete and tangible result” test.  See 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’ . . . .”).  Despite the Federal Circuit’s statements in State Street and subsequent cases applying the “useful, concrete and tangible result” test, in Bilski the Federal Circuit repudiated the test it created only twelve years earlier.  Bilski Fed. Cir., 545 F.3d at 959 (“Therefore, we also conclude that the ‘useful, concrete and tangible result’ inquiry is inadequate and reaffirm that the machine-or-transformation test outlined by the Supreme Court is the proper test to apply.”) 

In addition to rejecting the State Street test, the Federal Circuit also considered and rejected previous tests from the Court of Customs and Patent Appeals^[2] and an alternate test proposed by amici.  Id. at 959-960 (rejecting the “Freeman-Walter-Abele” test and the amici’s “technological arts test.”)  As a result, the lone test endorsed by the Federal Circuit in Bilski was the “machine-or-transformation” test.  Consequently, the Federal Circuit identified the “machine-or-transformation” test as the exclusive test to govern patentability of “processes” under 35 U.S.C. § 101.  Id. at 966. The Federal Circuit reached this conclusion despite recognizing Supreme Court precedent indicating that the “machine-or-transformation” test may not be the only acceptable § 101 test.  Bilski Fed. Cir., 545 F.3d at 956; Flook, 437 U.S. at 589, n.9 (“As in Benson, we assume that a valid process patent may issue even if it does not meet [the machine-or-transformation test.]”). 

Finally, after determining that the “machine-or-transformation” test was the patentable “process” test, it was applied to Applicants’ claims.  Consistent with the BPAI’s findings, Applicants’ “process” did not meet the “machine-or-transformation” test and therefore did not satisfy the statutory requirements of 35 U.S.C. § 101.

Applicants Successful Petition for Writ of Certiorari

Following the Federal Circuit’s affirmance of the BPAI’s rejections, the Applicants filed a petition for writ of certiorari to the U.S. Supreme Court.  On June 1, 2009, the Court granted Applicants’ cert petition and requested briefing on the following two questions:

(1)        Whether the Federal Circuit erred by holding that a “process” must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing (“machine-or-transformation” test), to be eligible for patenting under 35 U.S.C. §101, despite this Court’s precedent declining to limit the broad statutory grant of patent eligibility for “any” new and useful process beyond excluding patents for “laws of nature, physical phenomena, and abstract ideas.”

(2)        Whether the Federal Circuit’s “machine-or-transformation” test for patent eligibility, which effectively forecloses meaningful patent protection to many business methods, contradicts the clear Congressional intent that patents protect “method[s] of doing or conducting business.”  35 U.S.C. §273.

See Supreme Court Docket No. 08-964[3] (June 1, 2009).

The Supreme Court’s Decision on In re Bilski

The parties argued before the Supreme Court on November 9, 2009.  For its part, the Government advanced three arguments as to why the claimed process was not patentable.  Specifically, the Government argued that the claimed process (1) did not meet the “machine-or-transformation” test; (2) was a method of conducting business and was, therefore, not patentable; and (3) was an abstract idea ineligible for patent protection.

After more than seven months and much speculation, the Supreme Court on June 28, 2010 issued three opinions, a majority and two concurrences.  Bilski v. Kappos, 561 U.S. __ (2010).  The opinions were unanimous on one major point – that Applicants’ claims were not directed to patentable subject matter under 35 U.S.C. § 101.  The fact that Applicants’ claims were found not patentable was widely anticipated.  The case, however, generated substantial attention because of what the Supreme Court might decide generally regarding the patent eligibility of “process” claims.  These types of claims are especially important, for example, in the financial, software, and medical diagnostics industries.^[4] 

Justice Kennedy’s Majority Opinion

In the Court’s majority opinion, Justice Kennedy first addressed the Federal Circuit’s holding that the “machine-or-transformation” test is the sole test for determining whether a “process” is patentable subject matter.  Specifically, the Court considered the plain language of § 101 and Supreme Court precedent that excepted “laws of nature, physical phenomena, and abstract ideas” and concluded that the touchstone of patentability under § 101 is simply whether a process is “new and useful.”  Id. slip op. at 5.  As such, the Court construed § 101 broadly and determined that the “machine-or-transformation” test is not the exclusive test and that such a reading misreads both Supreme Court precedent and the language of the Patent Act:

Adopting the machine-or-transformation test as the sole test for what constitutes a “process” (as opposed to just an important and useful clue) violates these statutory interpretation principles.  Section 100(b) provides that “[t]he term ‘process’ means process, machine, manufacture, composition of matter, or material.”  The Court is unaware of any “‘ordinary, contemporary, common meaning,’” Diehr, supra, at 182, of the definitional terms “process, art or method” that would require these terms to be tied to a machine or to transform an article. . . .

The Court of Appeals incorrectly concluded that this Court has endorsed the machine-or-transformation test as the exclusive test.  It is true that Cochrance v. Deener, 94 U.S. 780, 788 (1877), explained that 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.”  More recent cases, however, have rejected the broad implications of this dictum; and, in all events, later authority shows that it was not intended to be an exhaustive or exclusive test.

Bilski, 561 U.S. __, slip op. at 8.  Notwithstanding the pronouncement that the “machine-or-transformation” test is not the sole test for determining whether a claimed invention is patentable under § 101, the Court indicated that it is, however, a tool in the analysis:

This Court’s precedents establish that the machine-or-transformation test is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101.

Id. (emphasis added).

Next, the Court considered whether business methods, including Applicants’ claims, are categorically unpatentable.  Bilski, 561 U.S. __, slip op. at 10-11.  A majority of the Court – Justices Kennedy, Thomas, Alito, Scalia and Chief Justice Roberts – determined that business methods are, in fact, patentable.  Id. at 11.  As support for this finding, the Court relied on 35 U.S.C. § 273.  Section 273, entitled “Defense to Infringement Based on Earlier Inventor,” provides a defense to alleged infringement of a business method claim based on prior practicing of the claimed method.  As such, the Court found that this statutory section implicitly supports a finding that business methods are patentable.  Without patentable business method patents, this statutory section would serve no purpose whatsoever.  Id. (“In other words, by allowing this defense the statute itself acknowledges that there may be business method patents.”)  The Court, however, was careful not to suggest a liberal interpretation of the provision.  Id.  (“Finally, while § 273 appears to leave open the possibility of some business method patents, it does not suggest broad patentability of such claimed inventions.”) 

Although the Court held that business methods can be patentable subject matter, the Court also made plain that § 101 is just one section of the Patent Act that controls whether an invention is patentable:

The §101 patent-eligibility inquiry is only a threshold test.  Even if an invention qualifies as a process, machine, manufacture, or composition of matter, in order to receive the Patent Act’s protection the claimed invention must also satisfy “the conditions and requirements of this title.”  §101.  Those requirements include that the invention be novel, see § 102, nonobvious, see §103, and fully and particularly described, see §112.

Id. at 5.  Thus, so long as the business method claims otherwise meet the requirements of §§ 102, 103, and 112, those claims are patentable.

Lastly, the Court considered the Applicants’ patent claims.  Bilski, 561 U.S. __, slip op. at 13-15.  Instead of applying the “machine-or-transformation” test, the Court simply looked to its precedent in Benson, Flook, and Diehr and concluded that Applicants’ claims were drawn to “abstract ideas” and thus not patentable:

Petitioners seek to patent both the concept of hedging risk and the application of that concept to energy markets.  Rather than adopting categorical rules that might have wide-ranging and unforeseen impacts, the Court resolves this case narrowly on the basis of this Court’s decisions in Benson, Flook, and Diehr, which show that petitioners’ claims are not patentable processes because they are attempts to patent abstract ideas.  Indeed, all members of the Court agree that the patent application at issue here falls outside of § 101 because it claims an abstract idea. . . .

The concept of hedging, described in claim 1 and reduced to a mathematical formula in claim 4, is an unpatentable abstract idea, just like the algorithms at issue in Benson and Flook.  Allowing petitioners to patent risk hedging would preempt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea.

Id.  Despite the analysis of Benson, Flook, and Diehr, the Court however did not provide any guidance specifically on identifying what is or is not an abstract idea except, for example, to cite Flook for the proposition that “adding token postsolution components did not make [an abstract idea] patentable.”  Id. at 15.

The majority was also careful to not endorse (by omission of reference and analysis) any previous Federal Circuit opinions relating to the interpretation of § 101, but seemingly welcomed further analysis and opinion by the Federal Circuit:

And 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; AT&T Corp., 172 F. 3d, at 1357.  It may be that the Court of Appeals thought it needed to make the machine-or-transformation test exclusive precisely because its case law had not adequately identified less extreme means of restricting business method patents, including (but not limited to) application of our opinions in Benson, Flook, and Diehr.  In disapproving an exclusive machine-or-transformation test, we by no means foreclose the Federal Circuit’s development of other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text.

Id. at 16. 

Finally, Parts II-B-2 and II-C-2 of Justice Kennedy’s opinion highlight patent law’s practical problem of constantly changing technology.  See Bilski, 561 U.S. __ slip op. at 8-10, 11-13.  Notably, Parts II-B-2 and II-C-2 are not the opinion of the Court as Justice Scalia did not join in either of these Parts.  In these sections, Justice Kennedy cautions against fashioning hard and fast rules (e.g., the “machine-or-transformation” test or a categorical ban on business method patents) because of the fear that strict rules will not strike the desired balance between private innovation and public benefit when applied to new technology areas.  In essence, by rejecting the “machine-or-transformation” test and a categorical ban on business method patents, Justice Kennedy advocates a flexible Section 101 approach that, among other things, adapts as technology changes. 

Concurring Opinions

As noted above, two concurring opinions were filed.  The first, a forty-seven page opinion written by Justice Stevens, agreed with the majority that the “machine-or-transformation” test is not the sole test for determining whether a “process” is patent eligible.  But Justice Stevens – and the three Justices who joined him (Justices Ginsburg, Breyer, and Sotomayer) – would have gone farther and laid down a categorical ban on business method patents:

But the Court is quite wrong, in my view, to suggest that any series of steps that is not itself an abstract idea or law of nature may constitute a “process” within the meaning of § 101.  The language in the Court’s opinion to this effect can only cause mischief.  The wiser course would have been to hold that petitioners’ method is not a “process” because it describes only a general method of engaging in business transactions – and business methods are not patentable.  More precisely, although a process is not patent-ineligible simply because it is useful for conducting business, a claim that merely describes a method of doing business does not qualify as a “process” under § 101.

Bilski, 561 U.S. __,  slip op. at 3 (Stevens, J., concurring).  In surveying the legislative history and overall policy reasons related to the patentability of business methods, Justice Stevens concluded the opinion by stating his reasons denying patent eligibility:

The Constitution grants to Congress an important power to promote innovation.  In its exercise of that power, Congress has established an intricate system of intellectual property.  The scope of patentable subject matter under that system is broad.  But it is not endless.  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, inthemselves, covered by the statute.  In my view, acknowledging as much would be a far more sensible and restrained way to resolve this case.  Accordingly, while I concur in the judgment, I strongly disagree with the Court’s disposition of this case.

Id. at 47.

The second concurring opinion, while brief, contains a helpful summary of the Bilski Supreme Court outcome.  Justice Breyer, joined by Justice Scalia, “[i]n light of the need for clarity and settled law in this highly technical area,” wrote separately solely to highlight the points of substantial agreement among all nine of the Justices.  Bilski, 561 U.S. __ slip op. at 1 (Breyer, J., concurring.)  The areas of substantial agreement are:

(1)        Although § 101 broadly defines patentable subject matter, “it is not without limit.”  Id.  For example, “the Court has long held that ‘phenomena of nature, though just discovered, mental processes, and abstract intellectual concepts are not patentable’ under § 101, since allowing individuals to patent these fundamental principles would ‘wholly pre-empt’ the public’s access to the ‘basic tools of scientific and technological work.’”  Id. at 2.

(2)        The “machine-or-transformation” test is “the clue to the patentability of a process claim that does not include particular machines.”  Id. at 2 (emphasis original).

(3)        The “machine-or-transformation” test has never been the “sole test” for determining patentability.  Rather, “the Court has emphasized that a process claim meets the requirements of § 101 when, ‘considered as a whole,’ it ‘is performing a function which the patent laws were designed to protect (e.g., transforming or reducing an article to a different state or thing).”  Id. at 3.

(4)        Something that produces a “useful, concrete, and tangible result” is not necessarily eligible for patent protection.  Id. at 3.

Post-Bilski Supreme Court GVR Decisions

A day after its decision in Bilski v. Kappos, the Supreme Court resolved the pending petitions seeking review of the Federal Circuit’s decisions in Prometheus Laboratories, Inc. v. Mayo Collaborative Services, 581 F.3d 1336 (Fed. Cir. 2009) and Classen Immunotherapies, Inc. v. Biogen Idec, 304 Fed. App’x 866 (Fed. Cir. 2008) (unpublished decision).  Instead of reviewing the cases on the merits, the Court granted certiorari, vacated the Federal Circuit’s decisions, and remanded the cases back to the Federal Circuit for reconsideration in view of Bilski.^[5]  

Representative claims at issue in Prometheus relate to methods of optimizing the therapeutic efficacy of treatment of an immune-mediated gastrointestinal disorder that involves (a) administering a drug providing 6-thioguanine to a subject and (b) determining a level of 6-thioguanine in the subject, where the determined level is indicative of a need to increase or decrease dosing.  Other claims at issue do not recite the administering step. 

Of interest is the fact that the Federal Circuit upheld the patent eligibility of Prometheus’ method claims under the “machine-or-transformation” test.  In doing so, the Federal Circuit noted that the “asserted claims are in effect claims to methods of treatment, which are always transformative when a defined group of drugs is administered to the body to ameliorate the effects of an undesired condition.”  Id. at 1346.  The Federal Circuit further held that determining metabolite levels “necessarily involves transformation” because such metabolite levels “cannot be determined by mere inspection.”  Id. at 1347.

Consequently, in reviewing the petition, the Court could have simply affirmed the Federal Circuit’s finding of eligibility in keeping with its holding in Bilski that the “machine-or-transformation” test is a useful “tool” albeit not the “only” way to evaluate compliance with § 101.  Moreover, the Court in Bilski did not indicate that diagnostic or personalized medicine methods cannot be patented under § 101.  While the Federal Circuit’s Prometheus decision appears to be consistent with the Court’s decision in Bilski, it is possible that the Court’s decision to remand the case will provide the Federal Circuit an opportunity to give more consideration as to whether Prometheus’ claimed methods more aptly fall under one of the three exceptions to the Court’s broad interpretation of § 101 (i.e., unpatentable “laws of nature,” “natural phenomena,” and “abstract ideas”).

Representative claims at issue in Classen relate to methods of evaluating and improving the safety of immunization schedules.  Unlike Prometheus, however, the Federal Circuit in Classen held (in an unpublished decision) that the claims were invalid under § 101 because they did not satisfy either prong of the “machine-or-transformation” test.  Consequently, the decision by the Court to remand the case did not come as a surprise to those monitoring the case.  Nevertheless, the remand decision in Classen similarly provides an opportunity for the Federal Circuit to consider whether – in keeping with the Court’s holding that methods which do not pass the machine-or-transformation test may nonetheless satisfy § 101 – Classen’s claimed method is patentable after all.

Briefing in these two GVR cases is expected during the latter half of the summer months with decisions by the Federal Circuit to follow in due course, perhaps in time for discussion during the PLI presentation in October 2010.

Post-Bilski BPAI Decision

On July 12, 2010, the BPAI issued its first post-Bilski opinion rejecting all claims on appeal of a patent application assigned to Hewlett-Packard Company.  See Ex parte Proudler, No. 2009-6599[6] (B.P.A.I. July 12, 2010).  Specifically, the BPAI vacated its prior art rejection under 35 U.S.C. § 103 and instituted a new ground of rejection under § 101.  The claims, directed to a method of controlling the processing of data, include method claims, CRM (computer readable medium) claims and computer apparatus claims.  As an example, representative Claim 33 of the filed application claims the following:

A method of controlling processing of data, wherein the data comprises a plurality of rules associated with a plurality of data items comprising a set of logically related data items, each data item in the set having a rule associated therewith, said rules acting to individually define usage and/or security to be observed when processing each of the data items in the set of data items, and in which forwarding of the set of data items is performed in accordance with mask means provided in association with the rules.

Id. at p.24. 

In its decision, the Board references precedential law regarding “abstract ideas,” including Bilski:

Laws of nature, abstract ideas, and natural phenomena are excluded from patent protection.  Diamond v. Diehr, 450 U.S. at 185.  A claim that recites no more than software, logic or a data structure (i.e., an abstraction) does not fall within any statutory category.  In re Warmerdam, 33 F.3d 1354, 1361 (Fed. Cir. 1994). Significantly, “Abstract software code is an idea without physical embodiment.”  Microsoft Corp. v. AT&T Corp., 550 U.S. 437, 449 (2007).  The unpatentability of abstract ideas was confirmed by the U.S. Supreme Court in Bilski v. Kappos, No. 08-964, 2010 WL 2555192 (June 28, 2010).

Id. at p. 4.  The Board, in analyzing the claims-at-issue in light of the law, went on to find:

[T]he disclosed and claimed invention is directed to software per se, abstract ideas, abstract concepts, and the like, including data per se, data items, data structures, usage rules, and the abstract intellectual processes associating them within the claims on appeal.

Id.  With regard to Claim 33, the Board simply was not convinced the claim went beyond an abstract idea.  Id. at p. 5.  A quick read of the decision seems to indicate that the Board was influenced by Bilski’s §101 teachings.

Open Questions After the Bilski Decision

A quick review of the commentary following the Bilski decision reveals an overall consensus that the opinion of the Court creates a great deal of uncertainty and raises many questions in its aftermath.  While most agree with the fundamental outcome – namely that Applicants’ claims were not directed to patentable subject matter under 35 U.S.C. § 101 – a good number expressed disappointment with the lack of guidance provided by the Court in evaluating future claims.

At the forefront of uncertainty, both from the perspective of patent prosecution and litigation, is the question to what extent the “machine-or-transformation” test is applicable and whether, depending on the underlying technology, another test is more suitable and/or effective.  A quick review of the various amicus briefs filed with the Court provides ample suggestions for alternative tests or approaches.  See, e.g., International Business Machines Corporation Amicus Brief[7] (focusing patentable determination on “technological contribution”); Accenture and Pitney Bowes Inc. Amicus Brief[8] (arguing that “usefulness” is the touchstone of patent-eligible subject matter under §101.).  Notwithstanding, many believe that in the short term courts will continue to apply the “machine-or-transformation” test in the absence of an alternative.  As for the USPTO, on the same day the Court issued its opinion in Bilski, the USPTO issued a memorandum to its Patent Examining Corps summarizing the Court’s decision and providing the following guidance to its examiners:

Examiners should continue to examine patent applications for compliance with section 101 using the existing guidance concerning the machine-or-transformation test as a tool for determining whether the claimed invention is a process under section 101.  If a claimed method meets the machine-or-transformation test, the method is likely patent eligible under section 101 unless there is a clear indication that the method is directed to an abstract idea.  If a claimed method does not meet the machine-or-transformation test, the examiner should reject the claim under section 101 unless there is a clear indication that the method is not directed to an abstract idea.  If a claim is rejected under section 101 on the basis that it is drawn to an abstract idea, the applicant then has the opportunity to explain why the claimed method is not drawn to an abstract idea.

The USPTO is reviewing the decision in Bilski and will be developing further guidance on patent subject matter eligibility under 35 U.S.C. § 101.

See Memorandum from Robert W. Bahr, Acting Associate Commissioner for Patent Examination Policy to Patent Examining Corps. dated June 28, 2010.  A reasonable interpretation of the message in this memorandum is that the USPTO too will continue to apply the “machine-or-transformation” test unless and until alternative guidance is provided by the USPTO commissioners.  In other words, it is business as usual at the USPTO.

A further point of confusion resulting, in part, from the Bilski decision is what constitutes an unpatentable “abstract idea.”  The Court provided very little guidance on this point except to cite, with explanation, to Benson, Flook, and Diehr for precedent relating to abstract ideas, thereafter relying on such precedent to conclude unanimously that Applicants’ claims were drawn to “abstract ideas” and thus not patentable.  Bilski, 561 U.S. __, slip op. at 13-16.  Indeed, the Court was purposely careful not to inject any limitations in the analysis:

Today, the Court once again declines to impose limitations on the Patent Act that are inconsistent with the Act’s 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 §100(b) and looking to the guideposts in Benson, Flook, and Diehr.

Id. at 16.  As a result, speculation continues with regard to certain groups of patents as to whether they can survive after Bilski.  In particular, many are waiting to see whether tax strategy patents relating generally to methods of tax planning are indeed patentable, or simply unpatentable abstract ideas.  The only point certain in this context is that it will take time for the open issues to be sorted out by the courts and the USPTO. 

Meanwhile, the consensus appears to be that such open issues will ultimately result in another trip to the Supreme Court, albeit a few years off.  There is, of course, the possibility that either Prometheus or Classen could reach the Supreme Court in a much shorter time frame if the issues are framed appropriately.  Either way, the expectation is that business method patents will continue to be fiercely litigated and challenged.

Conclusion

While it is still too early to know how the Supreme Court’s decision in Bilski will be interpreted and applied by the various district courts and the Federal Circuit, there is no doubt the decision itself did not provide the clear guidance (and perhaps closure) that members of the bar were expecting from such a highly anticipated decision.  Time will tell as to whether the holdings and supporting dicta in Bilski provide sufficient guidance to judges, advocates, and patent practitioners in resolving questions of patent eligibility and scope regarding software and business method patents.  In the meantime, Bilski provides a fertile opportunity for speculation as to the implications and applications of the Court’s decision.

 ***You can hear more from Andrea M. Augustine at the upcoming PLI Patent Litigation Program on Ocotber 14 – 15 in Chicago.

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[1] The “machine-or-transformation” test, as put forth in the Bilski Federal Circuit opinion, is:

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.

Bilski Fed. Circ., 545 F.3d at 954.

[2] The Court of Customs and Patent Appeals is the predecessor court to the Federal Circuit.

[3] Available at http://www.supremecourt.gov/qp/08-00964qp.pdf.

[4] It bears mentioning that a total of sixty-eight amicus briefs were filed on behalf of a wide variety of industries, companies, and institutions.

[5] In Supreme Court parlance, this type of resolution is referred to as a “GVR.”

[6] Available at http://des.uspto.gov/Foia/ReterivePdf?system=BPAI&flNm=fd2009006599-07-08-2010-1.

[7] Available at http://www.abanet.org/publiced/preview/briefs/pdfs/07-08/08-964_NeutralAmCuIBM.pdf

[8] Available at http://www.abanet.org/publiced/preview/briefs/pdfs/07-08/08-964_PetitionerAmCuAccentureandPitneyBowes.pdf

Tags: Bilski decision, Bilski v. Kappos, Business Method Patents, Classen Immunotherapies Inc. v. Biogen Idec, Foley & Lardner, Justice Kennedy, Justice Stevens, machine-or-transformation test, Patent eligibility, Post-Bilski, Prometheus Laboratories v. Mayo Calloborative Services, USPTO

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