The Patent Eligible Subject Matter Debate Continues

No question in patent law in recent times has been quite as vexing as the scope of patent eligible subject matter, especially as it relates to computer-implemented methods.  The Supreme Court has addressed the issue twice in three years in Bilski and Prometheus Labs, and we still seem no closer to understanding what makes an invention “patent elibible” under 35 U.S.C. 101.   The debate keeps on rolling along with the Federal Circuit's recent decision in CLS Bank Int’l  v. Alice Corporation, 2011-1301.

The claims at issue in CLS were found in three patents that each “cover a computerized trading platform for exchanging obligations in which a trusted third party settles obligations between a first and second party so as to eliminate ‘settlement risk..’”  Opinion at 2.  The claims at issue cover three different statutory classes, with method claims, system claims and article of manufacture claims directed to computer instructions stored on computer readable media.  The district court analyzed the claims in each class separately and found all claims invalid as not defining patent eligible subject matter under 35 U.S.C. 101.

In reversing the district court, the majority provided a lengthy discussion on the history of patent eligibility cases, especially addressing the “abstract idea” and “law of nature” exceptions to patent eligibility.  Opinion 11-21.  (Since the first paragraph of the ten page analysis includes the quote 'Congress intended statutory subject matter to "include anything under the sun that is made by man,"' [citations omitted] you quickly get a sense where the majority is headed).  At the end of its 10 page discussion, the majority sets forth a somewhat remarkable holding: “this court holds that when -- after taking all of the claim recitations into consideration — it is not manifestly evident that claim is directed to a patent ineligible abstract idea, that claim must not be deemed for that reason to be inadequate  under 101.”  Opinion at 20.  I for one, am lost by this statement.  A patent is presumed valid and a party seeking to invalidate a patent claim must do so by clear and convincing evidence.  It was my impression that this same standard applies to defenses under 35 U.S.C. 101.  I am not sure what “manifestly evident” is, but it sounds like a higher burden than clear and convincing evidence.  Perhaps, the defendant’s new burden on this issue is to prove by clear and convincing evidence that it is “manifestly evident that [an asserted] claim is directed to a patent ineligible abstract idea” in order to prevail on this issue?

The case includes a spirited dissent by J. Prost (with barbs and jabs laced throughout both the majority and dissenting opinions) that argues that “[t]he majority has failed to follow the Supreme Court’s instructions—not just in its holding, but more importantly in its approach.”  Dissent at 3.

Much more could be said about this 27 page opinion and 11 page dissent.  But, since the petition for rehearing en banc is likely already being drafted (and in my opinion will likely be granted), we might as well wait for the en banc opinion to delve deeper into this case.  

Bilksi Comes Out With A Wimper, Rather Than With A Bang

After receiving dozens of amicus briefs and pondering the case for close to seven months following oral argument, the Supreme Court has finally released its much anticipated decision in Bilsky. Bilski v. Kappos, 561 U.S. ___(2010).   In short, the Court affirmed the judgment of the en banc Federal Circuit that the claims of the Bilski patent are not directed to patent eligible subject matter. In doing so, however, the Court specifically rejected the Federal Circuit's “machine or transformation test” as the sole test for patent eligibility for process or method claims. Instead, it viewed Bilski’s claims as “abstract ideas” that are outside the scope of patent eligible subject matter.

This result is not too surprising to this commentator.   As I mentioned last June when cert was granted, "[the Supreme Court's] past decisions over the years on the question of patentable subject matter, however, tend to avoid bright line standards and lean towards a more liberal scope of patentable subject matter, but certainly don’t embrace the scope of “anything under the sun made by man” as the Court once suggested.
The following quotations are from the syllabus and/or opinion of the Court and reflect the Court's holding. 

• "The machine-or-transformation test is not the sole test for patent eligibility under §101. The Court’s precedents establish that although that test may be a useful and important clue or investigative tool, it is not the sole test for deciding whether an invention is a patent-eligible “process” under §101."

• "[T]he Federal Circuit incorrectly concluded that this Court has endorsed the machine-or-transformation test as the exclusive test. Recent authorities show that the test was never intended to be exhaustive or exclusive."

• "Section 101 similarly precludes a reading of the term “process” that would categorically exclude business methods. The term “method” within §100(b)’s “process” definition, at least as a textual matter and before other consulting other Patent Act limitations and this Court’s precedents, may include at least some methods of doing business."

• "Section 273 thus clarifies the understanding that a business method is simply one kind of“method” that is, at least in some circumstances, eligible for patenting under §101."

• "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. The machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible “process.”

• "[I]n deciding whether previously unforeseen inventions qualify as patentable “process[es],” it may not make sense to require courts to confine themselves to asking the questions posed by the machine-or-transformation test."

• "Even though petitioners’ application is not categorically outside of §101 under the two broad and  textual approaches the Court rejects today, that does not mean it is a “process” under §101."

• "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."

• "Petitioners’ remaining claims are broad examples of how hedging can be used in commodities and energy markets. Flook established that limiting an abstract idea to one field of use or adding token post solution components did not make the concept patentable. That is exactly what the remaining claims in petitioners’ application do."

• "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."

• "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."

More to come regarding the concurring opinions of Justice Stevens (joined by Justices Ginsburg, Breyer and Sotomayor) and Justice Breyer (joined by Justice Scalia) in a later post.



[Many thanks to Randall Berman, an associate with Dorsey & Whitney, for his assistance in quickly preparing this post]

Reflections On The Erosion of Method Claims

It wasn’t that long ago that patent practitioners held the view that means-plus-function claims were the broadest and best way to protect an invention. Over time, many learned (the hard way) that this isn’t true anymore. With means-plus-function claims being construed narrowly in view of the specification, it became increasingly popular to include method claims to cover the process taking place in the described apparatus. After all, what could be better than not being limited by any structural limitations? Well, as it turns out, the last couple of years have not been particularly kind to method claims.

Patentable Subject Matter:

Today the Supreme Court is hearing oral argument in Bilsky, a case that many feel will significantly redefine the scope of patentable subject matter for method claims. (And providing motivation for today's musings.) Bilsky is the culmination of at least a two year trend at the Federal Circuit where 35 U.S.C. 101 has been increasingly applied as the basis for denying patent protection for claims directed to methods. The Federal Circuit's now infamous “machine or transformation test,” set forth in Bilsky represents a considerable narrowing of patentable subject matter for methods. Clearly, those post-State Street feel good days for business method patents are behind us for the moment. But, Bilsky and Section 101 is a subject all its own (and the subject to countless other posts and articles), so lets move on to some other issues.

Infringement of Method Claims

Divided Infringement:
Last year, in Muni-Auction v. Thomas, 532 F. 3d 1318 (Fed Cir. 2008) the Federal Circuit addressed the issue of infringement of a method claim when two or more entities were required to act in order to perform all of the steps of a claimed method. In the patent in dispute in Muni-Auction “at least the inputting step of claim 1 is completed by the bidder, whereas at least a majority of the remaining steps are performed by the auctioner’s system.” Id. at 1328. In finding that there was no direct infringement (and therefore no predicate for third party liability based on inducement or contributory infringement) the Federal Circuit looked to the relationship between the bidder and the auctioner. The court held that:

Accordingly, where the actions of multiple parties combine to perform every step of a claimed method, the claim is directly infringed only if one party exercises “control or direction” over the entire process such that every step is attributable to the controlling party, i.e., the “mastermind.” [Citation omitted] At the other end of this multi-party spectrum, mere “arms-length cooperation” will not give rise to direct infringement by any party.

* * *
Under BMC Resources, the control or direction standard is satisfied in situations where the law would traditionally hold the accused direct infringer vicariously liable for the acts committed by another party that are required to complete performance of a claimed method.

Although the holding in Muni-Auction is consistent with earlier cases on the issue of divided infringement, such as BMC Resources v. Paymentech, L.P., 498 F.3d. 1373 (Fed. Cir. 2007), this decision seems to raise the bar regarding the nature of the relationship required in order to find liability under a “divided infringement” theory. Under Muni-Auction, to establish infringement of a method claim under a divided infringement theory, one must not only show that the entities involved perform all of the steps within the scope of the claim, but must also establish a close legal relationship among those entities.

Steps performed Abroad:

In August, an en banc Federal Circuit addressed whether a method claim could be infringed under 35 U.S.C. 271(f). The Court held that “because one cannot supply the step of a method, Section 271(f) cannot apply to method or process patents.” Cardiac Pacemakers v. St. Jude Medical, 2007-1296 (Fed. Cir., August 19, 2009). The court further held that “271(f) does not encompass devices that may be used to practice a patented method.” Id. at 30. Thus, a device built in the United States that is capable of performing a patented method, but does not actually perform that method in the United States, does not infringe a claim to the patented method under 35 U.S.C. 271(a) or (f). Again, without direct infringement, there is no basis for assertions of third party liability based on threats of inducement or contributory infringement.

Going back a few years, in NTP v. Research in Motion, the Federal Circuit held that “a process cannot be used ‘within’ the United States as required by section 271(a) unless each of the steps if performed within this country.” 418 F.3d 1282, 1318 (Fed. Cir. 2005)(en banc)(emphasis added). In contrast, the Court also held that “use of a claimed system under section 271(a) is the place at which the system as a whole is put into service, i.e., the place where control of the system is exercised and beneficial use of the system obtained.” Id. at 1317 (emphasis added). Unlike the method claim, for the system claim, the Federal Circuit upheld the finding of infringement even though one component of the claimed system was not present in the United States.

Conclusion

Whether the Supreme Court limits or expands the scope of patentable subject matter in Bilsky, it is apparent that the scope of method claims have already been limited. For those who thought (or just hoped) that method claims were the next best thing since means-plus-function claims…well, just like with means-plus-function claims, this was a good theory put to rest by subsequent case law. Its now time to adapt again.


Common Sense Practice Note: Things that today are considered "conventional wisdom" may not always have been considered "conventional" in the past, and may not always be considered "wisdom" in the future. For patent practitioners, the best strategy remains timeless - keep applying for claims of varying format, varying subject matter and varying scope, since one never knows what tomorrow may bring.

Bilsky Taken Up By Supreme Court

Will the Scope of Patent Eleigible Subject Matter be Redefined?

In a decision that is viewed as a bit of a surprise to many, the Supreme Court has granted certiorari in Bilsky v. Doll, U.S. No. 08-964, to review the en banc Federal Circuit decision which held that “[a] claimed process is surely patent-eligible under §101 if it is (1) ties to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” (In re Bilsky, 545 F.3d 943 (Fed. Cir. 2008))

The Bilsky decision, which appears to define a bright line test for patent eligible subject matter, fails to provide guidance in some important areas. For example, is a general purpose computer operating with unique software a “particular apparatus”? Also, can the transformation of data alone qualify as “transform[ing] a particular article into a different state or thing"? With these questions unanswered, the impact of Bilsky’s “machine-or-transformation” test has been most significant in the software and business method sectors, with §101 rejections being more common from the USPTO and §101 now being a real and viable defense in patent litigation. Indeed, the court in the Middle District of Florida just recently invalidated an asserted patent under 35 U.S.C. § 101 in the case of Every Penny Counts, Inc. v. Bank of America Corp., 07-CV-0042.

The Supreme Court agreed to hear 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.

Where will this lead? Good question. The Supreme Court has not been particularly kind to patent owners and broad patent rights in its recent decisions. Then again, the Supreme Court has not been particularly kind to the Federal Circuit either. Its past decisions over the years on the question of patentable subject matter, however, tend to avoid bright line standards and lean towards a more liberal scope of patentable subject matter, but certainly don’t embrace the scope of “anything under the sun made by man” as the Court once suggested. Merely taking the case, however, means that a definitional moment in the area of patentable subject matter is likely on the horizon. Now, its time for the waiting to begin and for the amici to enter the fray.