Federal Circuit Rejects Computer Readable Media Claims under Section 101

The ebb and flow regarding the scope of patentable subject matter for computer-related inventions continues this week with the Federal Circuits decision in Cybersource Corp. v. Retail Decisions, Inc.

In Cybersource, two claims of U.S. Patent No. 6,029,154 (“the ‘154 patent”) were invalidated by the district court under 35 U.S.C. § 101 for failure to recite patent-eligible subject matter.  One of the claims, Claim 3 was directed to a “method for verifying the validity of a credit card transaction” and recited three steps, including “obtaining information…”, “constructing a map of credit card numbers…,” and “utilizing the map…to determine if the credit card transaction is valid.”   Claim 2 was directed to “computer readable medium containing programming instructions” and recited “execution of the program instructions by one or more processors of a computer system” in the body of the claim.  The Federal Circuit affirmed. 

The decision with respect to the naked method claim (claim 3) is not too controversial.  The outcome with respect to Claim 2, however, represents a significant shift in the patent-eligible subject matter landscape.  Why, you ask?  Because for the last 15 years, patent practitioners in the computer arts have relied on In re Beauregard, 53 F.3d 1583 (Fed. Cir. 1995) for the proposition that claims drawn to “computer readable media” were patent-eligible articles of manufacture, not methods subject to the vagaries of Section 101. (“The Commissioner now states ‘that computer programs embodied in a tangible medium, such as floppy diskettes, are patentable subject matter under 35 U.S.C. § 101 and must be examined under 35 U.S.C. §§ 102 and 103.’)  (Note - there was no actual holding from the Federal Circuit in In re Beauregard, simply a remand. Since the Commissioner ultimately agreed with Beauregard’s position, there was no longer a case or controversy and thus no jurisdiction before the Federal Circuit.) The Federal Circuit has now dispelled this long-held reliance: 

Cybersource contends that, by definition, a tangible, man-made article of manufacture such as a ‘computer readable medium containing program instructions’ cannot possibly fall within any of ht three patent-eligibility exceptions the Supreme Court has recognized for ‘laws of nature, physical phenomena, [or] abstract ideas.” [citation omitted] We disagree.  Opinion at 16.

With those two words, the validity of claims in thousands of issued patents to computer-related inventions  are now in doubt. 

One line from this opinion that I find somewhat disturbing is that “[r]egardless of what statutory category (‘process, machine, manufacture, or composition of matter’ 35 U.S.C. § 101) a claims language is crafted to literally invoke, we look to the underlying invention for patent-eligibility purposes.”  In every other context we need to look at the claim language, all of the claim language, in order to define the “invention.”  Under the Cybersource analysis, courts may now ignore express limitations in the claim (such as “computer readable media” or “one or more processors”) to determine an “underlying invention” that is broader than what is actually claimed in order to invoke Section 101.  Creating a double standard for the Section 101 analysis just doesn’t feel right.

Very little is certain about the scope of patent-eligible subject matter for computer-related inventions in view of the Cybersource decision except this:  we have not seen the end of this issue.  My bet is that en banc review is in our near future.

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.