• Federal Circuit Issues In re Bilski Opinion Defining What Constitutes Patentable Subject Matter
  • November 13, 2008
  • Law Firm: Frommer Lawrence & Haug LLP - New York Office
  • On October 30, 2008, the Federal Circuit issued one of the most anticipated intellectual property law decisions of the year, In re Bilski, which asks whether business methods are patentable subject matter.  The en banc opinion overrules earlier panel decisions, including portions of the controversial State Street Bank & Trust Co. v. Signature Financial Group, 149 F.3d 1369 (1998) opinion and holds that the “machine-or-transformation” test set forth in the Supreme Court decisions of Diamond v. Diehr, 450 U.S. 175 (1981) Diehr and Parker v. Flook, 437 U.S. 584 (1978) and Gottschalk v. Benson, 409 U.S. 63 (1972), is the governing test for determining patent eligibility of a process under section 101 of the Patent Act.  This decision is expected to call into question the validity of many patents, particularly in the internet and finance industries, that may not pass muster under the Bilski standard.

    The patent claims at issue are directed toward methods for hedging risk in the field of commodities.  The Patent and Trademark Office (PTO) had rejected claims under § 101 as directed to unpatentable subject matter and the Board had affirmed the rejection.  Following appeal to the Federal Circuit and oral argument before a three judge panel, the Federal Circuit in a rare move, sua sponte ordered en banc review.  Yesterday’s decision affirmed 9-3 the PTO’s rejection that the claimed methods did not constitute a statutory process under § 101 as it failed the machine-or-transformation test. 

    The majority opinion reaffirmed Supreme Court precedent which states that the meaning of “process” in § 101 is narrower than its ordinary meaning and that process claims directed to “laws of nature, natural phenomena [or] abstract ideas” are not patentable.  The court addressed what test or set of criteria governs the determination by the PTO or courts as to whether a claim to a process is patentable under 101 and concluded that a claimed process is 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.”

    The court expressly rejected the “useful, concrete and tangible result” standard employed in State Street noting that “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, that inquiry is insufficient to determine whether a claim is patent-eligible under § 101 . . . it was certainly never intended to supplant the Supreme Court's test.” 

    The Federal Circuit did provide some guidance as to how to perform the § 101 analysis stating that the test is a “two-branched” inquiry.  An applicant may show that a process claim satisfies § 101 either by showing that his claim is tied to a particular machine or by showing that his claim transforms an article. 

    The use of a specific machine or transformation of an article must impose meaningful limits on the claim’s scope to impart patent-eligibility.  The involvement of the machine or the transformation in the claimed process must not merely be “insignificant extra-solution activity.”  Significantly, the expressly refused to answer the specific question whether the recitation of a computer would be sufficient to tie a process claim to a particular machine as it was not at issue in the case.

    The transformation step requires that the transformation be “central to the purpose of the claimed process.”  Discussing “what sorts of things constitute articles such that their transformation is sufficient to impart patent-eligibility,” the court noted that it “is virtually self evidence that a process for a chemical or physical transformation of physical objects or substances is patent eligible.”  The court also provided examples of whether processes that manipulate electronic data and signals can be patent protected.  For example, a process for the manipulation of data that represents physical and tangible objects, such as x-ray attenuation data representing bone, organ or body tissue into a particular visual depiction of a physical object on display can be protected and it is not necessary to transform underlying physical object that the data represented.  In contrast, adding a data gathering step to an algorithm is insufficient.  A claimed method that records bids, but does not recite any particular manner of recording (e.g., on paper, on a computer) is insignificant extra-solution activity and is not eligible for patent protection.

    The full impact of the Federal Circuit’s decision, which totaled over 130 pages and included the majority opinion, a concurrence and three dissents, remains to be seen.  Judge Newman’s dissent cautions that defining “process” to exclude all process that do not transform physical matter or are not performed by machines, usurps the role of Congress and improperly excludes many kinds of inventions from patent protection.  An appeal to the Supreme Court is widely expected.