Federal Circuit Revises Test For Patenting Business Methods
October 30, 2008
Today, the en banc Federal Circuit issued
In re Bilski, a closely watched case involving whether a method of doing business is “patentable subject matter” under the Patent Act. In ruling that the business method claim was outside the scope of patent protection, the majority replaced its longstanding “useful, concrete, or tangible result” test for patentability of a process with a new “machine-or-transformation” test. The court declined to rule that a business method claim can never be patentable.
At issue is whether a claim to a method of hedging risk in the field of commodities trading is patentable subject matter under 35 U.S.C. § 101. Writing for nine members of the court, Chief Judge Michel announced a new “machine or transformation” test for a process claim, attributing the test to
Diamond v. Diehr, 450 U.S. 175, 185 (1981). Under
Diehr, a process is not patent eligible if it claims “laws of nature, natural phenomena, [or] abstract ideas.” Construing
Diehr and numerous other Supreme Court cases, the Federal Circuit stated that the “definitive test” for a patent-eligible process is if “(1) it is tied to particular machine or apparatus,
or (2) it transforms a particular article into a different state or thing.” A claimed process cannot preempt use of a fundamental principle, the court explains, if the claimed process uses a particular machine or transforms a particular article into a different state. A “mere field-of-use limitation,” however, is “generally insufficient to render an otherwise ineligible process claim patent-eligible” because limitation to one “particular technological environment” does not refute the concern that the claim is “drawn to the principle in the abstract.”
Applying the new test, the Federal Circuit found that the business method claim failed both prongs. The applicants conceded that the claim was not limited to any specific machine or apparatus. The court then turned to the transformation prong and explained that the “transformation must be central to the purpose of the claim process.” Moreover, the court surveyed its case law to explain “what sorts of things constitute ‘articles’ such that their transformation is sufficient to impart patent-eligibility under § 101.” Obviously, “physical objects or substances” are patent eligible. Further, “transformation of” data depicting “physical and tangible objects” “into a particular visual depiction of a physical object on a display” was sufficient. But a claim “reciting a process of graphically displaying variances of data from average values” was rejected. Turning to the claim at issue, the majority concluded that the hedge fund claim fails: “Purported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances.”
In adopting the new “machine-or-transformation” test, the majority rejected the now familiar “useful, concrete, and tangible result” test associated with
State St. Bank v. Signature Fin. Group, 149 F.3d 1368, 1370 (Fed. Cir. 1998). In language paralleling the Supreme Court’s rejection of the “teaching suggestion motivation” test in
KSR v. Teleflex, the Federal Circuit held 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.” Thus, the Federal Circuit noted that “portions” of Federal Circuit case law “relying solely” on that inquiry “should no longer be relied on.” Dissenting, Judge Mayer notes “
State Street has launched a legal tsunami, inundating the patent office with applications seeking protection for common business practices.” He would have gone further and overruled
State Street. Nevertheless, as a practical matter
In re Bilski should put an end to invocations of the
State Street test.
The majority expressly left open several issues. Because the case before it did not involve “machine implementation,” it did not address “issues specific” to that part of the test. The court rejected the request by some amici to create “categorical exclusions” from patentability that would exempt business methods, computer software, or any other particular type of subject matter.
Dissenting, Judge Newman would have found the business method claim patentable. She notes that the Supreme Court “did not propose the 'machine-or-transformation' test that this court now insists was 'enunciated' in
Diehr.” Judge Mayer would have rejected the claim because, in his view, all patents must involve “technological innovations.” Judge Rader would have rejected the business method claim simply because it is a claim to an abstract idea.
With
In re Bilski, the Federal Circuit has properly disavowed the test set out in
State Street, a test that was too mechanical to assess whether a claimed process included real innovation that would merit patent protection. Whether the Federal Circuit’s new “machine-or-transformation” test is properly grounded in Supreme Court precedent or properly assesses whether a patent application includes real innovation is arguable, as the dissents explain. Several Supreme Court Justices have already expressed unease with the current scope of patentable subject matter, and numerous amici have emphasized the importance of the case. Supreme Court review of
In re Bilski is a strong possibility.
This newsletter is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Darin Snyder is a partner in the San Francisco office of O’Melveny & Myers and chairman of the firm’s intellectual property and technology practice. Mark Davies is a counsel in the D.C. office and author of Patent Appeals: The Elements of Effective Advocacy in the Federal Circuit (2008). Mark also was the lead author of Breakdown on State Street: The Future of Business Method Patents, ABA Sect. Litig (Winter 2008), predicting that the “useful, concrete, and tangible result” test “won’t stand” because it “awards patents in the absence of real innovation.” Both men contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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