Thursday, October 30, 2008

Federal Circuit Limits Business Method Patents

In re Bilski is out, affirming the ruling of the Board of Patent Appeals and Interferences that the method claims in that application were not directed to patentable subject matter. This important opinion places new boundaries on the business-method patent. While there is bound to be much discussion and analysis of this opinion going forward, here is a brief summary of the interesting bits:

The claim at issue in the case reads as follows:

A method for managing the consumption 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 consumer;

(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.

This is not an unusal business-method claim.

The opinion endorses the "machine-or-transformation" test for determining whether method claims are patentable. "A claimed process is surely eligible under §101 if: (1) it is tied to a particular machine or apparatus, or (2) transforms a particular article into a different state or thing." Further, a "claimed process involving a fundamental principle that uses a particular machine or apparatus would not pre-empt uses of the princple that do not also use the specified machine or apparatus in the manner claimed. and a claimed process that transforms a particular article to a specified different state or thing by applying a fundamental principle would not pre-empt the use of the principle to transform any other article, to transform the same article but in a manner not covered by the claim, or to do anything other than transform the specified article." (Pp. 10-11)

Also noted: "even if a claim recites a specific machine or a particular transformation of a specific article, the recited machine or transformation must not constitute mere 'insignificant postsolution activity.'" (Pp. 16-17)

The Freeman-Walter-Abele test ((1) determine whether the claim recites an algorithm within the meaning of Benson; (2) determine whether the algorithm is applied to physical elements or process steps) is "inadequate." (Pp. 18-19)

State Street Bank's "useful, concrete, and tangible result" test is "inadequate." (Pp. 19-20)

The "technological arts" test proposed by some amici is rejected. (P. 21)

"The machine-or-transformation 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 applicant must demonstrate that "the use of a specific machine or transformation of an article must impose meaningful limits on the claims' scope to impart patent-eligibility." In addition, "the involvement of the machine or transformation in the claimed process must not merely be insignificant extra-solution activity." (P. 24)

So, what is an "article" that can be transformed? The opinion notes that the "raw materials of many information-age processes . . . are electronic signals and electronically-manipulated data," and that where business methods are concerned, the manipulations involve "even more abstract constructs such as legal obligations, organizational relationships, and business risks." The opinion punts a bit on this one, noting that "our case law has taken a measured approach to this question, and we see no reason here to expand the boundaries of what constitutes patent-eligible transformations of articles." (P. 25)

That said, "[s]o long as the claimed process is limited to a practical application of a fundamental principle to transform specific data, and the claim is limited to a visual depiction that represents specific physical objects or substances, there is no danger that the scope of the claim would wholly pre-empt all uses of the principle." (P. 26) The simple step of "data-gathering," however, is not sufficient. (Pp. 26-27)

The opinion is very clear about the status of the claim at issue: "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." (P. 28)

This appeal was heard en banc but was not unanimous; judges Newman, Mayer, and Rader dissented.

More to follow on this one, to be sure.

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