Bilski v. Kappos

By John Richards
Partner, Ladas & Parry LLP

On June 28, 2010, the United States Supreme Court issued its long-awaited decision in the case of Bilski v. Kappos holding that Bilski’s method of hedging risk did not constitute patent eligible subject matter because it was an abstract idea. In reaching this conclusion, the Supreme Court held that the “machine or transformation test” on which the Federal Circuit Court of Appeals had decided the case was a useful, but not the exclusive, test of whether a process was patent-eligible and, although four members of the Court disagreed, that at least some business methods are eligible for patent protection.

Introduction

35 USC § 101 provides:

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

In decisions such as State Street Bank and Trust v. Signature Financial Group (1998) and AT&T Corp. v. Excel Communications Inc. (1999), the Court of Appeals for the Federal Circuit adopted the view that any method that produced a “useful, concrete and tangible result” was eligible for patent protection. The only limitations on protection were those set out by the Supreme Court’s 1980 decision in Diamond v. Chakrabarty, namely that the claimed invention should not be a law of nature, a physical phenomenon, or an abstract idea. Another possible category of non-patent eligible subject matter which had been suggested in older cases, namely mental processes, was the court held only a subset of the prohibition on patenting abstract ideas. Consequently since methods of allocating costs between funds and methods of pricing telephone calls differently depending on the company to which the recipient of the call subscribed both produced useful, concrete and tangible results, they were eligible for patent protection, unless the claims were directed to a law of nature, a physical phenomenon, or an abstract idea.

As a result of the courts finding such methods to be eligible for patent protection and because the United States had hitherto no prior user right, Congress, at the urging of financial institutions, provided for a limited prior user defense that could be used in cases of patent claims relating to “any method of doing or conducting an entity’s business”. 35 USC § 273.

Until about 2005, the emphasis in interpreting 35 USC § 101 was on the word “any” and on language in the legislative history of the Patents Act indicating that Congress intended statutory subject matter to “include anything under the sun that is made by man”. More recently there has been a reaction to criticism that too many “silly patents” were being issued and increased emphasis on the list of categories of patent-eligible subject matter and attempts to define what they mean.

The scene was set for Bilski

Claim 1 in Bilski’s patent application reads:

A method of managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising …

(a) initiating a series of transactions between said commodity provider and consumers … 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.

Claim 4 utilizes a mathematical formula to restate the concept of claim 1. The Supreme Court characterized the remaining claims as being directed to particular aspects of the hedging in the market for energy or applying statistical techniques to obtaining the historical averages specified in claim 1.[1]

Neither the claims nor the specification make any reference to the use of a computer.

The History of Bilski’s Application

The Examiner rejected the claim on the basis that the claimed invention was merely a manipulation of an abstract idea and was not directed to the technological arts.

The USPTO Board of Patent Appeals and Interferences disagreed with the examiner’s view that there was a separate “technological arts” test for patent eligibility because such a test had never been adopted by the Supreme Court, but held that since the claimed invention related to an abstract idea and did not produce any “useful, concrete and tangible result” it did not relate to patent-eligible subject matter.

The majority of the Court of Appeals for the Federal Circuit set out a rule that a process is eligible for patent protection under 35 USC § 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.

Perhaps smarting from suggestions by the Supreme Court in the previous year in KSR that the Federal Circuit had deviated from Supreme Court precedent, in its opinion on Bilski, the majority of the Federal Circuit quoted extensively from prior Supreme Court decisions dating back to 1853. The Federal Circuit noted “we recognize that the Supreme Court may ultimately decide to alter or perhaps even set aside [the test it had adopted previously] to accommodate emerging technologies”. It also noted that the Federal Circuit might refine or augment its current ruling, but saw no need to do so in the present case. The majority looked at three recently-proposed alternative approaches to whether inventions of the type claimed could constitute patent-eligible subject matter and rejected all of them:

Not all judges of the Federal circuit agreed. Judge Rader would have found the invention an abstract idea and so not eligible for patent protection. Judge Mayer would have ruled that patent eligible subject matter should be confined technological inventions. Judge Newman would have rejected the claims on the ground that they were too broad without attempting to redefine what constitutes patent eligible subject matter.

The applicant petitioned for review by the Supreme Court on a writ of certiorari.

The questions set out in the writ were:

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;

and

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.

However, when it reached the Supreme Court, Justice Kennedy noted that:

The Supreme Court Decision

All justices agreed that Bislki’s invention was not eligible for patent protection.

All justices agreed that the machine or transformation test was in general a useful test of when a method was eligible for patent protection but was not the only test..

All justices rejected the “useful, concrete and tangible result” test of State Street, which Breyer J noted had preceded the grant of patents that “ranged from the somewhat ridiculous to the truly absurd”.

However, different Justices had different reasons for their conclusions.

The majority in an opinion by Justice Kennedy ( joined by Roberts CJ, Thomas, Alito and Scalia JJ – often referred to as the Court’s “conservative” wing) held the invention to be an abstract idea and so not patent-eligible

The minority in an opinion by Stevens J (joined by Ginsberg, Breyer and Sotomayor JJ – often referred to as the Court’s “liberal” wing), although agreeing that what was claimed was an abstract idea, would rather have held the invention to lack patent eligibility because business methods should not be the subject of patent protection and Bilski’s method was a business method.

Why “Machine or Transformation” Test is not the only Test

In holding that the “machine or transformation” test was a useful, but not the only test for whether a process might be eligible for patent protection, Kennedy J pointed out that limiting the meaning of the word “process” to those processes that use a particular machine or effect a transformation would be an unjustifiable limitation on the ordinary meaning of the word “process”. Furthermore, it would ignore the fact that the in Gottschalk v. Benson although the Supreme Court had stated that this test was ‘the’ clue to patentability, the Court had also declined to hold that no process patent could ever qualify if it did not meet the test. Kennedy J noted that the amici briefs filed had shown that there were concerns that exclusive use of the machine or transformation test would lead to uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression and the manipulation of digital signals. He commented that

The machine-or-transformation test may well provide a sufficient basis for evaluating processes similar to those in the Industrial Age – for example inventions grounded in physical or other tangible form. But there are reasons to doubt whether the test should be the sole criterion for determining patentability of inventions in the Information Age.

Although this did not mean that the court was holding “that any of the above-mentioned technologies should or should not receive patent protection”.

He concluded this section:

[P]atent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent creative[2] application of general principles. Nothing in this opinion should be read to take a position on where that balance ought to be struck.

Why the Law does not Preclude all Business Method Patents

Three quotes suffice to summarize Kennedy J’s views on this

“A conclusion that business methods are not patentable in any circumstances would render § 273 meaningless”.

But

“… while § 273 appears to leave open the possibility of some business method patents, it does not suggest broad patentability of such claimed inventions”

And

If a high enough bar is not set when considering patent applications of this sort, patent examiners and courts could be flooded with claims that would put a chill on creative endeavor and dynamic change. In searching for a limiting principle, this Court’s precedents on the unpatentability of abstract ideas provide useful tools.

Clearly he does not wish to open the lock gates to a flood tide of business method patents such as followed the Federal Circuit’s State Street decision.

So, What is the Test?

Kennedy J stated:

Rather than adopting categorical rules that might have wide reaching and unforeseen impacts, the Court resolves this case narrowly on the basis of Parker v. Flook, Gottschalk v. Benson, and Diamond v. Diehr which show the petitioners claims are not patentable because they are attempts to patent abstract ideas. .

These three cases are considered in more detail in the final portion of this paper. However, briefly they held as follows:

Gottschalk v. Benson (Supreme Court 1972)

The Supreme Court unanimously held unpatentable a method for converting binary coded decimal numbers into pure binary numbers. The claims were directed purely to a sequence of steps applied either to numbers themselves or to signals stored in a re-entrant shift register representing the numbers.

Parker v. Flook (1978)

The Supreme Court (6-3) held unpatentable a method for computing updates to an alarm limit (used in relation to a catalytic converter, but the use was not specified in the claim), involving three “determination” steps and a final “adjustment” step based on application of a formula in one of the determination steps. The court commented

“The notion that post-solution activity … no matter how conventional or obvious in itself, can transform an unpatentable principle into a patentable process exalts form over substance.”

Diamond v. Diehr (1981)

The Supreme Court held (5-4) patentable a computerized method for controlling a process for curing rubber that calculated when to open the mold in which cure was taking place by application of the known Arrhenius equation to data obtained from temperature sensors within the mold. In doing so, the Court noted that an application of a law of nature or a mathematical formula to a known structure of process may well be deserving of patent protection. Such application did not pre-empt the use of the formula or law of nature but only one application of it. However, to avoid the possibility of such a preemption, limitation to a particular application had to be a genuine one and not a mere field of use limitation.

Applying this Reasoning to Bilski’s Invention

Based on its application of its reasoning in the prior cases, the Court held:

It is clear that the petitioner’s application is not a patentable process. Claims 1 and 4 … explain the basic concept of hedging or protecting against risk. … The concept of hedging … is an unpatentable abstract idea, just like the algorithms at issue in Benson and Flook. Allowing the petitioners to patent risk hedging would preempt use of this approach in all fields and would effectively grant a monopoly over an abstract idea.

The dependent claims simply limited “an abstract idea to one field of use or add[ed] token postsolution components [which] did not make the concept patentable.”

Indeed these claims add even less to the underlying abstract principle than the invention in Flook did, for the Flook invention was at least directed to the narrower domain of signaling dangers in operating a catalytic converter.

Kennedy J concluded:

The Court once again declines to impose limitations on the Patent Act that are inconsistent with the Act’s text … the Court need not define further what constitutes a patentable process beyond pointing to the definition in §101 and looking to the guideposts in [Parker v. Flook, Gottschalk v. Benson, and Diamond v. Diehr].

Stevens J’s Opinion

As noted above four of the justices agreed in the result, but would have used different reasoning. Their views were set out in an opinion by Stevens J. This opinion is considerably longer than that of the majority and there is some speculation that the majority of the court may originally have agreed with him so that what he drafted was originally intended as the decision of the court but that one of the justices changed his or her mind somewhere along the way. This could account for the long delay in issuing the judgment.

The essence of Stevens J’s view is that business methods have always been regarded as being unpatentable and are not “useful arts” in the meaning that such term had when the patent statute was originally written. In Stewart J’s view, Congress’s enactment 35 USC § 273 was simply an ad hoc response by Congress to provide relief for businesses adversely affected by a perverse ruling of the Federal Circuit in the State Street Bank case and did not represent any considered view by Congress that business methods were patentable.

In Steven’s J’s view, the opinion of the court was likely to cause difficulties because of its lack of guidance as to what constituted an abstract idea. He noted:

Although I happen to agree that the petitioners seek to patent an abstract idea, the Court does not show how this conclusion follows “clearly”. The patent before us is not for a “principle in the abstract” or a “fundamental truth”. Nor does it claim the sort of phenomenon or mathematical formula at issue in Gottschalk v. Benson and in Flook.

And

One might think that the Court’s analysis means that any process that utilizes an abstract idea is itself an unpatentable abstract idea. But we have never suggested any such rule.

It would in his view have been preferable to simply hold that business methods were not eligible for patent protection:

The Constitution grants Congress an important power to promote innovation. … The scope of patentable subject matter under the statute is broad. But it is not boundless. In the absence of any clear guidance from Congress we have only limited textual, historical and functional clues on which to rely. These clues all point toward the same conclusion ; …. methods of doing business are not, in themselves, covered by the statue.

The Initial Response from the USPTO

On the same day as the Supreme Court’s decision, the USPTO issued interim guidance to examiners as to how to examine method claims. After noting that the Supreme Court’s decision had held that at least some business method claims could be patent eligible, the guidance went on to state that examiners should continue to use the machine or transformation test as the primary step in their analysis of patent eligibility of method claims. If the machine or transformation test is met, a claim should be rejected only if there is a clear indication that the method is directed to an abstract idea. If the method claimed failed to meet the machine or transformation test, the claim should be rejected unless there is a clear indication that the method is not directed to an abstract idea. If a claim is rejected on this ground the applicant has an opportunity to explain why the claimed method is not drawn to an abstract idea.

The first two Board of Appeals decisions to mention Bilski v. Kappos after that decision was issued by the Supreme Court, Ex parte Proudler and Ex parte Birger follow similar formats in vacating rejections by the examiner on the ground of obviousness and instituting a new ground of rejection on the basis of lack of patent eligible subject matter. The Proudler application related to a method for controlling the processing of data. The Birger application related to a method for communicating between two endpoints connected to a network. Both of the appeal board decisions (which have different authors) contain the following paragraphs:

The subject matter of claims permitted within 35 U.S.C. § 101 must be a machine, a manufacture, a process, or a composition of matter. Moreover, our reviewing court has stated that “[t]he four categories [of § 101] together describe the exclusive reach of patentable subject matter. If the claim covers material not found in any of the four statutory categories, that claim falls outside the plainly expressed scope of § 101 even if the subject matter is otherwise new and useful.” In re Nuijten, accord In re Ferguson. This latter case held that claims directed to a “paradigm” arc nonstatutory under 35 U.S.C. § 101 as representing an abstract idea. Thus, a “signal” cannot be patentable subject matter because it is not within any of the four categories. In re Nuijten. Laws of nature, abstract ideas, and natural phenomena are excluded from patent protection. Diamond v. Diehr. A claim that recites no more than software, logic or a data structure (i.e., an abstraction) does not fall within any statutory category. In re Warmerdam. Significantly, “Abstract software code is an idea without physical embodiment.” Microsoft Corp. v. AT&T Corp. The unpatentability of abstract ideas was confirmed by the U.S. Supreme Court in Bilski v. Kappas.

With this background in mind, all claims on appeal, claims …, are rejected under 35 U.S.C. § 101 as being directed to non statutory subject matter. Consistent with our earlier-noted invention statement from Appellants’ disclosed Abstract, the disclosed and claimed invention is directed to software per se, abstract ideas, abstract concepts, and the like …

In Ex parte Birger, it was indicated that “and the like” included “data per se, data items, messages, addresses, identities, data structures, software layers, software applications, software protocols and the abstract intellectual processes associated with them within the claims on appeal”. In Ex parte Proudler, it was indicated that “and the like” included “data per se, data items, data structures, usage rules and the abstract intellectual processes associating them with the claims on appeal.”

On July 29, the USPTO published in the Federal Register new “Interim Guidance for Determining Subject Matter Eligibility for Process Claims in view of Bilski v. Kappos”.[3]
The public has been invited to comment on the guidance given.

What seem to be significant comments in the guidance include the following:

…the fact that the steps of a claim might occur in the “real world” does not necessarily save it from a section 101 rejection. Thus, in Bilski claims were said to be drawn to an abstract idea despite the fact that they included steps drawn to initiating transactions. The “abstractness” is in the sense that there are no limitations as to the mechanisms for entering into the transactions.

The Guidance goes on to set out four factors to be considered by examiner’s in evaluating whether a claim is directed to an abstract idea lacking patent eligibility:

A. Whether the method involves or is executed by a particular machine or apparatus. It is noted that in applying this factor examiner should consider the degree to which the machine in the claim can be specifically identified. We have noted a tendency of examiners to suggest that claims that involve use of computers to state that the computer is “specifically programmed” to perform the defined method.

B. Whether performance of the claimed method results in or otherwise involves a transformation of a particular article. In applying this factor examiners are to consider whether what is being transformed is an object or substance (which weighs towards patent eligibility) or a concept such as a contractual obligation or mental judgment (which weighs against the transformation being patent eligible).

C. Whether the performance of the claimed method involves an application of a law of nature, even in the absence of a particular machine, apparatus or transformation. If it dies than it is more likely that the method is patent-eligible than if it does not, as long as the claim does not attempt to encompass some specific effect of that law or every mode of accomplishing that effect, such as Samuel Morse’s famous claim that was found to be by the Supreme Court to be invalid in 1854: “use of electromagnetism for transmitting signals at a distance”.

D. Whether a general concept is involved in executing steps of the method, which would tend to weigh against the method being eligible for patent protection. The Guidance lists a number of general concepts which the USPTO believes may call into question whether a claimed method is patent-eligible. These include; basic economic practices or theories (e.g. hedging, insurance, financial transactions, marketing), basic legal theories (e.g. contracts, dispute resolution, rules of law), mathematical concepts (e.g. algorithms, special relations, geometry), mental activity (e.g. forming a judgment, observation, evaluation or opinion), interpersonal interactions or relationships (e.g. conversing, dating), teaching concepts ( human behavior (e.g. exercising, wearing clothing, following rules or instructions) and instructing how business should be conducted.
The Guidance points out that no one factor should be determinative as to whether what is being claimed is eligible for patent protection and that the claim as a whole has to be evaluated to see whether it is ‘drawn to an abstract idea such that the claim would effectively grant a monopoly over an abstract idea”. If the examiner concludes that this is the case, the claim should be rejected as being prima facie ineligible for patent protection and the applicant given the opportunity to explain why what is being claimed is not simply an abstract idea.

So Where Are We?

The Bilski decision refers to three earlier Supreme Court decisions, Benson, Flook and Diehr which it says should be used as guideposts for the future. In Bislki, the Supreme Court has now said that in its view the following claims that were before it in those prior cases or in Bilski itself are abstract ideas, even if strictly speaking that may not have been how the decision to reject such claims was expressed at the time::

A method of converting signals from binary coded decimal (BCD) into binary, the signals being stored in a reentrant shift register (Benson Claim 1)

A data processing method for converting binary coded number representations into binary number representations (Benson Claim 8)

A method for updating the value of at least one alarm limit on at least one process variable involved in a process comprising catalytic chemical conversion of hydrocarbons which comprised determining the present value of a process variable, determining a new alarm limit based on such value using a mathematical formula and then adjusting the alarm limit accordingly. (Flook Claim 1)

A method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price. (Bilski claim 1)

Unlike the two earlier cases, Bilski’s claim 1 did not involve a mathematical formula. One possible reading of the Benson, Flook and Diehr cases was that a key factor was the presence of such a formula at the point of novelty. While it seems clear that this will probably still be seen as an indicator of lack of patent eligibility, clearly the Biski decision adds to this. On the other hand, the decision should dispel fears that application of the machine or transformation test might deny patent eligibility to diagnostic methods, data compression techniques and other inventions solving specific technical problems but which did not on their face involve a specific machine or a transformation.

In Benson the court described the invention as follows:

The method sought to be patented varies the ordinary arithmetic steps a human would use by changing the order of the steps, changing the symbolism for writing the multiplier used in some steps and taking subtotals after each successive operation. The mathematical procedures can be carried out in existing computers long in use, no new machinery being necessary. And … they can also be performed without a computer.

Apart from references to earlier cases holding that abstract ideas are unpatentable, the only use of the word “abstract” in the decision was in the following sentence:

Here the “process’ claim is so abstract and sweeping as to cover both known and unknown uses of the BCD to pure binary conversion.

What is much clearer is that the Court believed the claim was so broad that it would “preempt the mathematical formula and the practical effect would be a patent on the algorithm itself.

In Flook the Court split 6-3, but the majority in an opinion by Stevens J commenced its opinion

The only novel feature of the method is a mathematical formula. In Gottschalk v. Benson we held that the discovery of a novel and useful mathematical formula may not be patented. The question in this case is whether the identification of a limited category of useful, though conventional, post solution applications of such a formula makes the respondents’ method eligible for patent protection.

As with Benson, the word “abstract” is conspicuous by its near absence from the decision and in this case used only in quotations from earlier cases. The actual reason given for rejecting the claims was that the mathematical formula set out in the claim was an unpatentable principle and that since this was the only point of novelty, its presence could not render the other features of the claim (dismissed as conventional or obvious post solution activity) into something eligible for patent protection.

In Diamond v. Diehr, the mathematical formula in the claim was not new. Hence its use in computer control of a rubber curing operation ran no risk of preempting use of that formula. Consequently the invention was eligible for patent protection. In this case, the Supreme Court explained its Benson decision as being a holding that the claims were unpatentable because they were directed to an algorithm the sole practical application of which was in connection with the programming of a general purpose digital computer. The Court pointed out that it had defined “algorithm” as a “procedure for solving a given type of mathematical problem” and concluded that such an algorithm or mathematical formula is like a law of nature which cannot be the subject of a patent. In Diehr, the Court also explained its decision in Flook as using a formula to update an alarm limit if several other variables were known. However, the application “did not purport to explain how these other variables were to be determined nor did it purport to contain any disclosure relating to the chemical process at work, the monitoring of process variables or the means for setting the alarm or adjusting the alarm system” All that was provided was a formula for computing an updated alarm limit.

Based on all of this, perhaps the best guess as to where the line will be drawn is to say that for an invention that does not meet the machine or transformation test, it must solve a problem at a degree of abstraction lower than the highest possible level and be more than simply a field of use limitation imposed on such high level solution. This seems consistent with the USPTO’s guidance which places emphasis on the breadth of claim. Interestingly, if this approach were adopted, it would have some resonance with the “abstraction, filtration, comparison” test used to determine whether or not there is infringement of copyright in computer software. In this test, the abstraction analysis is used to distinguish between unprotectable ideas and protectable expression of an idea.[4]

In his opinion in Bilski, Stevens J pointed out that the test of whether a claim is too broad or not ought to be decided under the enablement and written description provisions of 35 USC § 112 rather than as a matter of patent eligibility under 35 USC § 101. Nevertheless, the them running through all of the decisions discussed above is that the claim was too broad, not that any particular type of method was excluded. It is true that the USPTO Guidance of July 27 does list in its Factor D certain types of activity that are regarded as “suspect” as to whether they can be regarded as being patent eligible. However, as the guidance itself sets out, this is only one of the factors to be considered and the others are much more relevant to scope of protection. All that can be predicted is that until the issue is addressed by the Federal Circuit Court of appeals, applicants presenting method claims in these fields are going to need to be more persuasive in explaining why their methods are sufficiently narrow that they include limitations on implementation so that they do not cover every application of the concept in question to a particular field of use.

Applying, this approach to Bilski’s method, what might one have claimed differently? Restricting to a particular field of use, energy, was held to be insufficient and, if one accepts the premise that Bilski’s claims 1 and 4 are directed to abstract ideas, is consistent with prior case law. Inclusion of more specific factors relating to variation in energy prices might well have helped. It is true that at least references to the impact of weather on energy prices were present in some of the dependent claims in Bislki and that Kennedy J dismissed them as field of use or “token postsolution components”. However, it is not clear that their patent eligibility was ever argued independently of the claims on which they were dependent.

Another approach might be to tie the method to use of a computer. As noted above, none of Bilski’s claims made reference to a computer. Furthermore, Federal Circuit case law has indicated that simply indicating that something is effected “by computer means” invokes paragraph 6 of 35 USC § 112 so that the claims are to be construed as being limited to the “structure” described in the specification and equivalents thereto. The cases have indicated that when the claims refer to computer means, the “structure” is provided by details of the algorithm used.[5] Furthermore, the USPTO guidelines, which have not yet been modified in the light of the Bilski decision beyond the notice mentioned above issued to examiners on the day of the decision, point out that mere manipulations of numbers, abstract concepts or ideas or signals representing them do not in the USPTO’s view constitute patent-eligible subject matter. Simply carrying out on a computer that which is otherwise not eligible for patent protection does not automatically convert it into something that is eligible for patent protection. But again, as noted above, the guidelines go on to ask the examiner to evaluate whether the claim is directed to all practical applications of the algorithm or idea. Nevertheless, experience indicates that it is sometimes easier to persuade an examiner that a method that does not involve physical manipulation of a tangible thing is patent eligible if the method is tied to a computer, particularly if the method can as a practical matter only be carried out on a computer, than it is to persuade an examiner to accept a free-standing method claim.

Conclusion

There is no absolute bar on patent protection for business methods, but to be patent eligible, the claims should be drafted fairly narrowly to avoid claiming all practical applications of the idea underlying the invention (confining the claims to a particular field of use is not sufficient by itself), and avoid having a mathematical formula as the sole point of novelty. If it is the case that the method can only be performed by a computer it is probably also useful to set this out and include sufficient of the logic that the computer must use to meet the requirements of 35 USC § 112 first and sixth paragraphs.

By way of comment, it is worth noting that before Fed Circuit’s decision in Bislki, the test being used was the “useful, concrete and tangible” test enunciated in State Street to distinguish what was patent-eligible from what was “abstract”. All members of the Supreme Court in Bilski said that this test let too much in and most commentators have agreed. Judge Rader in the Federal Circuit and all of the Supreme Court said Bislki’s invention as claimed was abstract – but if one looks up the word abstract in the dictionary (“disassociated from any specific instance”, “insufficiently factual”) it is difficult to see how a method of hedging commodity prices falls within such definitions. So I would not condemn the Federal Circuit for not following Supreme Court precedent. The majority opinion in the Federal Circuit set out the Supreme Court precedents in detail and extracted the one common thing in them namely “machine or transformation”. The Federal Circuit’s decision may well have been a deliberate attempt to force the Supreme Court to recognize that its precedents do not work well in the modern age (Stevens J’s opinion shows why they do not work well) and come up with something better. Unfortunately, the Supreme Court did not, simply saying that Bilski’s invention was “abstract” in a case it was not abstract according to most dictionary definitions of the word and failing to say what abstract meant in this context except “too broad” – an issue which as Stevens J pointed out should be decided under 35 USC § 112 not 35 USC § 101.

Footnotes:

[1] In fact some of the subclaims were addressed to selection of particular types of weather indicators for use in the claculation of claim 4 and to particular ways of carrying out specified types of statistical analysis.

[2] The use of the word “creative” in this sentence is a little disturbing since it raises the specter of a distinction between “inventive” application of general principles which is patentable and “creative” application which is not – but it is consistent with comments in KSR that the person having ordinary skill in the art for obviousness purposes was “a person of ordinary skill is also a person of ordinary creativity, not an automaton”.

[3] 75 Fed. Reg. 43922.

[4] In copyright cases, the boundary line in the software area seems normally to lie between the unprotectable general purpose of the program and the organization of the different parts of the program needed to achieve that purpose. Whether such an approach is logical in the patent field is an open question, but if used at least provides the basis for argument that what one is claiming is not so abstract as to be ineligible for patent protection.

[5] Aristocrat Technologies Australia Pty Ltd. v. International Game Technology.