Bilski: No machine or transformation, no patentable method, at least for now
November 03, 2008

As we reported Thursday, the Federal Circuit has decided In re Bilski, an en banc decision regarding the scope of patentable subject matter. Specifically, the court addressed what is necessary for a method to fall within the scope of patentable subject matter under § 101.

The court, after examining the relevant Supreme Court cases on the subject (such as Diehr, Benson, and Flook), the court adopted the "machine-or-transformation" test as the applicable test for patent-eligible methods. In so doing, the court rejected the Freeman-Walter-Abele test (regarding algorithms), the "useful, concrete, and tangible result" test articulated in State Street, and the "technological arts" test described in, for example, Ex parte Lundgren.

As stated by the court:

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 machine or transformation must also "impose meaningful limits on the claim's scope" and "must not merely be insignificant extra-solution activity."

The final vote was 9-3, with Judge Dyk writing a concurrence joined by Judge Linn, and Judges Newman, Mayer, and Rader authoring separate dissents.

The claim at issue on appeal was claim 1 of Bilski's application. That claim is reproduced below:

1. 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

The examiner rejected the claim as "not implemented on a specific apparatus and merely manipulates [an] abstract idea and solves a purely mathematical problem without any limitation to a practical application, therefore, the invention is not directed to the technological arts." The Board of Patent Appeals and Interferences held the examiner improperly relied on a "technological arts" test, but affirmed the rejections as not tied to an apparatus and involving no physical transformation of matter, and that it did not produce a "useful, concrete, and tangible" result. Bilski appealed. The Federal Circuit sua sponte ordered the case to be heard en banc, and requested briefing on five issues:

  1. Whether claim 1 of the 08/833,892 patent application claims patent-eligible subject matter under 35 U.S.C. § 101?
  2. What standard should govern in determining whether a process is patent-eligible subject matter under section 101?
  3. Whether the claimed subject matter is not patent-eligible because it constitutes an abstract idea or mental process; when does a claim that contains both mental and physical steps create patent-eligible subject matter?
  4. Whether a method or process must result in a physical transformation of an article or be tied to a machine to be patent-eligible subject matter under section 101?
  5. Whether it is appropriate to reconsider State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999), in this case and, if so, whether those cases should be overruled in any respect?

Numerous amici filed briefs on the issues, and oral argument was held in May.

The en banc court affirmed the rejection. The nine-judge majority also delved into the proper test for a patentable method. The court examined the various tests that have been applied in Supreme Court and previous Federal Circuit cases. In the end, the court adopted the "machine-or-transformation" test from Supreme Court jurisprudence, which, for a method to be patent-eligible under § 101, requires either a showing that the claim is "tied to a particular machine," or that the claim "transforms an article." The court did leave an opening for "refinement" of the test in the future to accomodate new technologies:

Thus, we recognize that the Supreme Court may ultimately decide to alter or perhaps even set aside this test to accommodate emerging technologies. And we certainly do not rule out the possibility that this court may in the future refine or augment the test or how it is applied. At present, however, and certainly for the present case, we see no need for such a departure and reaffirm that the machine-or-transformation test, properly applied, is the governing test for determining patent eligibility of a process under § 101.

The court also considered other tests that have been applied over the years, and ended their continued applicability. Among these are the Freeman-Walter-Abele test, which, in its two steps, required:

(1) determining whether the claim recites an "algorithm" within the meaning of Benson, then (2) determining whether that algorithm is "applied in any manner to physical elements or process steps."

The court held this test was "inadequate" in light of the opinion in this case, noting that in other cases, claims failing the test have been held to be drawn to statutory subject matter.

The court next turned to the "useful, concrete, and tangible result" test from State Street. As with the Freeman-Walter-Abele test, the court found this test inadequate:

To be sure, a process tied to a particular machine, or transforming or reducing a particular article into a different state or thing, will generally produce a "concrete" and "tangible" result as those terms were used in our prior decisions. But 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. And it was certainly never intended to supplant the Supreme Court's test. Therefore, we also conclude that the "useful, concrete and tangible result" inquiry is inadequate and reaffirm that the machine-or-transformation test outlined by the Supreme Court is the proper test to apply.

Finally, the court addressed the "technological arts" test applied by the examiner and mentioned by several amici. The problem with this test, according to the court, is that the meaning of the terms "technological" and "technology" are not static, making this test difficult to apply consistently.

Having determined the "machine-or-transformation" test is the applicable test, the court then examined its prior precedent for guidance on its application. The court held certain principles applicable to both the "machine" and "transformation" branches of the test, noting in either case the machine or transformation must "impose meaningful limits on the claim's scope" and "must not merely be insignificant extra-solution activity." Because the claim at issue admittedly did not involve machine implementation, the court left additional definition of that prong of the test for future decisions.

Regarding the "transformation" prong, however, the court offered additional guidance as to what things constitute "articles" that can be "transformed" to make a claim patent-eligible under § 101. Chemical or physical transformations certainly satisfy this requirement, as noted in Benson. The court used a CCPA decision to illustrate the boundary (internal citations omitted):

Our predecessor court's mixed result in Abele illustrates this point. There, we held unpatentable a broad independent claim reciting a process of graphically displaying variances of data from average values. That claim did not specify any particular type or nature of data; nor did it specify how or from where the data was obtained or what the data represented. In contrast, we held one of Abele's dependent claims to be drawn to patent-eligible subject matter where it specified that "said data is X-ray attenuation data produced in a two dimensional field by a computed tomography scanner." This data clearly represented physical and tangible objects, namely the structure of bones, organs, and other body tissues. Thus, the transformation of that raw data into a particular visual depiction of a physical object on a display was sufficient to render that more narrowly-claimed process patent-eligible.

The court also observed just adding a data collection step to an algorithm is insufficient to render the algorithm patent-eligible.

Finally, after all that analysis, the court turned to the claim at issue in this case. Once the court considered the claim at issue, it took less than five pages to hold it not drawn to patent eligible subject matter and affirm the Board's rejection. As described by the court:

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. Applicants' process at most incorporates only such ineligible transformations.

. . .

Moreover, while the claimed process contains physical steps (initiating, identifying), it does not involve transforming an article into a different state or thing. Therefore, Applicants' claim is not drawn to patent-eligible subject matter under § 101.

It seems a bit unfair to Bilski in this case, as the court observed that he argued the claims produced a "useful, concrete, and tangible result," and that they did not involve solely mental steps. Of course, Bilski had no way to know the Federal Circuit would reject these tests for patentability, rendering these arguments useless.

In their concurrence, Judges Dyk and Linn trace the history of the classes of statutory subject matter in § 101 from the first U.S. Patent Act and even before, to the Statute of Monopolies. Based on the history of the various patent acts, according to the concurrence, the majority was correct in holding method patents limited to the machine-or-transformation test on the basis that:

There is no suggestion in any of this early consideration of process patents that processes for organizing human activity were or ever had been patentable. Rather, the uniform assumption was that the only processes that were patentable were processes for using or creating manufactures, machines, and compositions of matter.

On this basis, the concurring judges assert the dissenters who argue for a broader interpretation of "process" in § 101 (specifically Judges Newman and Rader) are incorrect based on the history of patent law.

Judge Mayer, in dissent, would have gone further than the majority, and would have expressly overruled State Street. According to Judge Mayer: "Affording patent protection to business methods lacks constitutional and statutory support, serves to hinder rather than promote innovation and usurps that which rightfully belongs in teh public domain." Judge Mayer covers much of the same ground as the concurrence, discussing the early patent statutes and the 1952 Act, including the legislative history of the 1952 Act. He also surveys the various commentary since State Street asserting business method patents have caused problems, rather than helped industry, and appears to advocate for the "technological arts" test the majority rejected. Given that he agrees the claims at issue in this case are not patent-eligible, it seems Judge Mayer's opinion is more accurately styled as concurring in the result.

Judge Rader, in dissent, argues the majority takes dicta from various Supreme Court decisions out of context to "tie[] our patent system to dicta from an industrial age decades removed from the bleeding edge," and "links patent eligibility to the age of iron and steel at a time of subatomic particles and terabytes . . . ." Quoting Diehr, he states the Supreme Court has cautioned that "court should not read into the patent laws limitations and conditions which the legislature has not expressed." Here, § 101 states "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof" is patent eligible. As framed by Judge Rader:

With all of its legal sophistry, the court’s new test for eligibility today does not answer the most fundamental question of all: why would the expansive language of section 101 preclude protection of innovation simply because it is not transformational or properly linked to a machine (whatever that means)? Stated even more simply, why should some categories of invention deserve no protection?

He further notes that in Diehr, the Supreme Court stated its case law only supported the three common law exclusions from patentable subject matter: "laws of nature, natural phenomena, and abstract ideas." Here, he would hold Bilski's invention is directed to an abstract idea, and thus not patentable. As a result, Judge Rader's dissent is likely also better styled as concurring in the result.

Judge Newman is the only judge of the 12 that would hold Bilski's claims drawn to patentable subject matter. She decries the fact that under the majority's test, "many of the kinds of inventions that apply today's electronic and photonic technologies, as well as other processes that handle data and information in novel ways" are now unpatentable. Like the other separate opinoins, she also traces the history of the Patent Act, noting each Act in this country "contained a broad definition of patent-eligible subject matter." She also points out inconsistency between the Supreme Court's holding in Benson and the majority's test formed in reliance on Benson:

The Court explained that "the requirements of our prior precedents" did not preclude patents on computer programs, despite the statement drawn from Cochrane v. Deener, 94 U.S. 780, 787-88 (1876), that "[t]ransformation and reduction of an article 'to a different state or thing' is the clue to the patentability of a process claim that does not include particular machines." Although this same statement is now relied upon by this court as requiring its present ruling, the Court in Benson was explicit that: "We do not hold that no process patent could ever qualify if it did not meet [the Court's] prior precedents." The Court recognized that Cochrane’s statement was made in the context of a mechanical process and a past era, and protested: "It is said we freeze process patents to old technologies, leaving no room for the revelations of the new, onrushing technology. Such is not our purpose." Instead, the Court made clear that it was not barring patents on computer programs, and rejected the "argu[ment] that a process patent must either be tied to a particular machine or apparatus or must operate to change articles or materials to a 'different state or thing'" in order to satisfy Section 101. Although my colleagues now describe these statements as "equivocal," there is nothing equivocal about "We do not so hold." Nonetheless, this court now so holds.

She also argued the Supreme Court rejected the majority's test in both Flook and Diehr, as well as Chakrabarty. Judge Newman likewise argues older Supreme Court cases and the Statute of Monopolies support a broad scope of patentable subject matter, not the narrow scope adopted by the majority.

Judge Newman further asserted the public has relied upon the Federal Circuit's previous decisions, including State Street, in making investments in new technologies related to what may now be unpatentable subject matter. She further bemoans the uncertain guidance provided by the court, and she predicts "a disincentive to innovation-based commerce," stating "the most grievous consequence [of the decision] is the effect on inventions not made or not developed because of uncertainty as to patent protection." She summarizes her opinion thusly:

Patents provide an incentive to invest in and work in new directions. In United States v. Line Materials Co., 333 U.S. 287, 332 (1948), Justice Burton, joined by Chief Justice Vinson and Justice Frankfurter, remarked that "the frontiers of science have expanded until civilization now depends largely upon discoveries on those frontiers to meet the infinite needs of the future. The United States, thus far, has taken a leading part in making those discoveries and in putting them to use." This remains true today. It is antithetical to this incentive to restrict eligibility for patenting to what has been done in the past, and to foreclose what might be done in the future.

As expected, the coverage of the decision has been plentiful. Here's a sampling:




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