Eric E. Bensen
384 Euston Road South
Garden City, New York
(516) 486-2250
/ December 3, 2009
Suffolk County Bar Association
Intellectual Property Law Committee

In re Bilski in the Supreme Court

With its grant of certiorari in the In re Bilski matter, the Supreme Court has again decided to take up a fundamental issue of patent law, this time, the question of what constitutes a patent eligible “process” under 35 U.S.C. § 101.

  1. Pertinent Statute
  2. 35 U.S.C. § 101: “Inventions patentable. 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.” (Emphasis added.)
  3. In re Bilski addresses only the meaning of “process.”
  4. Background
  5. Scope of § 101.
  6. The statutory definition of patentable subject matter under § 101 is unquestionably broad, see, e.g., Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980) (“The Committee Reports accompanying the 1952 Act inform us that Congress intended statutory subject matter to ‘include anything under the sun that is made by man.’”).
  7. However, the Supreme Court has placed limits on that scope holding that abstract ideas, laws of nature, and natural phenomena, even if limited to a specific field of use or inclusive of physical data gathering steps or post solution applications, are not patent eligible. Parker v. Flook, 437U.S. 584, 590 (1978) (“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.”); Gottschalk v. Benson, 409 U.S. 63, 67 (1972) (“Phenomena of nature, though just discovered, mental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work.”); see alsoLe Roy v. Tatham,14 How. 156, 175 (1853) (“It is admitted, that a principle is not patentable. A principle, in the abstract, is a fundamental truth; an original cause; a motive; these cannot be patented, as no one can claim in either of them an exclusive right.”).
  8. Distinguishing between patenteligible processes and unpatentable abstract ideas orlaws of nature has always presented the courts withdifficult issues. See, e.g., Parker v. Flook, 437 U.S. 584,589 (1978) (“The line between a patentable ‘process’ andan unpatentable ‘principle’ is not always clear.”); RisdonIron & Locomotive Works, 158 U.S. 68, 71 (1895) (“Thatcertain processes of manufacture are patentable is asclear as that certain others are not, but nowhere is thedistinction between them accurately defined.”).
  9. The tension between the broad language of section 101 and the Court’s limitations of its scope is most frequently highlighted in cases involving the patent eligibility of a process where the process is arguably nothing more than a mathematical algorithm. See, e.g., Benson, 409 U.S. at 67 (process for converting binary-coded decimal numerals into pure binary numbers not patent eligible).
  10. Contemporary Supreme Court Decisions Addressing Patent Eligibility
  11. Gottschalk v. Benson, 409 U.S. 63 (1972) (“Benson”). The Court addressed the patent eligibility of a process for converting binary-coded decimal numerals into pure binary numbers, which related to a general use computer, but could be performed mentally using a mathematical table, and held that it was not patent eligible because it was merely an abstract idea. Id. at 64, 67, 71-72. Underlying the Court’s decision was the fact that the claim would have preempted all uses of the algorithm and, thus, was drawn to the algorithm itself. Id. 71-72.
  12. Parker v. Flook, 437 U.S. 584 (1978) (“Flook”). The Court addressed the patent eligibility of a mathematical algorithm to update “alarm limits” used in a catalytic conversion process, which, although primarily useful for computerized calculations, did not claim the use of a machine, and held it was not patent eligible. Id. at 585, 590, 594.
  13. Diamond v. Diehr, 450 U.S. 175 (1981) (“Diehr”). The Court addressed the patent eligibility of a process for curing synthetic rubber products that involved taking temperature readings during the process and using mathematical algorithm to calculate the time at which the rubber would be properly cured. Id. 177-179. The Court held that although several steps in the claimed process were mathematical algorithms concerning the recalculation of cure times, the process as a whole was patent eligible because it involved the transformation of an article. Id. at 184-85.
  14. Machine-or-Transformation Test. The Benson, Flook and Diehr decisions support the conclusion that a claimed process is patent eligible if it is tied to a particular machine or transforms a particular article into a different state or thing. However, Benson and Diehr arguably differ as to whether that is the only standard for patent eligibility of a process.
  15. Benson (1972): “Transformation 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. … We do not hold that no process patent could ever qualify if it did not meet the requirements of our prior precedents.” 409 U.S. 63, 70-71 (emphasis added)
  16. Diehr (1981): “Transformation 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.” 450 U.S. 175, 184 (quoting Benson, but omitting the additional language highlighted above).
  17. The Federal Circuit’s Decisions in State Street Bank and AT&T
  18. The State Street Bank & Trust Co. v. Signature Fin. Group Inc., 149 F.3d 1368 (Fed. Cir. 1998) (“State Street”), and AT&T Corp. v. Excel Comms. Inc., 172 F.3d 1352, (Fed. Cir. 1999) (“AT&T”) decisions involved, respectively, a claim drawn to the implementation of an investment structure, called “HUB and Spoke®,” whereby mutual funds could pool their assets in an investment portfolio, and a method for routing long distance telephone calls involving the generation of a primary interexchange carrier indicator to be added to the message records. 149 F.3d at 1370; 172 F.3d at 1353-54. The Federal Circuit held both claims to be patent eligible.
  19. However, language in each case suggested that in finding patent eligibility, the Federal Circuit focused solely on whether the claimed method produced some practical application rending it “useful,” State Street, 149 F.3d at 1375 (analysis should focus on “practical utility”); AT&T Corp., 172 F.3d at 1357 (analysis should focus on whether “the mathematical concept has been reduced to some practical application rendering it useful”), arguably, a lower threshold for patent eligibility than that laid out in Benson, Flook and Diehr.
  20. Claim at Issue in In re Bilski
  21. Bilski’s Claim: “A method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of:
  22. 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;
  23. identifying market participants for said commodity having a counter-risk position to said
  24. 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.
  25. Summary Description: The claimed method is for hedging risk in the field of commoditiestrading. Under it, a provider of acommodity, such as coal, would initiate a series oftransactions with consumers at a fixed rate to insulatethem from higher rates that would result from a spikein demand due to unusually cold weather. Theprovider would then initiate transactions with coalsuppliers at a second fixed rate that would insulate themfrom lower prices for coal that would result from a dropin demand due to unusually warm weather. Theoffsetting positions would then operate as a hedge forthe provider against unusual demand for coal.
  26. The PTO’s Decision. The PTO rejected the claim on the grounds that (i) it was not patentable as a “process” because it was neither tied to a machine nor transformed physical subject matter into a different state or thing, (ii) it was directed to an “abstract idea,” specifically, a mathematical algorithm, in the sense that it preempted every possible way of performing the claimed steps, whether by human, by machine or by any combination thereof, and (iii) it neither recited a “practical application” nor produced a “concrete and tangible result.”
  27. The Federal Circuit’s Decision
  28. En Banc Questions. The original Federal Circuit panel heard oral argument, but did not issue a decision. Rather, the court decided sua sponte to hear the matter en banc. In doing so, it asked the parties to file supplemental briefs addressing five questions:
  29. Whether claim 1 [of Bilski’s] application claims patent-eligible subject matter under 35 U.S.C. §101.
  30. What standard should govern in determining whether a process is patent-eligible subject matter under Section 101?
  31. 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?
  32. 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.
  33. Whether it is appropriate to reconsider State Street Bank … and AT&T … in this case, and, if so, whether those cases should be overruled in any respect.
  1. En Banc Decision, 545 F.3d 943
  2. Main Holdings
  3. The Machine-or-Transformation Test is the “Definitive” Test for Determining the Patent Eligibility of a Process.
  4. The “definitive” test to determine whether a process claim is tailored narrowly enough to encompass only a particular application of a fundamental principle rather than the principle itself is to ask whether (1) it is tied to a particular machine or apparatus (“Machine Prong”) or (2) it transforms a particular article into a different state or thing (“Transformation Prong”). 545 F.3d at 954.
  5. The machine or the transformation, assuming it provides meaningful limits on the claim’s scope, provides the specific application of the fundamental principle that distinguish the claim from a claim drawn to the principle itself. 545 F.3d at 954.
  6. Bilski’s Claim Not Patent Eligible:
  7. Machine Prong: The claimed process was not tied to a machine. 545 F.3d at 962.
  8. Transformation Prong: The matters transformed by the process were merely “public and private legal obligations or relationships, business risks, or other such abstractions,” which could not meet the transformation part of the test because they were not physical objects or electronic signals representative of physical objects. 545 F.3d at 963.
  9. Other Holdings
  10. Apparent Conflict between BensonDiehr. The Federal Circuit noted the apparent conflict between Benson, which appeared to treat the Machine-or-Transformation Test as one way to establish eligibility, and Diehr, which appeared to treat the Machine-or-Transformation Test as the test for eligibility. It followed Diehr holding that the “governing test” for patent eligibility where the claimed invention is a process is the Machine-or-Transformation Test. It noted however, that it or the Supreme Court may at some point modify or set aside the Machine-or-Transformation Test to accommodate emerging technologies. 945 F.3d at 955-56.
  11. Field of Use Limitations. The Federal Circuit noted that some may see a tension between Benson’s apparent prohibition on wholesale preemption of fundamental principles and the holding in Diehrthat a mere field of use limitation is not sufficient to establish eligibility inasmuch a field of use limitation would appear to prevent wholesale preemption of a fundamental principle. Resolving that tension, the Federal Circuit observed that wholesale preemption of a fundamental principle is merely an indication of patent ineligibility and that such preemption within a field of use may equally indicate that the claim is not limited to a particular application of a principle. In contrast, a claim satisfying the Machine-or-Transformation Test does not preempt all uses of a fundamental principle in any field, much less entirely. 945 F.3d at 957.
  12. Post Solution Activity. Diehr also held that “insignificant postsolution activity” will not render unpatentable subject matter patent eligible. The Federal Circuit viewed that rule as equally applicable to the Machine-or-Transformation Test in that the claimed transformation or machine must constitute more than a mere insignificant postsolution activity to save a claim from patent ineligibility. 945 F.3d at 957.
  13. State StreetAT&T. The Federal Circuit clarified that while a “useful, concrete and tangible result” may indicate whether the claim is drawn to patent eligible subject matter, that inquiry by itself is insufficient to resolve the question of eligibility and to the extent the pertinent portions of State Street and AT&T suggested otherwise, they should not be relied on. 945 F.3d at 959, 959 n.19.
  14. Business Method & Software Patents. Consistent with its holding in State Street, where it rejected the notion that a claimed invention otherwise meeting the requirements of § 101 was nonetheless unpatentable subject matter if it was properly characterized as a “business method,”the Federal Circuit refused adopt a categorical exclusion, such as for business method or software patents, beyond those already adopted by the Court. 945 F.3d at 960, 960 n.23.
  15. Transformation Prong – Electronic Signals. The court noted that “[t]he raw materials of many information-age processes, however, are electronic signals and electronically-manipulated data.” Rather than go so far as to hold that the transformation of electronic signals or data by itself would satisfy the transformation test, however, the court decided to adhere to the “measured approach” taken in existing case law under which a claim drawn to the transformation of electronic signals that was, e.g., limited to “a visual depiction that represents specific physical objects or substance” would be patent eligible. In doing so, however, the court made it clear that the transformation of a physical object itself was not a requirement of the transformation test. 945 F.3d at 962.
  16. Machine Prong – Tying to a General Purpose Computer. Because the Bilski claim did not limit the claimed process to any specific machine, the Federal Circuit declined to explore the contours of the machine prong of the Machine-or-Transformation Test and, specifically, declined to address the question of “whether or when recitation of a computer suffices to tie a process claim to a particular machine.” 545 F.3d at 962.
  17. Subsequent Federal Circuit Decisions
  18. In re Ferguson, 558 F.3d 1359, 1364-65 (Fed. Cir. 2009) (claim for method of marketing a product, although nominally a “process,” not patent eligible because it was not tied to a machine and did not transform a particular article into a different state or thing).
  19. Prometheus Labs., Inc. v. Mayo Collaborative Servs., 2009 U.S. App. LEXIS 20623, *22 (Fed. Cir. Sep. 16, 2009) (claim for method calibrating the proper dosage of a particular drug, which method involved administering a drug to a patient and then determining the level of the drug’s metabolites in the patient, satisfied transformation prong because of the transformative effect the administration of the drug had on the patient’s body).
  1. In re Bilski at the Supreme Court
  2. Issue # 1: Is the Machine-or-Transformation Test the “determinative” test for eligibility?
  3. Background
  4. The proposition that an invention is patent eligible if it is tied to a particular machine or transforms particular article is well grounded.
  5. Origin of Machine Prong. The “machine” aspect of the particular test tracesits origin at least to the Court’s decision in O’Reilly v.Morse, 56 U.S. 62 (1854). See Tilghmanv. Proctor, 102 U.S. 707, 726-727 (1881) (“The eighth claim of Morse’s patent was heldto be invalid, because it was . . . not for a process, but for a mere principle. It amountedto . . . a claim of the exclusive right to the useof electro-magnetism as a motive power formaking intelligible marks at a distance; thatis, a claim to the exclusive use of one of thepowers of nature for a particular purpose. Itwas not a claim of any particular machinery,nor a claim of any particular process forutilizing the power; but a claim of the poweritself . . . .”) (emphasis added).
  6. Origin of Transformation Prong. The “transformation” aspect was initiallyexpressed in Cochrane v. Deener, 94 U.S. 780 (1877), inwhich the Court, after noting that the claims in issuedid not require any particular configuration ofmachinery, nevertheless held that a patentable “process”would include: “[A] mode of treatment of certain materials toproduce a given result. It is an act, or a seriesof acts, performed upon the subject-matterto be transformed and reduced to a differentstate or thing.”
  7. Similarly, the proposition that abstract ideas, laws or nature and natural phenomena are not patent eligible is well grounded. Gottschalk v. Benson, 409 U.S. 63, 67 (1972) (“Phenomena of nature, though just discovered, mental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work.”);Le Roy v. Tatham,14 How. 156, 175 (1853) (“It is admitted, that a principle is not patentable. A principle, in the abstract, is a fundamental truth; an original cause; a motive; these cannot be patented, as no one can claim in either of them an exclusive right.”).
  8. Thus, the Court is unlikely to hold either that a process that meets the Machine-or-Transform Test is not patent eligible or that abstract ideas, etc. are. The Court’s focus is likely to be on the question of whether the Machine-or-Transformation Test the only test for eligibility, as the Federal Circuit held, or, whether a claimed invention that does not meet that test, but is not an abstract idea, law of nature or natural phenomena,can be eligible and, if so, what the appropriate test would be.
  9. As noted earlier, Benson and Diehr arguably conflict on this issue.
  10. The problem for the Court is that the Bilski claim does not provide a good example of a claimed invention that does not meet the Machine-or-Transformation Test, but arguably should be patent eligible. (Few practioners appear to believe that it is more than an abstract idea.) Thus, Bilski may prove to be a poor case for the Supreme Court to further develop the test for eligibility.
  11. Arguments by the Parties
  12. Bilski
  13. The Machine-or-Transformation Test has no basis in § 101, which is to be construed broadly.
  14. Machine-or-Transformation Test conflicts with the Court’s precedent, specifically, Benson and Flook, which both stated that a process may be eligible if it does not meet the Machine-or-Transformation Test.
  15. There is no separate test for eligibility of processes (i.e., processes, machines, compositions and manufacturers are to all be evaluated under the same standard).
  16. There is no basis for the Machine Prong.
  17. Requiring under the Transformation Prong that a physical article or chemical be transformed make the prong unsuitable for modern industry (cites to the Dolbear v.American Bell Tel. Co., 126 U.S. 1, 534 (1888) (the “Telephone Cases”)).
  18. Treating the Machine-or-Transformation Test as the “definitive” test is contrary to the Court’s disinclination to adopt rigid rules in the patent area (cites Festo, eBay, KSR).
  19. The appropriate standard is that a practical application of an abstract idea, law of nature or natural phenomena is patent eligible.
  20. Government
  21. Section 101 protects industrial and technological processes and excludes methods directed at organizing human activity.
  22. Each of the four statutory categories has been given “concrete” definitions by the Court.
  23. Diehr summed up long line of cases construing “process” as used in §101.
  24. The terms “process” and “art” have historically been understood to be limited to industrial and technological methods and to not include fields of purely human activity. (“Science”, as used in Art. I, § 8, referred to the field of general knowledge and learning, which included finance and business, while the “useful Arts” referred to technology and industry).
  25. The other statutory categories – manufacture, machine, and composition of matter – involve technology and industry, which supports the conclusion that “process” refers to technological and industrial processes.
  26. The Machine-or-Transformation Test provides an effective means to distinguish between industrial and technological process from other processes.
  27. The Machine-or-Transformation Test accommodates evolving technology.

(a)Software