Patentable Subject Matter, Abstract Ideas, Business Methods, and the Patent Eligibility Trilogy

• Publication year: 2014
• Author: Shauna R. Maloney

Patentable Subject Matter, Abstract Ideas, Business Methods, and the Patent Eligibility Trilogy

Shauna R. Maloney

INTRODUCTION

Determining subject matter eligibility for business methods is a murky endeavor given the current state of patent law. The Supreme Court has issued two recent decisions on the topic: Bilski v. Kappos,¹ in 2010, and Mayo v. Prometheus in 2012.² The Federal Circuit, however, has continued to apply the machine or transformation test (hereinafter "M&T Test") over and over again, despite the Supreme Court's criticism of its use. This leaves inventors, patent examiners, practitioners and judges (at every level) with little ability to predict whether protection is appropriate. Businesses and inventors need—and deserve—certainty in order to operate and plan effectively.³

This paper examines the current state of the law regarding subject matter eligibility and suggests the time is ripe for Congress to create a workable framework for application of subject matter eligibility rules. Section II discusses the Supreme Court's decisions in Bilski and Mayo, including a recent Federal Circuit case now on appeal to the Supreme Court, CLS Bank Int'l v. Alice Corp. Pty. Ltd.⁴ Section III discusses the Supreme Court's decisions in Gottschalk v. Benson,⁵ Parker v. Flook,⁶ and Diamond v. Diehr⁷ (hereinafter referred to collectively as the "Patent Eligibility Trilogy"). Lastly, Section IV implores Congress to reevaluate patentable subject matter, using the Patent Eligibility Trilogy for guidance.

THE CURRENT STATE OF THE LAW

The Supreme Court Steps in: Bilski v. Kappos

Patentable subject matter is governed by the broad language of 35 U.S.C. § 101.⁸ However, the Supreme Court has limited patentability with regard to laws of nature, physical phenomena, and abstract ideas.⁹ The question of patentability for business method patents thus lies somewhere between the statute and the Supreme Court's limitations. The Court attempted to clarify the applicable test in Bilski v. Kappos.¹⁰

The claimed invention in Bilski involves a procedure that "buyers and sellers of commodities in the energy market" can use to hedge against market fluctuation.¹¹ The Federal Circuit's en banc decision held the M&T Test the "sole test governing § 101 analyses."¹² As described by that court, the M&T Test allowed patentability if a claimed process: (1) "is tied to a particular machine or apparatus, or (2)... transforms a particular article into a different state or thing."¹³ The Supreme Court, however, rejected this approach because there is no language in the statute that suggests "the definitional terms 'process, art or method'" must "be tied to a machine or... transform[ation] [of] an article."¹⁴ Therefore, by adopting that test as the sole test, the Federal Circuit was effectively reading new requirements into the statute. Furthermore, the Court noted language from the Patent Eligibility Trilogy expressly rejected the notion that the M&T Test was the sole test available.¹⁵

Though critical of the Federal Circuit, the Supreme Court stopped short of delineating a different framework for use going forward. Instead, the Court discussed the policy considerations involved and acknowledged the tension created between patent eligibility and emerging technologies.¹⁶ In fact, the Court limited itself to simply acknowledging that the Patent Eligibility Trilogy can be a useful tool to determine eligibility.¹⁷ Additionally, the Court explicitly adopted a narrow holding: "[r]ather than adopting categorical rules that might have wide-ranging and unforeseen impacts, the Court resolves this case narrowly on the basis of this Court's decisions in Benson, Flook, and Diehr, which show that petitioners' claims are not patentable processes because they are an attempt to patent abstract ideas."¹⁸

The Supreme Court is Still Not Happy: Mayo v. Prometheus

In 2012, the Supreme Court revisited the question of method patents in Mayo v. Prometheus.¹⁹ There, the patent at issue involved "claims covering processes that help doctors who use thiopurine drugs to treat patients with autoimmune diseases [to] determine whether a given dosage level is too high or low."²⁰ The Federal Circuit had reviewed the case twice, pre- and post-Bilski, and in both instances, the M&T Test was used to uphold the eligibility of the claims.²¹

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The Supreme Court, however, found the claims ineligible subject matter, involving only "well-understood, routine, conventional activity previously engaged in by researchers in the field."²² For the Court, the asserted invention amounted to little more than "inform[ing] a relevant audience about certain laws of nature" with extra steps regarding routine activity already widely adopted by that audience.²³ Therefore, viewing the steps as a whole, nothing significant was added "beyond the sum of their parts taken separately."²⁴

Describing its rationale, the Court noted that precedent "insist[s] that a process that focuses upon the use of a natural law also contain other elements or a combination of elements, sometimes referred to as an 'inventive concept,' sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the natural law itself."²⁵

The Federal Circuit, and in Particular CLS Bank Int'l v. Alice Corp.

Subject matter eligibility has been a frequent issue on appeal at the Federal Circuit over the past few years, with decisions sending a mixed message.²⁶ One such case is CLS Bank Int'l v. Alice Corp., and the initial and en banc decisions exemplify the confusion, inconsistency, and fracture in the current state of the law.

Alice Corp. holds four patents which cover "a computerized trading platform for exchanging obligations in which a trusted third party settles obligations between a first and second party so as to eliminate 'settlement risk.' Settlement risk is the risk that only one party's obligation will be paid, leaving the other party without its principal."²⁷ In these situations, there is always "a risk that, at settlement time, one bank will no longer have enough money to satisfy its obligation to the other. The asserted patent claims...seek to minimize this risk" by creating a shadow credit record.²⁸

In reviewing the district court's grant of summary judgment to plaintiff CLS Bank, the Federal Circuit initially found for Alice Corp., finding the claims directed to eligible subject matter. The majority held that "when, after taking all of the claim recitations into consideration, it is not manifestly evident that [the] claim is directed to a patent ineligible abstract idea, that the claim must not be deemed for that reason to be inadequate under § 101."²⁹ Furthermore, the majority stated that "[u]nless the single most reasonable understanding is that claim is directed to nothing more than a fundamental truth or disembodied concept, with no limitations in the claim attaching that idea to a specific application, it is inappropriate to hold that the claim is directed to a patent ineligible 'abstract idea' under 35 U.S.C. § 101."³⁰ Though acknowledging the limitations imposed in Alice Corp.'s claims were less substantial than in Diehr, the court found their very presence "prevent[ed] [them] from finding it manifestly evident that the claims are patent ineligible."³¹ However, this reasoning is problematic because the "manifestly evident" bar used by the Federal Circuit is not described or adopted by the Supreme Court and fails to respect the threshold set by Diehr.³²

The Federal Circuit's initial decision also took a troubling stance with regard to the importance and role of the Section 101 inquiry in general. Contrary to the Supreme Court, the Federal Circuit deemphasized the importance of the Section 101 inquiry³³ and argued the focus should be on the other provisions of the patent act to disqualify applications—ignoring the policy concerns raised in Bilski and Mayo.³⁴

In her dissent, Judge Prost admonished her colleagues for ignoring the Mayo ruling in their decision. They erred first by failing to ask "whether the asserted claims include an inventive concept," as required under Mayo, and second by asking whether that framework is "workable at all."³⁵ Furthermore, Judge Prost points out the conclu-sory nature of the majority's opinion: instead of explaining why the majority reverses the district court, they instead use their "'manifestly evident' standard [as] more of an escape hatch than a yardstick."³⁶

Perhaps acknowledging the shortcomings of its decision, the Federal Circuit granted CLS Bank's appeal for a rehearing en banc, which took place on February 8, 2013.³⁷ In its order, the Federal Circuit asked the parties, amongst other things, what test should be adopted.³⁸ These questions remain unanswered, however, as the Federal Circuit's en banc decision shows a fractured court, with six opinions, none of which gaining majority support.³⁹

At their heart, the different opinions issued in the case illustrate a fundamental difference of opinion regarding Section 101 and subject matter eligibility. The leading opinion, written by Judge Lourie, focuses on the Mayo decision and produces a multi-step inquiry to determine eligibility in compliance with Supreme Court precedent.⁴⁰ Chief Judge Rader's part concurrence/part dissent, on the other hand, focuses on a narrow reading of Section 101 that rejects any notion that the Section 101 inquiry should be limiting.⁴¹

Chief Judge Rader has taken an impassioned stance, authoring both an opinion for the en banc decision and personal additional reflections.⁴² In both sections, Judge Rader asserts the judiciary has reached beyond its powers and changed Section 101 from its original purpose intended by Congress, sternly advocating a focused return to the statute itself. First, he notes that whether a new process, machine, composition of matter, or manufacture, or an improvement thereof, is "inventive" is not an issue under Section 101, but rather governed by Section 103.⁴³ Next, he...