SC Lawyer, May 2009, #2. In re Bilski: Another Piece of the Business Method Patent Puzzle.

• Author: By Jennifer L. Ulsh and Richard M. Moose

South Carolina Lawyer

2009.

SC Lawyer, May 2009, #2.

In re Bilski: Another Piece of the Business Method Patent Puzzle

South Carolina LawyerMay 2009In re Bilski : Another Piece of the Business Method Patent PuzzleBy Jennifer L. Ulsh and Richard M. MooseAs I sat in the office last week looking out at the rain and wondering when I'd be able to get out for another round of golf, I received a phone call from one of our clients. He was interested in protecting a new invention-software called "Weather-Wonder" that generates highly accurate weather forecasts from historical weather data. Input parameters representative of past temperature, pressure, precipitation and wind patterns are analyzed by a sophisticated software algorithm, and detailed geographic maps of the exact weather conditions for the next week are provided as output to a user. If successful, this type of invention could be highly profitable for the client and also ease the scheduling pains for our local golfers and beach bunnies-nothing could be finer in Carolina! The client wants to pursue patent protection for his invention but is concerned about whether the subject matter is patentable in light of a recent case he'd heard about, In re Bilski-something to do with a business method for commodities trading.

Advising the client on the best way to protect a business method or software invention has become almost like trying to put together a jigsaw puzzle while the pieces are changing shape and some may still be missing. For the past 10 years, businesses have filed and litigated tens of thousands of patents under a relatively pro-patent framework of puzzle pieces. Since 1998, the number of business method patent application filings with the U.S. Patent and Trademark Office (USPTO) has increased by an order of nine times to more than 13,000 applications per year. Isis E. Caulder, Software and Business Method Patents-the Latest Developments, December 1, 2007 at http://www.bereskinparr.com/English/publications/pdf/SoftBusMetPatCaulder2007.pdf (updated with current USPTO statistics at http://www.uspto.gov/web/menu/pbmethod/applicationfiling.htm). But with a backdrop of increasing public backlash over business method patents, the U.S. Court of Appeals for the Federal Circuit (CAFC) has tossed the majority of the existing puzzle pieces defining the patentability of process inventions out the door and thrown new ones in the mix.

Patent practitioners are now faced with operating under a vastly different set of standards set forth in the CAFC's landmark opinion in In re Bilski, 545 F.3d 943 (Fed. Cir. 2008) (en banc), which affects the extent to which "business methods" and other process inventions are eligible for patent protection under 35 U.S.C. § 101-the federal patent law. Since many software and computer-related technologies are claimed as process inventions, the Bilski ruling affects a significant sector of high technology interests. The decision also affects a wide spectrum of patent law issues, including how patents will be prosecuted (i.e., the examination guidelines for new patent applications) and litigated (i.e., the validity of already issued patents). In light of the complex nature of this area of patent protection, the best advice to high technology and business clients is to remain fully engaged with experienced, qualified counsel that are apprised of the changing patent laws.

Many players hold a piece of the business method patentability puzzle

The extent to which business methods are eligible for patent protection under United States law has always been somewhat of a puzzle. The three major players contributing to the patentability puzzle are Congress, the Supreme Court of the United States and the CAFC-each of whom has variously provided its own respective pieces of input. Others are vying for their own piece of the puzzle, as the USPTO, major corporate entities in the software and high technology fields, policy groups, inventors and others interject their respective opinions on the merit of business method, software and related process inventions.

Congress' contribution comes in the form of Title 35 of the U.S. Code-the federal patent law-which defines, inter alia, the scope of patentable inventions under 35 U.S.C. § 101 to include "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof." Business methods typically fit under the "process" prong of this generally expansive definition for patentable subject matter.

Judicial interpretation of 35 U.S.C. § 101 and related aspects of patentability has evolved over the years based primarily on case law from both the U.S. Supreme Court and the CAFC, also commonly known as the "Federal Circuit." From the time of the CAFC's creation by Congress in 1982 until recently, the Supreme Court appeared to leave many patent law decisions to the Federal Circuit. The CAFC was created with exclusive jurisdiction to hear federal appeals in many areas including patent law, intending to help promote uniformity of law in such area. Eligible appeals to the CAFC specifically include final decisions in patent law by U.S. District Courts as well as direct appeals from USPTO decisions handed down by the Board of Patent Appeals and Interferences (BPAI). As such, any patent applicant wishing to appeal a BPAI decision or any patent litigant dissatisfied with a federal district court decision may appeal directly to the CAFC as opposed to one of the 11 U.S. Circuit Courts of Appeal. The U.S. Supreme Court is the only avenue for further appeal from a CAFC decision.

After more than a decade, the seemingly dormant embers of Supreme Court patent law jurisprudence have sparked to life a fire of patent cases. Since only 2005, the Supreme Court has decided eight major cases involving principles pertaining to the field of patent law, several of which have broadly criticized various standards for patent law analysis that had been promulgated by the CAFC. See, e.g., KSR International Co. v. Teleflex, Inc., 550 U.S. 398, 127 S.Ct. 1727 (2007) (rejecting the CAFC's "teaching, suggestion or motivation test" and implementing revised analysis for non-obviousness inquiries under 35 U.S.C. § 103). The CAFC is well aware of the Supreme Court's watchful eye as it continues to deal with arising patent law issues, one of which has presented itself in In re Bilski.

When the Bilski case came to the CAFC in 2008, the court ordered rehearing en banc to consider the many different views on § 101 analysis and determine the appropriate standard(s) for analyzing whether process inventions constitute patent eligible subject matter. Differing standards were advocated by the appellant inventors Bilski et al. and the appellee USPTO. In addition, more than 35 amicus briefs were filed per the court's invitation, representing the highly polarized views of law professors, legal societies and associations, and a variety of industry players including IBM, Yahoo!, Microsoft, Dell and others. Many, including policy groups such as Red Hat and End Software Patents, argued for narrow interpretations of 35 U.S.C. § 101 that would eliminate or severely limit the patentability of software and business method technologies in favor of other intellectual property protections such as open source software licensing. In the midst of such industry criticism of business method patents and with the Supreme Court increasing its watch over the CAFC's back, the Federal Circuit has certainly taken a proactive approach to identifying the appropriate standards for analyzing business method and other process inventions.

Out with the old puzzle pieces and in with the new

For the past decade, patent practitioners have analyzed whether subject matter is patent-eligible under 35 U.S.C. § 101 by considering whether it achieves a "useful, concrete or tangible" result. This test for patentability ("the UCT test") originated from CAFC jurisprudence handed down in State Street Bank & Trust Co. v. Signature Financial Group Inc., 149 F.3d 1368 (Fed. Cir. 1998).

In State Street Bank, the Federal Circuit affirmed the validity of the patent claims at issue, which were directed to a computerized accounting system for managing a mutual fund with required daily calculations of various expenses, losses and income. In particular, the CAFC concluded that "the transformation of data, representing discrete dollar amounts, by a machine through a series of mathematical calculations into a final share price constitutes a practical application of a mathematical algorithm, formula or calculation because it produces a 'useful, concrete and tangible' result." Id. at 1373 (quoting In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994)).

Using the puzzle pieces of the UCT test to help mold the claims in new patent applications, process inventions have been described as having some sort of specific and practical application or substantially repeatable real-world result in order to pass USPTO muster under § 101 analysis. This rather flexible standard has resulted in the patenting of many business methods and automated computer technologies in recent years. But the tides have certainly changed with the Federal Circuit's consideration of In re Bilski.

In re Bilski came to the CAFC as an appeal of the BPAI's denial of a patent application for a method for hedging risk in the commodities market. Inventors Bernard L. Bilski and Rand A. Warsaw sought a patent for a "method of managing consumption risk costs of a commodity [e.g., coal] sold by a commodity provider at a fixed price" that generally involved completing a series of transactions between consumers (e.g., a coal power plant) and market participants (e.g., coal mining companies) by using an intermediary (i.e., the "commodity provider") to sell the coal at a fixed price to isolate the possibility of spikes in demand and price. The BPAI had affirmed a USPTO examiner's rejection of these claims under 35 U.S.C § 101, concluding that the claims did not involve any patent-eligible transformation, preempted any and every possible way of performing the claimed steps, and also failed to produce a useful, concrete and tangible result. The inventors argued that the USPTO and the BPAI were applying the wrong standards for analyzing patentability under § 101 and that the familiar UCT test was the only appropriate analysis.

In re Bilski tackled head on the issue of § 101 standards and has completely transformed the puzzle pieces used to define the patentability of process inventions. The CAFC scrapped the "useful, concrete and tangible" result test it had used since State Street Bank and adopted a new two-pronged analysis called the "machine-or-transformation" test that requires a process invention to either (1) be tied to a particular machine or apparatus or (2) transform a particular article into a different state or thing to be considered patentable. Bilski, 545 F.3d at 954 (2008).

The CAFC applied the new machine-or-transformation test to affirm denial of Bilski et al.'s patent application. The claims at issue did not recite any machine or apparatus, meaning that their only hope for meeting the new standard was under the transformation prong. The court found the claims at issue to be lacking requisite features of a transformation, noting that such claims involve "a non-transformative process that encompasses a purely mental process of performing requisite mathematical calculations without the aid of a computer or any other device, mentally identifying those transactions that the calculations have revealed would hedge each other's risks, and performing the post-solution step of consummating those transactions." Id. at 965.

Although Bilski's claims did not meet the new standard for patentability, the Federal Circuit did survey its own case law as well as that of the Supreme Court to provide some guidance on what types of inventions would be considered patentable. The new standard isn't necessarily an anti-patent posture, but it does require that skilled patent practitioners be very aware of the new puzzle pieces to use in framing an applicant's process invention.

Advising clients on the transforming puzzle pieces

The aftermath of In re Bilski has left many patent applicants such as our hypothetical Weather-Wonder software inventor unsure of whether and to what extent their inventions are patentable. A thorough analysis of Bilski reveals that the new puzzle pieces certainly do not categorically exclude business method and software inventions and still leave a substantial amount of room for patentability of process inventions. For our Weather-Wonder client, the key to solving the patentability puzzle will lie in knowing how to fit together the new machine-or-transformation pieces to characterize the new software as much more than a mere process or system for analyzing and predicting weather.

In satisfying the machine prong of the Bilski test, the client must realize that he has developed more than just new software. A more tangible representation of his invention concerns a special-purpose machine with a processor executing computer-readable instructions stored on some dedicated storage medium to perform particular functionality pursuant to the software instructions. As such, there are many hardware components (i.e., machines and/or apparatuses) that can be used to describe in part a software invention.

Examples of hardware components that are used in implementing the client's weather software include dedicated data storage elements, computer processor(s) and input and output peripheral devices. For example, memory or other media element(s) may be used to store software instructions, while a processor or other computing device may be configured to access and execute the stored instructions. Input devices such as a keyboard, scanner or data link may be used for entering or receiving the historical weather data, while output devices such as a printer or display may provide the new weather forecasts to a user. The input, output and any intermediate data may also be stored in some sort of dedicated storage medium, similar to physical storage of the software instructions.

By counseling clients to consider these and other hardware features that may be involved in practicing their software or other automated invention, they will be better able to assist patent counsel in characterizing their invention in a manner that satisfies the machine prong of Bilski's machine-or-transformation test.

Although the CAFC did not expound upon the "precise contours of machine implementation," it did provide more particular guidance regarding how best to meet the transformation prong of Bilski's machine-or-transformation test. Two crucial considerations under the transformation piece of the puzzle are: (1) what is actually being transformed by the claimed process invention, and (2) how the transformation occurs.

In analyzing the subject matter of a transformation, patentability under § 101 is much more likely when a claimed process invention transforms physical objects or substances or data representative of physical objects or substances. For example, a process that involves a chemical or physical transformation is almost always patent-eligible subject matter. Id. at 962. When transformations involve electronic signals and electronically-manipulated data (as is often the case in software inventions), patentability is more likely when the data represents physical and tangible objects. Id. at 963. In the case of the "Weather-Wonder" software, the manipulated data is arguably representative of a variety of physical and tangible objects, including rainfall amounts, wind quantities, etc. As long as the software invention is claimed with specific reference to this particular type and nature of data, then the subject matter of the claimed transformation likely constitutes patent-eligible subject matter under the transformation prong of § 101 analysis.

With respect to the nature of a transformation, centrality to the purpose of the claimed process is crucial. For example, a process that involves an algorithm combined with a data-gathering step does not constitute a patent-eligible transformation since data-gathering is generally held to be a meaningless limit on data algorithm claims. Id. In light of this guidance, it is helpful to note that the Weather-Wonder invention involves more than mere gathering of historical weather data. Instead such data is also processed according to software instructions executed by a special-purpose computer and transformed into a visual depiction that is provided to a user in the form of geographical maps providing detailed weather forecasts. As such, the nature of data transformation using Weather-Wonder software can arguably be cast in a light that is central to the purpose of the invention.

The CAFC also expressed some important corollaries in the Bilski case that exhibit just how important the machine or transformation evidence will be. For example, "the use of a specific machine or transformation of an article must impose meaningful limits on the claim's scope to impart patent-eligibility." Id. at 961. In addition, the involvement of a machine or transformation in a claimed process "must not merely be insignificant post-solution activity" or part of a "mere field-of-use limitation." Id. at 957.

As suggested above, the new puzzle pieces laid down by the CAFC in In re Bilski can be molded in a variety of ways to satisfy one or more prongs of the new machine-or-transformation test. The transforming patentability puzzle may be a tricky one for patent applicants, but there are ways to solve it-including adopting a comprehensive claim-drafting approach that keeps the various prongs of Bilski's machine-or-transformation test in mind. The best advice for business clients remains to use experienced registered patent attorneys to assist with the prosecution and enforcement of patentable technologies.

Who holds the last piece of the puzzle?

Although many § 101 patentability questions arising under Bilski have been answered by the CAFC, some pieces of the patentability puzzle may still be missing and those may very well be held by the Supreme Court. In the Bilski opinion, the CAFC almost invited the guidance of the high court, noting that "the Supreme Court may ultimately decide to alter or perhaps even set aside th[e machine-or-transformation] test to accommodate emerging technologies," or "refine or augment the test or how it is applied." Id. at 956. Additional opportunities for clarification by the Supreme Court were presented when the Federal Circuit left "to future cases the elaboration of the precise contours of machine implementation" as related to the machine prong of the machine-or-transformation test. Id. at 962.

If the Supreme Court was waiting for the door to open, the inventors Bilski and Ward have just knocked. On January 28, 2009, Bilski et al. petitioned the Supreme Court for a writ of certiorari, asking the high court to determine the validity of the CAFC's machine-or-transformation test. Amicus briefs will likely be accepted in this case as well, and the Court could decide whether to grant certiorari before its current term ends in June 2009. Will the patentability puzzle pieces transform yet again? The puzzlers of the world will just have to wait and see.

Jennifer L. Ulsh and Richard M. Moose practice with Dority & Manning, PA in Greenville.