October 31, 2008

Yesterday, the U.S. Court of Appeals for the Federal Circuit handed down its long-awaited decision in In re Bilski to help clarify the appropriate test to determine whether or not certain types of inventions may be patentable subject matter under 35 U.S.C. § 101. The decision of In re Bilski focuses on a patent application filed in 1997 that claims a method for hedging risk in the field of commodities trading. While the subject matter of In re Bilski focuses on hedge funds, the implications of this decision as applying to method or process patent claims covers all types of patentable inventions, particularly methods of doing business. In summary, the CAFC selected the "machine-or-transformation" test as being the governing test for determining eligibility of patent application process claims.

By way of background, 35 U.S.C. § 101 reads as follows:

"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."

The subject matter of the Bilski application was originally rejected by the USPTO as merely manipulating an abstract idea and solving a purely mathematical problem, and because the invention was not implemented on a specific apparatus, the invention was not directed to the technical arts and therefore was deemed unpatentable.

The CAFC recognized that a claimed process is patent eligible if it is tied to a particular machine or apparatus, or if it transforms a particular article into a different state or thing. This "machine-or-transformation" test, as previously enunciated by the U.S. Supreme Court in various earlier decisions, was determined by the CAFC as being the governing test for determining patent eligibility of a process or method under 35 U.S.C. § 101.

In the present case, the applicants previously argued that their method of hedging risk was not limited to any specific machine or apparatus, so the "machine" aspect of the "machine-or-transformation" test did not apply. The CAFC, recognizing that no particular machine or apparatus was involved, decided not to elaborate upon "the precise contours of machine implementation," including whether or not the mere recitation of a computer within such a claim would be sufficient to tie the process to a machine. Upon application of the "transformation" aspect of the test, the CAFC held that the claimed method of hedging risk did not transform any article into a different state or thing, and therefore, the process claims were not drawn to patent-eligible subject matter.

The CAFC also stated that "we agree that future developments in technology and the sciences may present difficult challenges to the machine-or-transformation test, just as the widespread use of computers and the advent of the Internet has begun to challenge it in the past decade," and that "the Supreme Court may ultimately decide to alter or perhaps even set aside this test to accommodate emerging technologies." However, and in conclusion, the CAFC stated that "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 CAFC then reviewed several other tests under 35 U.S.C. § 101 to determine whether or not they are valid and useful in light of the foregoing. While several tests were analyzed, one test of particular note (the "useful, concrete, and tangible result" test associated with methods of doing business in State Street Bank & Trust Co. v. Signature Financial Group (149 F.3d 1368, 1370 (Fed. Cir. 1998))) was discussed in detail, with the Court concluding that this particular test is insufficient for determining patent-eligible subject matter under § 101:

"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." Thus, the test previously used to uphold patentability of a method of doing business is no longer recognized as sufficient. This will undoubtedly have an impact on the examination and allowance of future method of doing business patent applications.

In conclusion, the CAFC held that "[b]ecause the applicable test to determine whether a claim is drawn to a patent-eligible process under § 101 is the machine-or-transformation test set forth by the Supreme Court and clarified herein, and Applicants' claim here plainly fails that test, the decision of the Board is AFFIRMED."

CAFC Decision: LINK

(My personal thanks to Jay Taylor, Tom Walsh, and Mike Swift for their assistance with this blog article.)

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Mark Reichel
Reichel IP LLC

I am a patent attorney with Reichel IP LLC, where I concentrate my practice on patent drafting and prosecution, trademarks, and general intellectual property matters. I currently focus on the preparation and prosecution of medical device and other life sciences patent applications, and being actively involved in a number of local not-for-profit organizations.

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