Transcript Patents

The Impact of Bilski et al. v. Kappos.
Business as Usual?
Jason S. Miller
215 North Eola Drive
Orlando, FL 32801
t. 407-418-6263
f. 407-843-4444
[email protected]
July 7, 2010
© 2010, all rights reserved.
Bilski et al. v. Kappos
• Affects any “process” patent
• Numerous Implications
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“Pure” Business Method Patents
Software Patents
Diagnostic Testing Patents
Financial Transaction Patents
Biotech Patents
Risk Analysis Patents (Insurance)
What inventions are patentable?
• An invention can be patented if:
▫ The invention is eligible for patenting (“patentable subject
matter”), and
 35 USC §101
▫ The invention meets other statutory conditions (e.g., “new”
and “unobvious” as measured against the prior art)
 35 USC §§102, 103, 112
What Inventions are not Patentable?
• Abstract ideas
▫ Mental processes
• Physical phenomena
• Laws of nature
▫ Abstract mathematical formulas or pure algorithms
▫ Inventions that clearly do not work
 Perpetual motion machines
What is “Patentable Subject Matter”?
• 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.
Patent Act of 1952 (35 USC §101)
What is a “process”?
• Process, art or method, and includes a new use of a known
process, machine, manufacture, composition or matter, or
material
▫ 35 USC §100(b)
• Machines, articles, matter are physical
• “Process” may encompass the intangible (e.g., Business
Methods)
Along comes Bilski and its “process”
• Brief Procedural History
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Patent application filed on April 10, 1997
Claims rejected by Examiner and appealed to BPAI
BPAI sustains the rejection of all claims on Sept. 26, 2006
Appeal from BPAI to CAFC
Prior to disposition by regular 3 judge panel, the CAFC sua
sponte ordered en banc review
Bilski Claims
• Claim 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 counterrisk 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.
Bilski Claims
• Claim 4
 A method for managing weather-related energy price risk costs sold by an energy provider at a
fixed price comprising the steps of:
(a)initiating a series of transactions between said energy provider and energy consumers wherein
said energy consumers purchase energy at a fixed rate based upon historical averages, said
fixed rate corresponding to a risk position of said consumers, wherein the fixed price for the
consumer transaction is determined by the relationship: Fixed Bill Price = Fi + [(Ci + Ti + LDi) x
(α + βE (Wi))]
Wherein,
Fi = fixed costs in period i;
Ci = variable costs in period i;
Ti = variable long distance transportation costs in period i;
LDi = variable local delivery costs in period i;
E(Wi) = estimated location-specific weather indicator in period i; and
α and β are constants;
(b)identifying other energy market participants having a counter-risk position to said consumers;
and
(c) initiating a series of transactions between said energy provider and said other energy market
participants at a second fixed rate such that said series of transactions balances the risk position
of said series of consumer transactions.
Rejections
• Examiner’s rejection: “the invention is 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.”
• Applicants admitted that claims were not limited to operation on a
computer or other machine
• Nothing physical appeared to be transformed (not even the
underlying data)
Summary of In Re Bilski
• BPAI decision affirmed
• CAFC reiterated the preclusion of patenting:
▫ Laws of nature
▫ Abstract ideas
▫ Physical phenomena
• Claims held not patentable under Section 101
• The machine-or-transformation test is stated as being the sole test for determining if a
process is patentable subject matter under Section 101
▫ “[T]he 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.”
 Transform an article to a different state or thing, and/or
 Be “tied to a particular machine.”
• State Street no longer the test
Summary of In Re Bilski
• CAFC spoke favorably of Supreme Court opinions
▫ Gottschalk v. Benson
▫ Parker v. Flook
▫ Diamond v. Diehr
Once upon a Cert.
• The Supreme Court granted Bilski and Warsaw’s petition for writ of certiorari in In
re Bilski on June 1, 2009
• Questions presented:
▫ Whether the Federal Circuit erred by holding that a “process” must be tied to a particular
machine or apparatus, or transform a particular article into a different state or thing
(“machine-or-transformation” test), to be eligible for patenting under 35 U.S.C. § 101,
despite this Court’s precedent declining to limit the broad statutory grant of patent
eligibility for “any” new and useful process beyond excluding patents for “laws of nature,
physical phenomena, and abstract ideas.”
▫ Whether the Federal Circuit’s “machine-or-transformation” test for patent eligibility, which
effectively forecloses meaningful patent protection to many business methods,
contradicts the clear Congressional intent that patents protect “method[s] of doing or
conducting business.” 35 U.S.C. § 273.
The Bilski Decision
• Opinion issued June 28, 2010
• Justice Kennedy wrote the “majority” opinion
▫ Justices Roberts, Thomas and Alito joined in full
▫ Justice Scalia joined except as to parts II-B-2 and II-C-2
 Scalia’s exception is without explanation
 Thus, II-B-2 and II-C-2 are plurality opinions and have no force of law
• Justice Stevens wrote a concurring opinion
▫ Ginsburg, Sotmayor, and Breyer joined
▫ Stevens’ Opinion reads more like a dissent!
 Ignores Section 273
▫ These 4 Justices would have found that Business Methods are not subject to patent
protection
The Bilski Decision
• Four important conclusions from the Kennedy majority:
▫ (1) the Court’s precedents providing “three specific
exceptions to §101’s broad patent-eligibility principles:
 laws of nature,
 physical phenomena, and
 abstract ideas”
▫ remain the law even though those exceptions were not
required by the statutory text (Section 101)
The Bilski Decision
• (2) the M-O-T (machine-or-transformation) test is not the sole test for
deciding whether an invention is a patent eligible process
• It is, however, a “useful and important clue, an investigative tool, for
determining whether some claimed inventions are processes under
§101.”
The Bilski Decision
• (3) Section 101’s category of “process,” which Section 100(b) defines
as including a “method,” does not “categorically exclude business
methods,” because:
 the ordinary meaning of “method” does not exclude business methods,
 it was not clear “how far a prohibition of business method patents would
reach,”
 it was not clear whether such a prohibition “would exclude technologies for
conducting a business more efficiently,” and
 the Section 273 infringement defense clarified that “a business method is
simply one kind of `method’ that is, at least in some circumstances, eligible
for patenting under §101.”
 “A conclusion that business methods are not patentable in any circumstances
would render 273 meaningless”
The Bilski Decision
▫ (4) Bilski’s “patent application … falls outside of §101,” because its
claims cover an abstract idea (citing Benson, Flook, Diehr)
 concept of hedging risk (claim 1),
 concept reduced to a mathematical formula (claim 4), or
 concept limited to a particular field or to “token post solution
components
What we know
• All 9 Justices agreed that the Bilski claims were not patentable because they did
not represent an invention under the existing statutes
▫ The claims were directed to an abstract idea
• All 9 Justices agreed that the Federal Circuit misapplied previous Supreme Court
decisions (Benson, Flook and Diehr) when they mandated the machine or
transformation test as the sole test for determining whether a process is patentable
subject matter.
• 5 Justices agreed that business methods are not “categorically” precluded from
patent protection
• 4 Justices would have barred Business Methods all together
Business as Usual for Business Methods
patents?
▫ Despite being unanimous in rejecting the Bilski claims, the
Justices were divided in their reasoning (5-4)
▫ Majority only declined to “categorically” preclude all patents on
methods of conducting business
▫ Minority would have barred business methods and likely software
patents unless embodied in another invention
▫ Decision leaves it to the Federal Circuit to create other tests for
patentability in these areas
Business as Usual for Business Methods
patents?
• Summary – Business Methods and the like survive to fight
another day
• “Pure” Business Methods may no longer be patentable
• Lower Courts may classify them as merely abstract ideas
• Examiners may do the same
Business as Usual for Business Methods
patents?
• Aside from the above, the opinion offers no clarity in determining
whether a particular invention falls within the scope of Section 101.
 “Today, the Court once again declines to impose limitations on the Patent
Act that are inconsistent with the Act’s text. The patent application here
can be rejected under our precedents on the unpatentability of abstract
ideas. The Court, therefore, need not define further what constitutes a
patentable “process,” beyond pointing to the definition of that term
provided in §100(b) and looking to the guideposts in Benson, Flook,
and Diehr.”
 Practical Effect?
 Instructing the Fed. Cir. to try again
We are given “guideposts” - B.F.D.
• Gottschalk v. Benson (1972) – claims directed to the conversion of
binary-coded decimal data to a pure binary format
▫ Not tied to a specific machine
▫ No transformation of an article: involved transformation of
unspecified data
▫ Found to be merely an effort to patent an algorithm
 Court noted: “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 are given “guideposts” - B.F.D.
• Parker v. Flook (1978) – claims directed to using a particular mathematical formula
to calculate an alarm limit for a chemical reaction
▫ Did not include any limitations how to select a margin of safety, or weighing
factors, or chemical processes at work, or the mechanism of monitoring the
variables, or how to set off the alarm
▫ Found to merely be drawn to the formula itself: not limited to any chemical or
other transformation or tied to any particular machine
▫ Prohibition against patenting abstract ideas cannot be circumvented by limiting
the use of the formula to a particular technological environment or adding
insignificant post-solution activity
 Note: Opinion written by Stevens
We are given “guideposts” - B.F.D.
• Diamond v. Diehr (1981) – claims directed to a process of curing rubber with a
computerized numerical controller (making tires)
▫ Both MOT tests met
 Involved physical transformation
 Tied to a specific machine
▫ “For the purposes of 101, a ‘process’ is an act, or a series of acts, performed upon the
subject-matter to be transformed and reduced to a different state or thing. If new and
useful, it is just as patentable as is a piece of machinery.”
▫ “When a claim containing a mathematical formula implements or applies the formula in a
structure or process which, when considered as a whole, is performing a function which
the patent laws were designed to protect (e.g., transforming or reducing an article to a
different state or thing), then the claim satisfies 101’s requirements.”
 Note: Dissent by Stevens
Where Does Software Stand?
• Although the court expressly refused to rule on the
patentability of software, it appears that software will
remain patentable
• At minimum, the decision would bar any categorical exclusion
of software patents
• The majority opinion neither endorsed nor rejected the
Federal Circuit's past interpretations of Section 101
 “nothing in today’s opinion should be read as endorsing
interpretations of §101 that the Court of Appeals for the Federal
Circuit has used in the past. See, e.g., State Street, 149 F. 3d, at
1373; AT&T Corp., 172 F. 3d, at 1357.”
Where Does Software Stand?
• However, the two concurring opinions in Bilski both explicitly reject the UsefulConcrete-And-Tangible-Result test of State Street
 Justice Stevens writes that “it would be a grave mistake to assume that anything
with a ‘useful, concrete and tangible result,’ may be patented. (Justice Stevens
concurrence at FN 1)
 Justice Breyer reiterated his prior statement that “if taken literally, the statement [that
anything which produces a useful, concrete, and tangible result, is patentable] would
cover instances where this court has held the contrary.” (Justice Breyer
concurrence)
• The two concurrences are in agreement on this point and are signed by 5 Justices
• Second majority on that particular point
• Of course, in its In re Bilski decision, the CAFC already repudiated State Street as
inadequate and "insufficient to determine whether a claim is patent-eligible under §
101."
Overall Impact of Bilski
• No immediate impact on existing property rights
▫ However, some already issued patents may not be enforceable
 If sued for infringement of a business method one could
argue that it is merely an abstract idea
• Pending applications that do not meet the MOT tests may not issue
▫ Must wait and see what lower courts (and Examiners) do for “other tests”
• Patent strategies may have to be rethought
• Investors will have new due diligence concerns
What do we do now?
• Application drafting
▫ Larger emphasis on specification writing
 Avoid computer boilerplate text
 Show specific relations
▫ Better searching
 Allows you to write a better specification as to how others may
have implemented related-ideas
▫ Use multiple examples and embodiments
▫ Draft claims to meet machine-or transformation test
 Do not use general purpose computers in claims
What do we do now?
• Prosecution Considerations
▫ Conduct more Examiner interviews
 May help find magic words for allowance
▫ File continuations to preserve claim language you really want
▫ Use various types of claims
 Methods
 System
 Means-plus-function
▫ Possibly Amend existing claims
USPTO reaction to Bilski
• On June 28, 2010 the USPTO issued first memo to its Examining Corps.
 Significantly, the Supreme Court also indicated that a business method is, at least in
some circumstances, eligible for patenting under section 101.
 Examiners should continue to examine patent applications for compliance with section
101 using the existing guidance concerning the machine-or-transformation test as a tool
for determining whether the claimed invention is a process under section 101. If a
claimed method meets the machine-or-transformation test, the method is likely patenteligible under section 101 unless there is a clear indication that the method is directed to
an abstract idea. If a claimed method does not meet the machine-or-transformation test,
the examiner should reject the claim under section 101 unless there is a clear indication
that the method is not directed to an abstract idea. If a claim is rejected under section
101 on the basis that it is drawn to an abstract idea, the applicant then has the
opportunity to explain why the claimed method is not drawn to an abstract idea.
 USPTO is reviewing the decision in Bilski and will be developing further guidance on
patentable subject matter eligibility under 35 U.S.C. § 101.
Supreme Court already asking the Federal
Circuit to review cases in view of Bilski
• Mayo v. Prometheus Labs
▫ On June 29, 2010, the Supreme Court granted cert., vacated the decision and
remanded the case to the Federal Circuit
 The Federal Circuit was instructed to reconsider the case “in light of Bilski v.
Kappos, 561 U.S. ____ (2010).”
▫ Note: Fed. Cir. previously found that claims met the M-O-T test
 “[t]he asserted claims are in effect claims to methods of treatment, which are
always transformative when a defined group of drugs is administered to the
body to ameliorate the effects of an undesired condition.”
• Classen Immunotherapies, Inc. v. Biogen IDEC
▫ Same as above instructions
▫ Note: Fed. Cir. held that claims did not meet the M-O-T test
▫ Will “other test” for patentability be introduced?
Thank You! Questions?