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Supremes Decide Bilski: Machine or Transformation Not the Only Test, Bilski Not Patentable


Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: June 28, 2010 @ 11:28 am
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Justice Kennedy delivered the opinion for the Court in Bilski v. Kappos

UPDATED: 11:52 am
POLL ADDED: 4:30 pm

Bilski v. Kappos has finally been handed down by the United States Supreme Court, in what has become the most highly anticipated patent decision of all time. The questions presented to the Court for consideration were: (1) whether the Federal Circuit erred by creating the so-called “machine or transformation” test, which requires a process to be tied to a particular machine or apparatus, or transform an article into a different state or thing, in order to be patentable subject matter; and (2) whether the machine or transformation test contradicts Congressional intent (pursuant to 35 U.S.C. 273) to allow for business methods to be patented.

The Supreme Court held that the machine-or-transformation test is not the sole test for patent eligibility under §101, and that the Federal Circuit erred when it ruled that it was the singular test to determine whether an invention is patentable subject matter. Delivering the opinion for the Court was Justice Kennedy.  There were no dissents, only concurring opinions, which is in and of itself a little surprising, at least at first glance until you realize that the Justices all agreed Bilski’s invention ought not to be patentable, but some, such as Justices Stevens and Breyer would have found all business methods unpatentable.  In any event, Kennedy explained that the Federal Circuit decision ignored well established rules of statutory interpretation, and further explained that there is no ordinary, contemporary common meaning of the word “process” that would require it to be tied to a machine or the transformation of an article. Nevertheless, the machine or transformation test may be useful as an investigative tool, but it cannot be the sole test.

Similarly, Kennedy explained that Section 101 does not categorically preclude business method patents.  The term “method” within §100(b)’s “process” definition, at least as a textual matter, suggests that it may include at least some methods of doing business. Kennedy again pointed out that the Court is unaware of any argument that the “ordinary, contemporary, common meaning,” of the term “method” would exclude business methods. Finally, the categorical exclusion argument is further undermined by the fact that federal law – 35 USC §273(b)(1) – explicitly contemplates the existence of at least some business method patents: Under §273(b)(1), if a patent-holder claims infringement based on a method in a patent, the alleged infringer can assert a defense of prior use. By allowing this defense, the statute itself acknowledges that there may be business method patents.



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Unfortunately for Bilski, however, the Court decided that just because processes and business methods can be patentable subject matter does not mean that the Bilski invention is patentable subject matter. The Court explained that under Benson, Flook, and Diehr, the Bilski claims are not direct to a patentable process but rather attempts to patent abstract ideas. The Bilski claims covered unpatentable abstract ideas, just like the algorithms at issue in Benson and Flook.

This case started its journey to the Supreme Court back in the Spring of 1997. Bernard L. Bilski and Rand A. Warsaw were the inventors of a method of hedging risk in the field of commodities trading. Applicants filed their patent application on April 10, 1997, and Claim 1 of that application reads:

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 counter-risk 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.

Initially, during prosecution the patent examiner rejected the claims as not directed to patent-eligible subject matter under 35 U.S.C. § 101. More specifically, the examiner explained that 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.  Thus, the patent examiner concluded that the invention was not directed to the technological arts and, therefore, not patentable subject matter.  The examiner also noted for the file that the Applicants during prosecution admitted that the claims were not limited to operation on a computer.

The applicants appealed that decision to the Board of Patent Appeals and Interferences, the internal appellate body within the United States Patent and Trademark Office that is the first line of appeal when an applicant seeks to challenge the final rejection(s) of a patent examiner. The Board ultimately upheld the examiner’s rejection. The Board did, however, determine that the examiner erred to the extent he relied on a “technological arts” test because the case law does not support such a test.

The Board held that the requirement of a specific apparatus was erroneous because a claim that does not recite a specific apparatus may still be directed to patent-eligible subject matter “if there is a transformation of physical subject matter from one state to another.” The Board concluded that Applicants’ claims did not involve any patent-eligible transformation, holding that transformation of “non-physical financial risks and legal liabilities of the commodity provider, the consumer, and the market participants” is not patent-eligible subject matter.

The Applicants then appealed to the United States Court of Appeals for the Federal Circuit. The appeal was originally argued before a panel of the court on October 1, 2007, but prior to reaching a disposition on the merits the three judge panel assigned to hear the case decided that it would appropriate for the full Court to hear the case and of their own accord ordered an en banc review by the entire Federal Circuit.

On October 30, 2008, the United States Court of Appeals for the Federal Circuit issued its much anticipated decision in In re Bilski. The question that was presented by this case was whether a purely mental process is patentable subject matter. The Federal Circuit, however, decided to address whether software patents are patentable subject matter, and in so doing called into question the patentability of biotechnology related inventions and medical diagnostic innovations as well.

Specifically, the Federal Circuit overruled the now famous State Street Bank decision, which in 1998 recognized that there was no reason to prevent the patentability of business method patents. If you read the decision of the Federal Circuit you will see in multiple places where the Court says that State Street has not been overruled, but that is quite frankly intellectually dishonest.

The only intellectually honest reading of the Federal Circuit Bilski decision was that it did, in fact, overrule State Street because it discarded the State Street test for patentable subject matter. This distinction was not lost on the Supreme Court during oral argument when several of the Justices asked the government whether the State Street invention would be patentable under the new machine or transformation test created by the Federal Circuit. Something that appeared at the time made them uncomfortable given the great disparity in the nature of the Bilski and State Street inventions.

In essence, the Bilski invention can be summarized as observe, think and then act.  The State Street invention related generally to a system that allowed an administrator to monitor and record the financial information flow and make all calculations necessary for maintaining a partner fund financial services configuration.

The State Street decision explained that a software related and/or business method patent could be patentable subject matter if it produced a “useful, concrete and tangible result.” Instead, the Federal Circuit said:

  • The useful, concrete and tangible result inquiry “is insufficient to determine whether a claim is patent-eligible under § 101.”
  • “[W]e 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. “
  • Footnote 19: “[T]hose portions of our opinions in State Street and AT&T relying solely on a “useful, concrete and tangible result” analysis should no longer be relied on.

And supplanted the State Street test with a new test, which has been highly criticized. The new test known as the machine or transformation test was articulated as follows by the Federal Circuit:

the proper inquiry under § 101 is not whether the process claim recites sufficient “physical steps,” but rather whether the claim meets the machine-or-transformation test. As a result, even a claim that recites “physical steps” but neither recites a particular machine or apparatus, nor transforms any article into a different state or thing, is not drawn to patent-eligible subject matter. Conversely, a claim that purportedly lacks any “physical steps” but is still tied to a machine or achieves an eligible transformation passes muster under § 101.

Today, after a wait of nearly 8 months the Supreme Court has seemingly got it right, at least based on early analysis. In doing away with the machine or transformation test as the sole test for determining whether an invention is patentable subject matter the Supreme Court has kicked open the door and will not allow it to be closed on new technologies and innovations that we cannot today imagine.

Processes have always been patentable and there is no justifiable reason to require a process to be tied to a machine in order to be patentable.  Similarly, there is no justifiable reason to exclude business methods from being considered patentable subject matter.  So once again, it seems an expansive vision of what suffices as patentable subject matter prevails.

BILSKI POLLS











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Posted in: Bilski, Business Methods, Computers, Gene Quinn, IP News, IPWatchdog.com Articles, Patents, Software, Software Patent Basics, US Supreme Court

About the Author

is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.

 

 


36 comments
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  1. This explains the long delay in the decision. Stevens probably wrote the initial opinion but didn’t speak for the majority, so then the opinion was passed to Kennedy. Stevens’ concurrence reads more like a dissent to me. The Court also probably couldn’t agree on what the test really is or should be, so they punted.

    They made it clear that State Street was also not a good test. So….. what is the 101 test now??????

  2. It looks to me like State Street and business methods may be one step away from being dead. Scalia joined in this (in addition to Stevens, Ginsburg, Breyer and Sotomayor who said outright they thought business methods shouldn’t be ["are not"] patentable at page 2 of their concurrence):

    Fourth, although the machine-or-transformation test is not the only test for patentability, this by no means indicates that anything which produces a “‘useful,concrete, and tangible result,’”State Street Bank &Trust Co.v. Signature Financial Group, Inc.,149 F.3d 1368,1373 (CA Fed.1998), is patentable.

    And from the opinion of the Court:

    And 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.

    Wow!

  3. Scrappy, I agree. It looks like Scalia is the “swing vote” on this issue (with Roberts/Thomas/Alito/Kennedy on one side, at least in this narrow opinion, and Stevens/Ginsburg/Sotomayor/Breyer on the other). Scalia seems to be clearly hinting that the MOT test (while not exclusive) is still very useful to determine patentability:

    “In sum, it is my view that, in reemphasizing that the“machine-or-transformation” test is not necessarily the sole test of patentability, the Court intends neither to de-emphasize the test’s usefulness NOR TO SUGGEST THAT MANY PATENTABLE PROCESSES LIE BEYOND ITS REACH” (emphasis added).

  4. “The questions presented to the Court for consideration were: (1) whether the Federal Circuit err by creating the so-called “machine or transformation” test…”

    Am I mistaken in my understanding that the machine-or-transformation test has been around for a long time? I was under the impression that this wasn’t something new thought up by the Federal Circuit.

  5. TJM-

    The machine or transformation test has not been around for long, and was in fact made up by the Federal Circuit. A big part of the decision by the Supreme Court is to explain that the Federal Circuit misinterpreted Supreme Court precedent when they created the machine or transformation test.

    -Gene

  6. I just wrote up a short version of the case… complete with quotes and analysis:

    http://PatentLawNJ.com/index.php/business-method-patents—bilski-supreme-court-decision

    Take a look.

  7. What I am dying to know is how you are going to decide the winners in your previous poll. What a mixed-bag of decisions. You can kinda say this was a 9-0 decision, if you pick your steps carefully.

  8. I’m pulling out lots of quotes and taking lots of notes right now, but one of my favorites, that doesn’t really have much to do the decision, is this…

    “Students of patent law would be well advised to study these scholarly opinions.”

    I can just imagine that line being delivered with a brow beating.

    LOL

  9. Folks:

    It is worthwhile to (re)count the votes.

    For if we do, then we see that FIVE (5) members of the Honorable Court (Stevens, Ginsburg, Breyer, Sotomayor, and Scalia) have spoken on business method patents. And, those FIVE (5) members sayeth that general business methods are NOT statutory subject matter. Unless we are using the “new math” that is so prevalent in some public schools, five-of-nine is a majority.

    (1) Stevens; (2) Ginsburg; (3) Breyer; and (4) Sotomayor denounce business method patents in the Stevens concurrence (Section VI).

    (1) Breyer; and (2) Scalia denounce business method patents in the Breyer concurrence.

    So, everyone that’s been reading the opinion and thinking “business methods are still patentable” are reading Justice Kennedy’s PLURALITY opinion (which only received FOUR votes for the “Business Method Patents” section), and inferring something that isn’t quite supported by the numbers.

    Did I miss anything here?

    I’ve been known to be wrong before, so this may well be another case of Sam-is-wrong (and probably not the last time).

    Cheers.

    Sam

  10. What would have made this case much more difficult/interesting is if there was a dependent claim that claimed a computer to implement the claimed hedging process. Then this would pass the MoT test and the Court could not simply punt the issue by saying it is an “abstract idea”. While some may say the computer would just be be ignored as “insignificant post solution activity”, you could almost say that about any computer program. The next big 101 case will probably address this issue

  11. Am I mistaken in my understanding that the machine-or-transformation test has been around for a long time?

    It depends upon what you mean by “long time”. The USPTO has been using it since the CAFC Bilski decision. I think most practitioners have adapted well to it and are securing meaningful patent protection for their business method clients.

  12. Gene,

    I see in your comment above that you think that the “machine or transformation” test has not been around long, and was invented by the Fed. Cir. However, Breyer’s suggests that test extends back over a century, and has been relied upon by the S. Ct. Quoting Breyer: “Application of this test, the so-called “machine-or- transformation test,” has thus repeatedly helped the Court to determine what is “a patentable ‘process.’”” Take a look at Breyer’s “Second” point, his concurrence at 2.

    Is he misrepresenting earlier S.Ct. opinions?

    Lars

  13. Lars-

    Great to have you here! I need to convince you to write something for us!

    I do think Breyer is being a little self serving in his concurrence saying that it has been around since 1877. I am going to have to go back and look at those cases, but with him citing in an authoritative way his dissent in the Lab Corp. case I think he is playing it slick.

    More in a bit.

    -Gene

  14. I am also surprised that Sotomayor joined in the “dissent.” I thought she was pro-patent and said during oral arguments that they weren’t going to overrule State Street.

  15. No suprises by the Court, but a very welcome opinion!

  16. So an important question now is:

    What’s the best verbiage/cite(s) section(s) for us to utilize in overcoming all of those Bilski rejections we’ve got sitting around . . . that we now can render moot? Hazah!

  17. <>

    I’m not sure if I read that the Breyer opinion expressly denounces business method patents. If you read between the lines, maybe, but is that enough for a lower court?

  18. Sammie,

    Take a big swig and your old math = new math = wrong math addition. The separte concurrences cannot be added as you do in order to arrive at a majority figure. You will have to note that the greater minority did not agree with Breyer and his views.

  19. …Also, C1 passes by a majority vote.

  20. Patent Leather-

    I recall in oral arguments that J. Sotomayor said they were concerned about not over ruling the result in State Street. I think they were careful to do that, by approving of the result while disapproving of the rule expressed to reach that result.

  21. Blind Dogma,

    Part 2 of Breyer’s concurring opinion (joined by Scalia), combined with Scalia’s refusal to join the part of the majority’s opinion that mentions information-age patents (such as software), seems to indicate that Scalia is the swing vote on these issues. Part 2 of Breyer’s concurrence will likely be used by lower courts to interpret the part of Kennedy’s opinion that spoke for 5 justices, since there appears to be a majority of 5 justices (Scalia, Stevens, Breyer, Sotomayor, and Ginsburg) that would narrow the decision at least up to the point of that part of Breyer’s concurrence.

  22. Patent Junkie-

    Not sure how the Breyer dissent that denounces business method patents could save the day when II(C)(1) of the majority opinion, which had 5 Justices, specifically says that at least some business methods are patentable subject matter.

    -Gene

  23. Samster-

    Yes, you did miss something. Take another look at which sections of the majority opinion Scalia joined. He joined all except II-B-2 and II-C-2.

    If you look at II-C-1 you see that the majority (Kennedy, Roberts, Thomas, Alito and Scalia) say that at least some business methods must be patentable. They reach this conclusion by both definition of “process” deserving its ordinary meaning, and by concluding that to suggest categorically that business methods are unpatentable would be to render 35 USC 273 meaningless, which cannot be done when you interpret a statute. So the majority by 5-4 say that business methods are patentable subject matter.

    The questions will not focus not on whether business methods are patentable, but on the definition of abstract idea. How concrete does an idea need to be in order to transform it from an unpatentable “abstract idea” to an invention displaying patentable subject matter?

    More cases needed to answer that question.

    -Gene

  24. Also Samster, Scalia did not join part 1 of Breyer’s concurrence (which denounced business patents categorically). He just joined part 2, which comes close to denouncing the State Street test and says that the MOT test can still be emphasized (even though it is not the exclusive test).

  25. I think everyone agrees that “business methods” which effect a “transformation” will remain patentable. Of course, those “business methods” never relied on State Street to be patent eligible anyway, and really weren’t in question to begin with.

    What the SCT has done today (without saying it I believe) is exactly what Gene figured the CAFC did while saying that it didn’t: it overruled the CAFC’s holding of State Street.

    Only time will tell for sure if we can really turn the clock back to 1998 and try again.

  26. So now the PTO will reject business methods as “abstract ideas” instead of “nontransformational” and the Board of Appeals and CAFC will get further clogged with business method and software 101 cases.

  27. So now the PTO will reject business methods as “abstract ideas” instead of “nontransformational” and the Board of Appeals and CAFC will get further clogged with business method and software 101 cases.

    My experience has been that the USPTO in class 705 has been applying “tied to a machine” very rigorously. I think what may work its way up to the CAFC is disputes on how “tied” tied has to be.

  28. As a follow up, Lincoln Financial just lost a case at the CAFC because the court construed a claim preamble of “A computer implemented method comprising the steps of…” to mean that All of the steps had to be carried by A computer. The alleged infringer got off the hook because it performed one of the steps manually and split the remaining steps between two computer systems.

  29. Mark, I thought about that scenario recently and was thinking about adding “at least one” to a preamble related to a computer implementation of the steps. As usual, I am skeerrred of trying anything new.

  30. Mark-

    Any interest in writing up the Lincoln Financial case for publication? If you put an “in light of the Supremes decision in Bilski” spin it would be an excellent article.

    -Gene

  31. Gene,

    I’ve made no secret of the fact my being anti-patent, especially software patents.
    I was thinking today that software was going to be taken off the patent table, it wasn’t,
    and now in retrospect of my thinking realize what a decision as that would do.

    There would be a great shift that would have large software Companies / Corporations and even the “smaller” owners, would take their US patents to foreign destinations where they have foreign patents already and they would retain control of them. With potentially few opportunities for US small business or individuals that find themselves in patent litigation here in the US, to fully challenge those patents from a legal cost perspective alone, having to deal with them across country lines.

    Such a shift would place the US in danger, not unlike danger as we face the potential of foreign buyers of important infrastructure within the US. While the US owners of such patents retain ownership and control – still a great deal of power over US IP infrastructure would be in the control of other countries patent policies and Laws.

    The Court did a great job, because without pictures, its hard to gain an idea where to start / go. Beautiful !!!

    The PTO can go on as always, but without risk now, that more questions will not be far off in the future about
    the PTO’s approach and the patents granted. Its now critical the PTO takes an approach based upon a slower process to patent application exams, that seems to fit with the mention that the “test” is not to be the only one to pass for a grant of a patent.

  32. As the holder of a class 705 patent (7,373,320) I was relieved by the opinion but like I am sure all of us are, not really satisfied. The MoT is an expression of 19th century industrial age thought so its demotion from “the” test to “a” test is most welcome. In that vain I would propose a more modern concept, one more suited to the post-industrial information/service age in which we live: an economic capital test. To economists, capital means not just machines but productive capacity, that is, the means of production, whether that production is of goods or services. So any innovative process that requires real capital to practice is deserving of patent protection. Bilski’s abstraction did not need real capital to practice so it is fitting that it is not patentable. Patents like 7,373,320 however, require enormous capital to practice, on a scale of some of the largest financial institutions in the world. It is therefore fitting that such patents remain valid post this opinion.

  33. “I was thinking today that software was going to be taken off the patent table, it wasn’t,”

    It was. The MOT test doesn’t count computers as “particular machines”, so computer-implemented software methods presumptively don’t satisfy the MOT test, which is still the only known test for patentable subject matter.

    I think it’s a mistake that the Supremes didn’t consider the implications of their failure to mention this point, but I don’t see how any other conclusion can reasonably be drawn.

    Sure, software can still be justified as “non-abstract”, but as a prosecutor I consider that to be an uphill battle.

  34. -INANE

    Not all computers are excluded, only general purpose ones. A particular machine that was designed for the process that is a computer can still count as far as I am aware. Honestly, I don’t like the way software was being hung up on the machine part and not the transformation part. Why they couldn’t allow information to be an article that can be transformed into a different state or thing is beyond me. If I come up with a data compression algorithm, then it transforms uncompressed data into a different state, compressed data. I would be happy with an interpretation like that, but instead the focus is on the particular machine issue, which I agree with, because I don’t think your average computer should count for the purposes of being tied to a machine.

    Andrew

  35. “A particular machine that was designed for the process that is a computer can still count as far as I am aware.”

    Most software is probably designed to run on general-purpose computers, or could be run equally well on a general-purpose computer if you didn’t, for example, need to fit it into an iPhone. Sure, software that only runs on special computers will give you a “machine”, but that probably applies to less software than you’d think.

    I agree with you that software will have to justify itself as a transformation, though the Circuit didn’t leave many options for that either. Data compression or encryption ought to be patentable, if the method satisfies 102, 103, and 112. Software that controls things like medical diagnostics or treatment can probably find a suitable transformation, or even a machine if it’s tied to an MRI or something. The claims will probably have to be relatively implementation-specific.

    As the law stands, it looks like software is stuck in the same case-by-case mire as before. We’d have had a much better result if Bilski had had some software claims at stake.

  36. @IANAE

    You have given me an understanding from a perspective, prosecutor, I don’t have.

    Thanks.

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