UPDATED: 2:07pm ET

Well, the United States Court of Appeals for the Federal Circuit sort of decided CLS Bank v. Alice Corporation earlier today. Truthfully, all the important questions that we thought might be answered remain completely and totally unanswered because there were only 10 judges who sat on the en banc tribunal and no more than 5 judges signed on to any one opinion.

The only thing we know is this — the Federal Circuit issued an extraordinarily brief per curiam decision, which stated:

Upon consideration en banc, a majority of the court affirms the district court’s holding that the asserted method and computer-readable media claims are not directed to eligible subject matter under 35 U.S.C. § 101. An equally divided court affirms the district court’s holding that the asserted system claims are not directed to eligible subject matter under that statute.

Thus, all of the asserted claims are not patent eligible. At the moment I am completely flabbergasted and don’t know what to say.

Over the past year or so ever more patent data has been made publicly available thanks to Google. In collaboration with the USPTO Google is scraping information from the USPTO servers, transferring the many image files into searchable text documents. The availability of this information has allowed companies like Reed Technologies to offer interesting and useful patent analytics. For example, the Patent Advisor™ product, which is powered by PatentCore, allows users to find rejection, allowance, RCE and appeals information relating to individual Art Units and individual examiners. Armed with this information better prosecution strategies can be developed, saving time and money in the long run.

As I have dove into the Patent Advisor statistics I jumped to those Art Units charged with so-called business method patents in class 705. This has lead me to write several articles critical of one Art Unit in particular for having an extremely low allowance rate, with many of those allowances ordered by the Board. For example, see Allowance Rates for Art Units Examining Business Methods.

But what is a business method? That is the very question that dogged the United States Supreme Court in Bilski. In fact, a definition of “business method” has proven to be as illusive as a unicorn or Bigfoot. The goal of those who care to try and define “business methods” is almost universally so that they become non-allowable subject matter. But with every definition there comes the realization that some of what seems like it should be swept up in the definition remains on the outside and some things that really ought not to be considered “offensive” business methods are swept up in the definition. The trouble is that methods have been patentable since 1790 in the United States and on some level virtually every method could be characterized as a method of doing business, or more generally a method that facilitates one or another business goal.

One of the criticisms of the PatentCore database in the past was that the database was not a complete representation of the case files at the USPTO and gave a false impression. I never personally found that persuasive given that even when the database first became public there were approximately 1.5 million application files within the database. Still, many patent examiners scoffed at the notion that this data was accurate.

If I were a patent examiner that hadn’t issued patents for years I wouldn’t want anyone to know that either. Similarly, if I were a Supervisory Patent Examiner (SPE) in an Art Unit that routinely only issued patents after a long drawn out appeal process that resulted in the Board overturning the rejections I wouldn’t want the public to know about that either. Sadly, this type of gaming exists at the Patent Office. There are examiners who only rarely issue patents and Art Units that openly tell patent attorneys that they don’t issue patents unless ordered to do so by the Board. Knowing that this happens, which is supported by hard data, makes it impossible to tolerate the anti-patent zealots who routinely opine about just how easy it is to get a software or business method patent issued. Really? You have to be kidding!

Post Grant Review, Inter Partes Review and the Transitional Program for Covered Business Method Patents were instituted with the goal of improving patent quality by giving third parties methods to challenge patents that are less expensive and less involved than litigation. Each of these procedures is a trial before the Patent Trial and Appeal Board (Board) composed of Administrative Patent Judges and subject to Part 42 of 37 C.F.R., Trial Practice Before the Patent Trial and Appeal Board.  The trials allow for limited discovery, which has not been available in Ex Parte or Inter Partes Reexamination, the existing procedures for challenging patents in the U.S. Patent and Trademark Office.  Because the discovery is limited, it is unlikely that these procedures will be used in cases where large amounts of evidence may be needed to prove patent invalidity.

Post Grant Review

A petition for Post Grant Review (PGR) must be filed no later than nine months after the issue date of a patent or, for claims broadened in a reissue, nine-months after the date of the certificate.  A third party may challenge a patent under PGR based on any ground that may be raised under 35 U.S.C. § 282(b)(2) or (3) including patent subject matter eligibility or utility under 35 U.S.C. § 101, novelty under 35 U.S.C. § 102, Obviousness under 35 U.S.C. § 103 and enablement, written description and definiteness under 35 U.S.C. § 112.  A PGR may only be instituted for a patent having claims with an effective filing date after March 16, 2013.  A PGR must be filed no later than one year after the petitioner has been sued for infringement and cannot be instituted if the petitioner has filed a declaratory judgment action against the patent.

For at least the past 15 years, the legal, technical and academic communities have been debating the patentability of business methods and software. Despite much negative press ink, talk, legislative activity and court opinions, the answer with respect to patent eligibility is still a resounding and categorical “yes.” That’s the easy part. What types of business methods and software exactly are patentable? That is the difficult question to answer.

What is Patentable?

U.S. Patent Law recognizes four broad categories of inventions eligible for patent protection: processes; machines; article of manufacture; and compositions of matter. 35 U.S.C. Section 101. Despite the oft-quoted recognition that the patent laws were made to cover “anything under the sun that is made by man,” Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980) (quoting S. Rep. No. 1979, 82d Cong. 2d. Sess., 5 (1952)), the U.S. Supreme Court, has long recognized that there are three exceptions to these four broad patent-eligibility categories: laws of nature; physical phenomena; and abstract ideas. Id. These three exceptions are necessary because “[s]uch discoveries are manifestations of … nature, free to all men and reserved exclusively to none.” Id. (citations omitted). Yet, “a process is not unpatentable simply because it contains a law of nature or a mathematical algorithm,” and “an application of a law of nature or mathematical formula to a known structure or process may well be deserving of patent protection.” Diamond v. Diehr, 450 U.S. 175, 187 (1981).

Washington - The U.S. Department of Commerce’s United States Patent and Trademark Office (USPTO) announced today that it will publish final rules in the Federal Register on August 14, 2012, to implement three administrative trial provisions of the Leahy-Smith America Invents Act (AIA); inter partes review, post-grant review, and the transitional program for covered business method patents. The administrative trial final rules offer a third party a timely, cost-effective alternative to district court litigation for challenging the patentability of a claimed invention in an issued patent. These rules become effective on September 16, 2012. With this publication, all of the administrative trial rules the USPTO was tasked by the AIA to complete will have been published.

The final rules for inter partes review and the transitional program for covered business method patents apply to any patent issued before, on, or after the September 16, 2012 effective date. By contrast, the post-grant review final rules apply to patents issuing from applications subject to the first-inventor-to-file provision of the AIA, which does not become effective until March 16, 2013.

A new decision of the Federal Circuit (Lourie, Prost and Wallach) concerning a business-method invention — Bancorp Services LLC v. Sun Life Assurance of Canada — was handed down on 26^th July and provides a companion case to CLS Bank v Alice.

The inventions described in Bancorp’s US Patents 5,926,792 and 7,249,037 concerned methods, media and systems for administering and tracking the value of life insurance policies. A representative claim reads:

A life insurance policy management system comprising:

a policy generator for generating a life insurance policy including a stable value protected investment with an initial value based on a value of underlying securities of the stable value protected investment;

a fee calculator for calculating fees for members of a management group which manage the life insurance policy;

a credit calculator for calculating credits for the stable value protected investment of the life insurance policy;

an investment calculator for determining an investment value and a value of the underlying securities of the stable value protected investment for the current day;

a policy calculator for calculating a policy value and a policy unit value for the current day;

digital storage for storing the policy unit value for the current day; and

a debitor for removing a value of the fees for members of the management group which manages the life insurance policy.

Two weeks ago, I wrote about how fractured the Federal Circuit’s patent-eligibility landscape has now become for business methods and systems, as evidenced by the split decision in CLS Bank International v. Alice Corp. Pty. Ltd. See CLS Bank International: A Fractured Landscape of Patent Eligibility for Business Methods and Systems*. In CLS Bank International, I observed that each decision by the Federal Circuit on patent-eligibility under 35 U.S.C. § 101 “appears to hinge completely on the ‘luck of the draw’ as to which Federal Circuit judges make up the respective panel.” The latest ruling by a Federal Circuit panel in Bancorp Services, L.L.C. v. Sun Life Assurance Company of Canada (U.S.) reinforces that view and is yet more evidence of the further fracturing of the patent-eligibility landscape for business methods and systems.

The Bancorp Services case involved two patents, U.S. Pat No. 5,926,792 (the ‘792 patent) and U.S. Pat No. 7,249,037 (the ‘037 patent), relating to methods, systems, and computer-readable media for administering and tracking the value of life insurance policies in separate accounts. Both the ‘792 patent and ‘037 patent share a common patent specification having a priority date going back almost 16 years (September , 1996). Also, this is not the first time the Federal Circuit has grappled with ‘792 patent. There was an earlier 2004 Federal Circuit decision which reversed a grant of summary judgment of invalidity of the ‘792 patent based on “indefiniteness,” as well as a 2008 Federal Circuit decision which vacated a judgment of noninfringement of the ‘792 patent.

After the Supreme Court ruled in Bilski v. Kappos that a claimed method for managing (hedging) the risks associated with trading commodities at a fixed price was patent-ineligible under 35 U.S.C. § 101, the Federal Circuit has gone “hither and yonder” in trying to determine when other business methods and systems reach (or don’t reach) the patent-eligibility zone.  At the patent-ineligible end is CyberSource Corporations v. Retail Decisions, Inc. where Judge Dyk (joined by Judges Bryson and Prost) ruled that a method and system for detecting credit card fraud in Internet transactions was patent-ineligible under 35 U.S.C. § 101.  At the patent-eligible end is Ultramercial, LLC v. Hulu, LLC (recently vacated and remanded by the Supreme Court for reconsideration by the Federal Circuit) where Chief Judge Rader (joined by Judges Lourie and O’Malley) ruled that a claimed method for monetizing and distributing copyrighted products over the Internet was patent-eligible.  See Throwing Down the Gauntlet: Rader Rules in Utramercial that Breadth and Lack Specificity Does Not Make Claimed Method Impermissibly Abstract.

These polar opposite decisions in CyberSource and Ultramercial illustrate how fractured the Federal Circuit’s patent-eligibility landscape has now become for business methods and systems.  The most recent split decision in CLS Bank International v. Alice Corp. Pty. Ltd. where a claimed trading platform for exchanging business obligations survived a validity challenge under 35 U.S.C. § 101 epitomizes this problem.  As CLS Bank International unfortunately shows, an objective standard for judging the patent-eligibility of business methods and systems remains elusive, subject to an ever growing “tug-of-war” between the “inclusive” and “restrictive” patent-eligibility factions of the Federal Circuit.  In particular, after CLS Bank International, we are no closer to having a judicially accepted definition of what is (or is not) an “abstract idea” when it comes to claiming business methods and systems.

It’s tough to get a patent these days. All too often applicants and patent examiners lock horns and get stuck in an endless loop of rejection/response/rejection/response, etc. The applicant cannot convince the examiner to allow the patent and the examiner cannot convince the applicant to abandon the patent. It would be a lot easier to get a patent if there was a way to avoid this.

I have found in my own practice that each technology class at the USPTO is different. Some are easy. Some are hard. I have also found that this can change. Some of the easy ones suddenly get hard and some of the hard ones suddenly get, well maybe not “easy”, but at least better. You can see if a technology class is getting easier or harder by plotting the patent filing dates in that class versus patent issue dates. Here is an example for a “normal class”, semiconductor packaging, class/subclass 438/114.

Last week I wrote an article titled Business Methods by the Numbers, which took a look at the allowance rates for a variety of Art Units assigned to examine patents in class 705, the primary class where business methods and financial data processing inventions are classified in the United States.  The article has raised a few eyebrows and has caused some to question whether there is disparate treatment among Art Units at the United States Patent and Trademark Office.

The fact that there is disparate treatment between and among various Art Units and patent examiners shouldn’t catch anyone by surprise.  Everyone in the industry knows that some patent examiners feel they work for the Patent Granting Authority while others work for the Patent Rejection Office.  Notwithstanding, there are some who are excusing what can only be characterized as truly alarming statistics as having something to do with the various types of patent applications assigned to each Art Unit.  Allow me to call that out for what it is – hogwash!  Class 705, including the applications handled by Art Unit 3689, is dominated by a who’s who of the largest technology and financial companies in the world.  These companies hire some of the best attorneys in the world, they well understand how to write a patent application to articulate allowable subject matter and yet these large, well-funded companies represented by some of the best and brightest legal minds are incapable of obtaining a patent?  If you believe that I have a bridge I want to sell you!

The United States Patent Classification System is a system for organizing all U.S. patents into a smaller sub-collection of patents based on common subject matter. Each subject matter division includes a major component, which is called a class, and a minor component, which is called a subclass.  Few classes draw as much attention as class 705.  Class 705 is the generic class for innovations relating to the performing of data processing operations where the apparatus or method is uniquely designed for or utilized in the practice, administration, or management of an enterprise, or in the processing of financial data.  Class 705 was created in 1997 from the business and cost/price sections of computer classes 395 and 364.

The mere designation of an arrangement as a “business machine” or a document as a “business form” or “business chart” without any particular business function will not cause classification within class 705.  There must be significant claim recitation of the data processing system or of a calculating computer while at the same time having only nominal recitation of any external art environment within the claims.  If the claim mentions a particular tangible apparatus in combination with performing data processing or calculation operations then the invention is categorized in the classification that most closely matches the tangible apparatus.  In other words, class 705 relates to business method patents and the processing of financial data.

Yesterday The Hartford announced via press release that it had invented a faster way to deliver life insurance, which is now patent pending.  Can you that be true?  As with many things associated with the law, particularly patent law, a simple, straightforward answer is not possible.  In a nutshell, it is possible that one could patent a method of more quickly delivering life insurance if the process is new and non-obvious.  However, given the law that the United States Patent and Trademark Office is required to apply there will need to be much more than a real world business method, or “pure business method” as they are sometimes referred to.

“Today’s consumers are used to buying products online and receiving them at home within 48 hours,” said Brian Murphy, who heads The Hartford’s life insurance business. “We see no reason why they should have to wait more than a month to receive a new life insurance policy. By creating a new way of assessing a person’s risk factors and reordering the underwriting process, we can now provide consumers with life insurance coverage in a fraction of the time it used to take.”  But surely a reordering of the underwriting process isn’t enough for a patent, is it?

In Ultramercial, the patentee (Ultramercial) asserted that U.S. Pat. No. 7,346,545 (the ‘545 patent) was  infringed by Hulu, LLC (“Hulu”), YouTube, LLC (“YouTube”), and WildTangent,  Inc. (“WildTangent”).  The ‘545 patent,relates to a method for distributing copyrighted products (e.g., songs, movies,  books, etc.) over the Internet for free in exchange for viewing an advertisement with the advertiser paying for the copyrighted content.  What is interesting in this case is that Claim 1 of the ‘545 patent that is allegedly infringed by Hulu, YouTube, and  WildTangent recites a method having not one, not two, but eleven total steps.  (Side note:  One might wonder how anyone can infringe an eleven step method.)  WildTangent’s motion to dismiss for failure to state a claim was granted by the district  court based on the claimed method being patent-ineligible under 35 U.S.C. § 101.  (Hulu and YouTube were dismissed from the  case apparently for other reasons.)

A little over a year ago the United States Supreme Court issued its decision in Bilski v. Kappos. The critical question presented to the Court for consideration was 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. The Supreme Court held that the machine-or-transformation test is not the sole test for patent eligibility under §101, but rather that it was an important clue, thereby overruling the Federal Circuit who had earlier ruled that the machine or transformation test was the singular test to determine whether an invention is patentable subject matter.

But what practical effect did the Supreme Court ruling in Bilski v. Kappos have? Truthfully, not much at least in terms of the day to day approach of patent attorneys and the U.S. Patent and Trademark Office.  Certainly, the decision was important in that it preserved the patentability of at least some business methods and preserved the patentability of software, both of which continue to remain patentable in the United States.  What has transpired since the Supreme Court’s decision, however, is not much different, if at all different, than what happened day-to-day prior to the decision.