Earlier today 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 write about something much more interesting to them, namely whether software patents are patentable subject matter. We had been expecting a far reaching decision that dealt a blow to business method patents, but few would have expected just how far reaching the decision would be and that it would call into question thousands of software patents granted over the last 10 to 15 years.
I was in attendance at the oral arguments held in Washington, DC, and I did not see this coming, although I did have some fears in the back of my mind about just how far the Court would go. Chief Judge Michel peppered David Hansen, arguing orally on behalf of Bilski, with question after question, trying to get him to define the meaning of terms such as “concrete”, “tangible”, “useful” and “transformative.” Judge Michel kept saying these are all just adjectives, but what to they mean. This lead me to believe that the Court was going to seek to define the terms in a narrow way, making it difficult if not impossible to obtain a business method patent. Never in my wildest dreams did I think they were going to throw the baby out with the bath water. Actually, that is not exactly right, I did think about it, talked about it with my partner John White, and managed to convince myself that even the Federal Circuit wouldn’t manage to bungle this area of law so horribly by doing something like that. Boy was I wrong!
To be honest, many of those who I have spoken with think I am over reacting to the Federal Circuit’s decision. I suppose bloggers get paid to over react, so maybe you have to take this with a grain of salt, but I am 100% confident that I am not over reacting. This is an issue I have followed for a decade. I have written on the issue, I work in the software patent arena, I am an inventor in this area, and I write code myself. I feel comfortable calling myself an expert in this area and I feel with every ounce of my being that this decision is bad, wrong and stupid. Over the coming weeks I will continue to write and explain why. The outcome of this case is not what worries me, but what is in the decision that will be used from this point forward to thwart software patents… and yes… I do believe software should be patentable. Software is a tool like any other and unless we are going to stop allow patents on tangible tools then I see no reason to curtail patents on other tools, particularly a tool so useful and vital as a software program.
While the Federal Circuit has not said that software cannot be patented, what they did say substantially changes the law that has prevailed over the last 10 years and will render many software patents useless. Moving forward, you can protect software, but only by protecting the machine that the software operates on, which is the way patent attorneys used to be forced to write software patent applications many years ago. What it also means is that to have any chance at protecting software with a patent you will have to be willing to spend signficant amounts of money, because simply put there is no economical way to draft patents cost-effectively given the new Federal Circuit guidelines.
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. Rarely, if ever, are cases actually overruled. The way a court will distance themselves is to explain that the holding and underlying reasoning that lead to a decision is no longer applicable moving forward. As long as they do not use the magic words “we overrule” then they can technically say that the case has not been overruled, but there is absolutely no other way to characterize what the Federal Circuit did here while still be intellectually honest.
Software & Patent Articles
Business Method Patents
The reason State Street was so significant was because it established a new test to determine whether inventions that do not fit into the traditional, tangible model could be patentable. In order to do this Judge Rich said that inventions of a computer/business-method nature could be patentable if there were produced a “useful, concrete and tangible result.” Thus, when a computer program accepts data in, proceeds with calculations and then yields data out, if the data output is useful and identifiable then the process is patentable. This was a significant holding because it recognized (rightly so in my opinion) that software is a tool that can create useful and definite outputs, but outputs that are not tangible in the real world sense.
What the Federal Circuit did today, however, was to throw away the “useful, concrete and tangible result” inquiry. Here is what the Court had to say:
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.
If the “useful, concrete and tangible result” inquiry is insufficient and inadequate to determine the existence of patentable subject matter under 101 then State Street has quite clearly been overruled, evicerated, disregarded or whatever you would like to call it. The entire point of the States Street decision was the implementation of the “useful, concrete and tangible result” inquiry in order to determine whether an invention is patentable subject matter. Take that part out of State Street and all you have is the name of a bank on the heading of a defunct decision issued by the Federal Circuit in 1998.
The decision, the concurring decisions and the dissents are quite long, so there is much more analysis that needs to be done. For now, what I perceive to be some of the more significant aspects of the decision are set forth below. At least Judge Newman understood exactly the ramifications of what the majority of the Court was doing. If only we could clone Judge Newman and populate the Federal Circuit with her and her clones. I would also like to see her, or a clone, become the next Director of the USPTO.
Federal Circuit on the Supreme Court:
The Supreme Court, however, has enunciated a definitive test to determine whether a process claim is tailored narrowly enough to encompass only a particular application of a fundamental principle rather than to pre-empt the principle itself. A claimed process is surely patent-eligible under § 101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. A claimed process involving a fundamental principle that uses a particular machine or apparatus would not pre-empt uses of the principle that do not also use the specified machine or apparatus in the manner claimed. And a claimed process that transforms a particular article to a specified different state or thing by applying a fundamental principle would not pre-empt the use of the principle to transform any other article, to transform the same article but in a manner not covered by the claim, or to do anything other than transform the specified article.
Federal Circuit on New Technologies:
Nevertheless, 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. Thus, we recognize that the Supreme Court may ultimately decide to alter or perhaps even set aside this test to accommodate emerging technologies. And we certainly do not rule out the possibility that this court may in the future refine or augment the test or how it is applied. At present, however, and certainly for the present case, 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.
Federal Circuit Overrules State Street:
The second articulation we now revisit is the “useful, concrete, and tangible result” language associated with State Street, although first set forth in Alappat. The basis for this language in State Street and Alappat was that the Supreme Court has explained that “certain types of mathematical subject matter, standing alone, represent nothing more than abstract ideas until reduced to some type of practical application.” Alappat, 33 F.3d at 1543; see also State St., 149 F.3d at 1373. To be sure, a process tied to a particular machine, or transforming or reducing a particular article into a different state or thing, will generally produce a “concrete” and “tangible” result as those terms were used in our prior decisions. 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.
Federal Circuit Announced the New Test:
Thus, 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.
Judge Newman in Dissent:
The court today acts en banc to impose a new and far-reaching restriction on the kinds of inventions that are eligible to participate in the patent system. The court achieves this result by redefining the word “process” in the patent statute, to exclude all processes that do not transform physical matter or that are not performed by machines. The court thus excludes many of the kinds of inventions that apply today’s electronic and photonic technologies, as well as other processes that handle data and information in novel ways. Such processes have long been patent eligible, and contribute to the vigor and variety of today’s Information Age. This exclusion of process inventions is contrary to statute, contrary to precedent, and a negation of the constitutional mandate. Its impact on the future, as well as on the thousands of patents already granted, is unknown.