Bilski and Its Expansion of the Abstract Idea Exception: A Failure to Define

Editors note: Judge Paul Michel authored the Federal Circuit’s en banc opinion in In re Bilski, as the Court’s Chief Judge at the time.

The Supreme Court’s Bilski v. Kappos decision—which celebrated its 10^th birthday this past weekend—still matters, even in the age of Mayo-Alice. For one thing, the case marked the end of the patent-eligibility peace. For another, Bilski stands for the well-known principle that the “machine-or-transformation” test offers a “useful and important clue” as to whether the process claimed by a patent will qualify as patent-eligible under 35 U.S.C. §101. And at the same time, it stands for the fact that the machine-or-transformation test has been far more trivia than principle, the case law not having applied or considered that Bilski “clue” much beyond the Bilski case itself.

But Bilski represents something more dire to the U.S. patent system than trivia or end-dates on Section101 peace. It represents an obligation that the Supreme Court had to define an “abstract idea,” per its holding in Bilski that the “hedging” activity there was such an abstract idea and thus was ineligible for Section 101 patent protection. Or to provide some discernable limits about what the “abstract idea” exception covers beyond mathematical algorithms. But Bilski provided neither a definition nor limits. In that way, the Court’s decision has only contributed to the confusion and unpredictability that have resulted from its Mayo-Alice framework on patent eligibility—i.e., the framework the Court fashioned in the wake of Bilski. At year 10, either the Court, the Federal Circuit, or the Congress should do what Bilski itself didn’t do in year one: Define the “abstract idea” exception to patent eligibility and begin to lessen the harms to the patent system that these ineligibility shortcomings have wrought.

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That is the long and short of what Bilski represents, in our view. The fuller explanation merits additional discussion on the Section 101 case law. Bilski began as the first of four mostly pivotal cases that the Supreme Court addressed within a four-year period on the law of patent eligibility, culminating with the above-mentioned cases in Mayo (2012) and Alice (2014). Before Bilski, though, the Court had not addressed the issue of statutory patent eligibility for decades, or more specifically, had not addressed the three “implied” exceptions to the eligibility provision, 35 U.S.C. §101, that the Court has recognized for some 150 years; namely, the exceptions for a natural law (e.g., Newton’s law of gravity or Einstein’s famous theorem, E = [mc]2); a natural phenomenon (e.g., a newly discovered mineral or plant); or most pertinent here, an abstract idea. Indeed, the Court had last addressed Section 101 in another run of four mostly pivotal cases within another similarly shortened timeframe, from 1972-1981.

The Court’s Prior Quartet of 101 Cases and Their Clear Examples of Mathematical Formulas, Algorithms, and Lab-Made Organisms

In the hindsight of time, some or even all of those cases may seem straightforward now, though they surely did not when decided. But at least as described therein, those cases did present examples of mathematical formulas, computer algorithms, and other subject matter that, on one side or the other, neatly illustrated an “implied” Section 101 exception—be it for an abstract idea (such as a mathematical formula), a natural law, or a natural phenomenon (or its converse, such as a non-natural, lab-created bacteria).

Briefly, the Court’s quartet of cases held as follows. In Gottschalk v. Benson, the Court held that a patent claim on a computer algorithm was “in practical effect” a claim on that “mathematical formula” or “algorithm itself”—meaning it was “conceded[ly]” a claim on an ineligible “abstract idea.” 409 U.S. 63, 67, 71-72 (1972) (all emphasis added unless otherwise noted). Similarly, in Parker v. Flook, the patent examiner found that the claimed method for updating an alarm limit or “number” via an algorithm was “in practical effect” a claim “on the formula or mathematics itself,” rendering it ineligible as a law of nature or abstract idea. 437 U.S. 584, 586-87 (1978). The Court ultimately agreed with that “undisputed” finding and further held that the only “point of novelty” or “inventive concept” in the Flook claim over the prior art lay merely with Flook’s claimed mathematical algorithm. Id. at 586. And in Diamond v. Chakrabarty, while emphasizing that the country’s Founders had a vision for “liberal[ly]” encouraging “ingenuity” via the patent laws, the Court concluded that the non-naturally occurring, lab-created bacterium claimed in the patent there was indeed patent-eligible. 447 U.S. 303, 308-09 (1980).

Last, in Diamond v. Diehr, the Court upheld the eligibility of a multi-step patent claim that, as the Court described it, did “not seek to patent a mathematical formula or other patent-ineligible concept. Instead, they [sought patent] protection for a [multi-step] process of curing rubber,” the claim text for which recited multiple steps for using a mathematical “equation in conjunction with all of the other steps in their claimed process [for curing rubber].” 450 U.S. 175, 187-88 (1981). In reaching that eligibility conclusion, the Court held that (1) in determining eligibility, courts must view a patent claim “as whole,” including all its recited steps or elements, id. at 187; and (2) considerations of what claim elements “were well known and in common use” before the claimed invention—or whether those claims were “novel” or “non-obvious”—had “no relevance in determining whether the subject matter of a claim” was Section 101-eligible, id. at 189-90.

Diehr book-ended the start of a 30-year period in which Section 101-eligiblity challenges were rare. Some issues, to be sure, carried back-and-forth in the Federal Circuit as to whether software and business-method claims should qualify as patent-eligible, see State Street Bank & Trust v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998).

The Supreme Court’s Bilski Majority Newly Applies its “Abstract Idea” Precedents to “Hedging” and Other “Fundamental Economic Practice[s]”

Then along came Bilski. See 561 U.S. 593 (2010). In 2010, the Supreme Court overruled the Federal Circuit’s en-banc holding that the “machine-or-transformation” test was the “sole” test for determining whether a claimed process qualified as patent-eligible. Id. at 602. Under that test, a process claim was patent-eligible under Section 101 if “(1) it was tied to a particular machine or apparatus, or (2) it transform[ed] a particular article into a different state or thing.” 545 F.3d 943, 954 (Fed. Cir. 2008) (en banc). As the Court held, the machine-or-transformation test provides a “useful and important clue” as to the patent-eligibility of the claimed subject matter, but it was and is not the sole eligibility test. 561 U.S. at 602.

Further, the majority chose not to apply that test to the Bilski method claims for managing the risks with buying and selling commodities—i.e., with “hedging risk in the field of commodities.” E.g., 561 U.S. at 611. As the Bilski majority saw it, those claims were rather like the claims that its “abstract idea” precedents had addressed in Flook and Benson, supra. See Bilski, 561 U.S. at 611. The Court reasoned that “just like the algorithms at issue in Benson and Flook,” the “concept of hedging” in the Bilski claims was “an unpatentable abstract idea.” Id. That concept, it explained, was merely a “fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class.” Id.

Bilski did not otherwise provide or elaborate on any definition of an “abstract idea.” See id. at 611. Instead, in a single sentence, the Court declared it need not do as much, citing the clear application of its Flook and Benson “abstract idea” case law. See id. And indeed, the Court since that time has steadfastly declined to provide such a definition or even specific “contours” on what its own “implied” exception for an “abstract idea” may mean. E.g., Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347, 2357 (2014).

Bilski’s Failure to Define an “Abstract Idea” has Only Made the Mayo-Alice Eligibility Framework More Inconsistent and Unpredictable

Needless to say, this ongoing judicial failure to define or even corral the scope of the “abstract idea” exception to Section101 has made the ineligibility analysis today all the more uncertain. And that uncertainty has surely undermined only more the attractiveness of the U.S. patent system and the technology investments it should otherwise promote.

The problem, in our view, is that the “hedging” or “fundamental economic practice” addressed in Bilski is not “just like” a math equation. Putting aside whatever math-like “reduction” a particular Bilski claim may have done, “hedging” and other such human “economic” activities do not resemble a mathematical equation, formula, or other such concepts that intuitively fall within the category of an “abstract idea.” To coin a phrase, these are indeed things that we know ‘em when we see ‘em. They usually involve an “equal” sign—e.g., E = [mc]², or A² + B² = C², or an algebraic expression requiring inputs, or something far more advanced (or simpler) but that, in any event, presents an objective test of one sort or another.

The Court, to be sure, has rejected the notion that an “abstract idea” for Section 101 purposes is limited to mathematical formulas and the like. But unless the courts are willing to reconsider that aspect of an “abstract idea,” its unheralded expansion in Bilski to cover “fundamental economic activities” itself fundamentally demands a definition or guideposts as to its meaning.

Otherwise, that harmful omission—that failure to define—will stand as Bilski’s mark.