Judges: Michel, Dyk (author), Prost

[Appealed from the Board]

In In re Comiskey, No. 06-1286 (Fed. Cir. Sept. 20, 2007), the Federal Circuit affirmed the Board’s decision rejecting claims to a mandatory arbitration process in U.S. Patent Application No. 09/461,742 by Stephen W. Comiskey. Although the Board had affirmed the examiner’s rejections based on prior art under 35 U.S.C. § 103, the Federal Circuit did not consider that reasoning, but instead affirmed the rejections of the method claims on the grounds that they did not recite patentable subject matter under 35 U.S.C. § 101. The Court remanded the case to the PTO for further consideration of the system claims in the application.

Comiskey’s application claimed methods and systems for performing mandatory arbitration resolution regarding one or more unilateral documents. The PTO examiner rejected the claims under 35 U.S.C. § 103(a) as obvious over a combination of prior art references. The rejections were affirmed by the Board, and Comiskey appealed to the Federal Circuit. Though the PTO had not rejected Comiskey’s claims as unpatentable under 35 U.S.C. § 101, the Federal Circuit raised the issue during oral argument. In particular, Chief Judge Michel noted that the claims were broader than any computer-implemented system, and the judges wondered aloud whether method claims that do not require any machine or computer fall within the scope of section 101. After oral argument, the Federal Circuit requested supplemental briefing on the section 101 issue.

In its decision, the Court expressly did not reach the obviousness rejections affirmed by the Board, instead finding that many of the claims were barred by the threshold requirement of compliance with section 101. The Court cited with favor the PTO’s own Manual of Patent Examining Procedures as correctly treating the requirements of section 101 as a predicate to the other requirements for patentability, such as novelty and nonobviousness.

In its discussion, the Court first addressed Comiskey’s argument that the issue of patentable subject matter could not properly be raised by the reviewing Court. Although Comiskey admitted at oral argument that the Federal Circuit could affirm the claim rejections based on section 101, he argued in his supplemental brief that the Court was limited to reviewing the Board’s decision based on the record before the PTO, citing the Administrative Procedure Act. The Court rejected this argument and cited the Supreme Court’s holding in Securities & Exchange Commission v. Chenery Corp., 318 U.S. 80 (1943), that a reviewing court can, and should, affirm an agency decision on legal grounds not relied on by the agency when there is no issue of fact, policy, or agency expertise. Noting that whether claims recite statutory subject matter under section 101 is a question of law reviewed without deference, the Court continued with its analysis.

Beginning with the constitutional provision authorizing Congress to grant patents to promote the “useful Arts,” the Court examined the scope of subject matter that falls within the four categories set forth in the Patent Act of 1952, i.e., any new and useful process, machine, manufacture, or composition of matter. While patentable subject matter under the Act is “extremely broad,” the Court noted that not every process is patentable. For example, the Court continued, the unpatentable nature of abstract ideas has been repeatedly confirmed. Slip op. at 16.

Regarding the prohibition against patenting abstract ideas, the Court stated that the requirements of section 101 have long meant that an abstract concept with no claimed practical application is not patentable. Going one step further, the Court stated that “a claim reciting an algorithm or abstract idea can state statutory subject matter only if, as employed in the process, it is embodied in, operates on, transforms, or otherwise involves another class of statutory subject matter, i.e., a machine, manufacture, or composition of matter.” Id. at 17.

The Court next analyzed Supreme Court cases finding an algorithm patentable if it is tied to a machine or if it acts to transform subject matter to a different state or thing. Diamond v. Diehr, 450 U.S. 175 (1981); Cochrane v. Deener, 94 U.S. 780 (1876); Tilghman v. Proctor, 102 U.S. 707 (1880). The Court also examined several of its previous decisions, stressing that the mathematical algorithms in earlier cases were found to be patentable because they claimed practical applications and were tied to specific machines. State Street Bank & Trust Co. v. Signature Fin. Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998); In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994); AT&T Corp. v. Excel Commc’ns, Inc., 172 F.3d 1352 (Fed. Cir. 1999). “Thus,” held the Court, “a claim that involves both a mental process and one of the other categories of statutory subject matter (i.e., a machine, manufacture, or composition) may be patentable under § 101.” Slip op. at 18.

Considering the nature of business method patents, the Court noted that business methods are “subject to the same legal requirements for patentability as applied to any process or method,” including section 101. State Street Bank, 149 F.3d at 1375.

Therefore, according to the Court, “the present statute does not allow patents to be issued on particular business systems—such as a particular type of arbitration—that depend entirely on the use of mental processes.” Slip op. at 21.

Turning to Comiskey’s application, the Court held that the claims reciting methods for mandatory arbitration resolution, which Comiskey admitted did not recite any computer or other apparatus, were impermissible attempts to patent the use of “human intelligence in and of itself.” Id. at 22. Thus, the Court affirmed the rejections of Comiskey’s method claims on the grounds that they were drawn to unpatentable abstract ideas rather than falling within a statutory category.

Finally, the Court held that Comiskey’s system claims, which did recite computer components, were patentable subject matter under section 101. However, the Court found that the independent system claims “at most merely add a modern general purpose computer to an otherwise unpatentable mental process and [the dependent claims] merely add modern communication devices.” Id. at 24. Citing Leapfrog Enterprises v. Fisher-Price, Inc., 485 F.3d 1157, 1161 (Fed. Cir. 2007), the Court remanded the case to the PTO, warning that “[t]he routine addition of modern electronics to an otherwise unpatentable invention typically creates a prima facie case of obviousness.” Slip op. at 24. The Court also noted that its remand would afford Comiskey the opportunity to amend his application in light of the section 101 issues first raised on appeal