On October 30, 2008, the United States Court of Appeals for the Federal Circuit handed down its holding in the In Re Bilski case, which has been much anticipated because of the potential effect on the patentability of business method and computer software inventions. While these types of inventions still are patentable, per se, the court has provided some guidance on what will constitute patent-eligible subject matter in these areas going forward, but still left important questions for future cases. This decision was rendered en banc, superseding all prior inconsistent precedent of the Federal Circuit.

The claim under scrutiny in Bilski is a claim for a method of hedging risk in the field of commodity trading. The process, as claimed, encompasses the exchange of only options, which are simply legal rights to purchase some commodity at a given price in a given time period. As such, the true issue before the court was whether the applicants were seeking to claim a fundamental principle (such as an abstract idea) or a mental process. The underlying legal question thus presented is what test or criteria governs the determination by the United States Patent and Trademark Office or courts as to whether a claim to a process is patentable under 35 USC §101 (eligible for examination) or, conversely, is drawn to unpatentable subject matter because it claims only a fundamental principle. Here, the Federal Circuit relied on prior Supreme Court decisions to hold that the machine-or-transformation test, properly applied, is the governing test for determining the patent eligibility of a process under §101.

Machine-or-Transformation Test

Under the two-prong machine-or-transformation test, a claimed process is 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. The use of a specific machine or transformation of an article must impose meaningful limits on the claim’s scope to impart patent-eligibility. Likewise, involvement of the machine or transformation in the claimed process must not merely be insignificant extra-solution activity.

Claims that limit any process step to any machine or apparatus are reviewed under the first prong. The transformation and reduction of an article to a different state or thing is the clue to the patentability of a process claim that does not include a particular machine. In order to properly review such a process under the second prong, the transformation must be central to the purpose of the claimed process. Since a patent claim is considered as a whole for eligibility under §101, not all the process steps of a claim need be limited to a machine or transform an article.

The purpose of the machine-or-transformation test is to prevent the preemption of fundamental principles. “Fundamental principles,” as defined in the Bilski decision, means “laws of nature, natural phenomena, and abstract ideas.” Claims that are drawn only to a mental process (performed entirely in the human mind), or to the application of human intelligence alone to solve practical problems, are claims to fundamental principles. Preemption of a mathematical formula may still occur when the patent claim requires implementation on a general purpose digital computer, if the algorithm has no utility other than operating on a digital computer. Also, limitation to one field of use generally does not render a claim eligible where the claim preempts all uses of an otherwise ineligible algorithm.

However, transformation of data may be eligible under §101 if properly claimed. Considering the transformation alternative of the test, there is no danger that the scope of a claim would wholly preempt all uses of a fundamental principle, so long as the claimed process is limited to a practical application of the fundamental principle to transform specific data representative of specific physical objects or substances, even if the transformation is only in a visual depiction of such data.

Transformations or manipulations simply of public or private legal obligations or relationships, business risks or other such abstractions cannot meet the test because they are not representative of physical objects or substances. Adding a data-gathering step to an algorithm is insufficient to convert that algorithm into a patent-eligible process, as it would not constitute a transformation of an article. Likewise, insignificant extra-solution activity, such as merely displaying on a machine the result of otherwise ineligible steps, does not render the process claim eligible.

Since the machine-or-transformation test is the only test for determining patent eligible subject matter, no equivalents or shortcuts are acceptable. Therefore, the fact that a claim produces “useful, concrete and tangible results,” recites “physical steps,” or passes the “technological arts test,” does not render a claim patent eligible subject matter under §101. If there is no tie to a machine or transformation of an article into a different state or thing, there is no §101 patent-eligible process as defined by the machine-or-transformation test.

Implications of the Bilski Decision

The Bilski decision includes many pitfalls for patent practitioners in the business method and computer software fields, but provides a treasure trove of ammunition for patent litigators in attacking the validity of business method or computer software patents.

In the patent prosecution context, the Bilski decision, in confirming and clarifying the approach the Federal Circuit took in the Comiskey panel decision, will have a profound effect on the drafting of process claims. Any application including process claims will need to satisfy the two-pronged “machine-or-transformation” test and, thus, process claims should be tied to a particular machine or apparatus, or transform a particular article into a different state or thing. The challenge here is that the majority does not provide a great amount of detail regarding what standards will be used to determine if either prong is satisfied. This absence of detail is especially the case with the machine prong of the test, because, in Bilski, the applicant conceded that the claims did not include any type of machine or use any type of machine, causing the majority to intentionally leave such details to future cases. Unanswered questions include, for example, what level of involvement is required to conclude that a claim is “tied to a particular machine or apparatus”? Regarding the transformation prong, what constitutes an “article” when determining the transformation of an article? What level of transformation is enough transformation?

Until these and other questions are fleshed out in subsequent litigation, the patent practitioner should include involvement of a particular machine or apparatus when drafting process claims (being careful not to mix statutory categories in the same claim), or include a definite “transformation” of some type of article in the process claim. Although the majority did not discuss this issue, it is worth noting that the first prong of the test requires that the process claim should be tied to a “particular” machine or apparatus. The court’s comments suggest that a simple reference to a generic computer or other machine may possibly be deficient under the machine-or-transformation test. Thus, it may be wise for patent practitioners to include a description and figures regarding a particular type of machine or apparatus, and then claim its involvement in one or more steps of the process claim. In the case of computer-implemented processes, drafters should consider providing drawings and descriptions of various components and modules of a system used to carry out steps of the process.

At first glance, the task for patent practitioners in the wake of the Bilski decision may seem daunting. However, patent practitioners may find some comfort in the Federal Circuit’s prior decision in In re Comiskey. There, in determining the patent-eligibility of a business method claim including the term “module”, the Court found that the claim, under a broad interpretation, could involve the use of a computer. Thus, based on the Court’s reasoning in Comiskey, a patent practitioner may be safe in asssuming that a broad interpretation will be given, when necessary, to find the necessary tie to a machine under the machine-or-transformation test.

Also, as Justice Mayer discusses in his dissent, drafting a process claim, such as a business method claim, to pass muster under the machine or transformation test may not be that troublesome. Justice Mayer points to several issued process patents, including U.S. Patent No. 7,261,652 (method of putting a golf ball), U.S. Patent No. 6,368,227 (method of swinging on a swing suspended on a tree branch), and U.S. Patent No. 5,443,036 (method of inducing a cat to exercise). Justice Mayer notes that even these process patents would arguably pass muster under the machine-or-transformation test, as all involve some type of transformation: “[T]he golfer’s stroke is changed, a person on a swing starts swinging, and the sedentary cat becomes a fit feline.” Although these examples represent a potentially broad interpretation of the term “transformation,” the examples disclose the wide range of possibilities when determining what could indeed suffice as a transformation under the machineor- transformation test. Further clarification will undoubtedly follow in subsequent litigation.

It is also worth noting that patent practitioners need to tread lightly when drafting claims that involve any type of “fundamental principle,” as discussed in the majority opinion. In seeking to clarify the prior jurisprudence regarding patent eligibility under § 101, the court created several pitfalls for a process claim involving any type of fundamental principle. The claim drafter should take note of these pitfalls, because many process claims, especially in the business method context, implicitly or explicitly involve some type of fundamental principle, or claim the operation of a fundamental principle in a limited environment. As noted above, “fundamental principle” is defined as including “laws of nature, natural phenomena, and abstract ideas.”. Thus, many business method process claims (as in Bilski) may potentially involve what the court would consider an abstract idea.

If a claim includes such a fundamental principle, the claim should be drafted to avoid claiming all uses and applications of the fundamental principle. Instead, the claim drafter should claim only the practical application of the fundamental principle, which should lead the drafter to an inquiry under the machine-or-transformation test. However, the court also warns that certain actions in claim drafting will not “save” a claim including a fundamental principle from patent ineligibility in light of the machine-or-transformation test. For example, simply restricting the field of use of a fundamental principle is not enough to render a claim patent-eligible, and insignificant post-solution activity will not be enough, either. To avoid these problems, the patent practitioner should lean heavily on the machine-or-transformation test and, after choosing the prong which best suits the claimed invention, precisely claim either the machine or transformation in the process claim.

A recommended safe approach for the patent practitioner may also be to embrace both prongs of the machine-or-transformation test if applicable to the invention being claimed. Using this safe approach, the patent practitioner could claim the involvement of a particular machine or apparatus, and also precisely claim a resulting transformation.

For clients having a patent portfolio including a number of business method or computer software patents, such a patent portfolio should be reevaluated in light of the Bilski decision. If these patents do not include a sufficient tie to a machine, or involve a transformation of an article into a different state or thing, then it may be wise to consider filing a reissue patent application to include additional limitations required by the machine-or-transformation test (assuming there is sufficient support in the original application). Such a reissue application may be filed at any time after the issuance of the patent, so long as the claims are narrower than in the issued patent. Reissue applications which broaden the issued patent may only be filed within two years from the date of issuance of the patent. For this reason, such a reissue patent cannot add claims to a different statutory category from the issued patent unless filed within two years of the issue date of the patent. For example, if the issued patent includes only process claims, a reissue application filed more than two years after the issue date may not add system claims in an attempt to meet the “machine” prong of the Bilski test. Furthermore, subject matter which was “surrendered” in the original application cannot subsequently be claimed in a reissue patent application. For example, if a claim limitation is omitted in the reissue application, but the claim limitation was relied in the original application to secure an allowance, the omitted limitation would constitute surrendered subject matter and would not be eligible for claiming in a reissue application.

For patent litigators, the Bilski decision may provide ample ammunition for attacking many process claims, especially business method or computer software claims. Many of the issued patents including process claims were drafted by patent practitioners relying on rules that have now been discarded by the Federal Circuit (e.g., the useful, concrete and tangible result test of State Street and AT&T). Thus, while some issued process claims may, by chance, happen to satisfy the machine or transformation test, many other issued process claims may not. A patent litigator defending a patent infringement suit including process claims should evaluate the process claims under the “machine-or-transformation” test and, if appropriate, include a 35 U.S.C. 101 invalidity defense citing the Bilski decision.

There is hope for those patent litigators who find themselves in the opposite position, defending an invalidity claim based on the machine-or-transformation test in Bilski. Remember, as discussed, the court has yet to define several criteria involved in the application of the test; the criteria, if interpreted broadly, may provide an area for argument when faced with an invalidity challenge under the machineor- transformation test of Bilski.

Finally, the Bilski decision will have implications for innovations and improvements in the business sector and computer software industries, as the machine-or-transformation test, with its associated ambiguities, does not promise a golden path of patent protection for these inventions. Unfortunately, for the time being (and as suggested by Justice Newman in her dissent), businesses considering investments in such industries or inventions may abstain, at least until Bilski is overturned (or perhaps, fine tuned) by the U.S. Supreme Court. Whether the Supreme Court will take an appeal from the Federal Circuit decision is problematic.

Those who find themselves uncomfortable with the result in Bilski, or those who believe the types of inventions approved by the court should not be patent-eligible subject matter, may petition Congress to act regarding the patentability, or non-patentability, of business methods and computer software. It will be interesting to see what the future holds as far as legislation to address the patent eligibility of these types of inventions.

In conclusion, the Bilski decision has preserved the patentability of software and business methods, but on a much more limited basis than appeared to be the law in the decade between State Street to Comiskey.