On September 23, 2010, the Patent and Trademark Office (PTO or the “Office”) hosted its annual Business Method Partnership Meeting at the Office’s headquarters in Alexandria, Virginia. Relative to prior years, the PTO scheduled this year’s Partnership Meeting later in the year in anticipation of the Supreme Court’s decision in Bilski v. Kappos.1 And as expected, the Bilski decision and the topic of statutory subject matter dominated the meeting.
As in prior years, the Partnership Meeting included presentations and Q&A sessions by leaders of the Office and Technology Center (TC) 3600, including Deputy Commissioner for Patents Margaret (Peggy) A. Focarino, TC Director Wynn Coggins and Deputy General Counsel for Intellectual Property Law and Solicitor Raymond Chen. The Partnership Meeting also included presentations by practitioners who gave their perspectives on compact patent prosecution and statutory subject matter.
A History Lesson. Similar to her remarks at the 2009 meeting, Coggins clarified for the audience that, as classified within Class 705 at the PTO, “business methods” are confined to “computer-implemented processes related to e-commerce, the Internet and data processing involving finance, business practices, management or cost/price determination.” In a bit of a history lesson, Coggins noted that the Office created Class 705 from former Class 364, which was directed to data processing systems (other sources indicate that the Office created Class 705 in 1997). In the time period that followed, the Federal Circuit issued its decision in State Street Bank,2 which seemingly prompted an inrush of application filings with what Coggins characterized as “abstract types of claims.” And now, culminating with the Supreme Court’s Bilski decision, Coggins believes the Office has come full circle, with application filings in Class 705 returning to a more data processing focus.
For his part, Chen provided a brief history of patentable-subject-matter challenges in the Federal Circuit, including In re Alappat,3 State Street Bank and AT&T Corp. v. Excel Communications, Inc.,4 in which the Federal Circuit first began applying the so-called “useful, concrete and tangible result” test for patent eligibility. Following these decisions, Chen explained that applicants expanded the scope of their claims from claiming ways of achieving useful, concrete and tangible results, to claiming just the notion of the result itself (preempting all implementations). With this expansion, the PTO began to question the extent to which the useful, concrete and tangible result test was the proper test for patent eligibility. The Office decided it needed clarification from the Federal Circuit on the issue, which the Office believed could be spurred sooner by its action than through patent litigation.5
Machine-or-Transformation Still Dominates. In In re Bilski,6 the Federal Circuit enumerated a “machine-ortransformation” test in which a patent-eligible process or method must either be tied to a particular machine, or transform a particular article to a different state or thing. On appeal, the Supreme Court reiterated that §101 sets forth broad categories of inventions that are patent eligible, but that precedent has established three exceptions: “laws of nature, physical phenomena and abstract ideas.”7 The Court refused to accept the machine-or-transformation test as the exclusive test for determining patent eligibility, but the Court did endorse the test as “a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under [35 U.S.C.] §101.”8 The Court ultimately found that Bilski’s claims to a method of hedging risk constituted an abstract idea, and were therefore not patent-eligible.
On July 27, 2010, the PTO issued Interim Guidelines for Determining Subject Matter Eligibility for Process Claims in View of Bilski v. Kappos9 (“Interim Subject Matter Guidelines”). The Interim Subject Matter Guidelines set forth a factor-based inquiry to determine whether method claims are directed to a patent-eligible process or an abstract idea. The factors set forth in the Interim Subject Matter Guidelines include inquiries as to whether a method claim satisfies the machine-or-transformation test, or otherwise involves the application of a law of nature. In instances in which the machine-or-transformation test is satisfied, the method claim is likely directed to a patent-eligible process. Method claims directed to a general concept such as a principle, theory, plan or scheme, on the other hand, are likely directed to an abstract idea. Examples of general concepts include basic economic practices or theories, mathematical concepts, mental activity, interpersonal interactions or relationships, teaching concepts, human behavior and instruction on how business should be conducted.
In both of their presentations, Coggins and Chen outlined the Interim Subject Matter Guidelines, but did not provide much insight into instances in which the PTO would consider a method claim patent eligible in the absence of satisfying the machine-or-transformation test. In fact, Chen noted that the Office was currently soliciting comments (through September 27, 2010) as to examples of claims that do not satisfy the machineor- transformation test but are nonetheless not abstract ideas, as well as examples of claims that satisfy the machine-or-transformation test but are abstract ideas. Coggins provided the audience with a number of prosecution tips for applications in Class 705, and chief among them was a tip that applicants recite a machine in method claims. Coggins further remarked that reciting a machine in process claims should absolve most subject matter issues (presumably placing less focus on the “transformation” prong of the machine-ortransformation test due to her focus on Class 705).
Chen explained that the law on patent eligibility is still evolving, and cited to a number of cases that are currently before the Federal Circuit with patent-eligibility issues.10 Chen acknowledged the possibility that a number of district courts have interpreted or will interpret Bilski in a manner more aggressive than the PTO. He further pointed out that the Office may end up filing an amicus brief in one or more of the cases currently before the Federal Circuit, and for this reason, he refused to specifically comment on any of the cases.
The Interim Subject Matter Guidelines make clear that method claims may be directed to a patent-eligible process without satisfying the machine-or-transformation test. Nonetheless, the remarks from Coggins and Chen, as well as the guidelines themselves, clearly suggest that satisfying the test will be the easiest way to overcome patent-eligibility issues, at least until the courts provide further guidance. However, as reported at the conclusion of the 2009 meeting, and as is still the case today, the PTO seems to lack clear guidance on what exactly is required to satisfy the machine-or-transformation test. In the context of satisfying the “machine” prong of the machine-or-transformation test, for example, many examiners seem to have different claim language that they consider acceptable to define a “particular” machine. Even further, the Board of Patent Appeals continues to apply new statutory-subject matter rejections on its own initiative, and generally seems to take a more hard-line approach to patentable subject matter.11 Applicants should therefore solicit and consider claim language preferred by their particular examiners, and consider the past treatment of patentable subject matter by the Board before appealing a second or final claim rejection—regardless of whether any claims stand rejected as being non-statutory.
A Philosophical Inquiry. At the conclusion of Chen’s presentation, he remarked that the evaluation of a claim for patent eligibility is in some ways a “philosophical inquiry.” This provided an apropos segue to a presentation by practitioner Robert Sachs in which he presented the inquiry as to what constitutes an abstract idea as a philosophical one. To Sachs, Bilski and the Interim Subject Matter Guidelines both illustrate confusion between an “abstract idea” and “abstraction,” and conflate “broad” claims with “abstract” claims; and Sachs faulted the Interim Subject Matter Guidelines as attempting to clarify the issue with “general concepts.”
As explained by Sachs, an “abstract idea” (or rather an “abstract concept,” as opposed to “abstract idea,” as used by the Supreme Court) is a concept for which the referents do not have a physical embodiment, but instead exist in perception or thought. An “abstraction,” on the other hand, is a generalization of a concept that identifies principle features or attributes, and purposely leaves out specific concrete details. Abstractions are definitions (e.g., “dog” is an abstraction of “German Shepherd”). A patent claim is the definition of an invention, and as a definition, the patent claim is an abstraction, which to Sachs, the Court does not understand— as Sachs evidenced by a survey of prior Court decisions.
Speaking of the Interim Subject Matter Guidelines, Sachs pointed out a passage whereby the guidelines, interpreting Bilski, noted that Bilski’s claims were directed to initiating transactions (occurring in the “real world”) but were nevertheless held to be abstract for failing to include any limitations as to the mechanism for entering into the transactions.12 As previously indicated, Chen expressed a similar sentiment regarding expanding the scope of claims to claim just the notion of a result. Sachs, however, took issue with this view of an abstract idea, as to Sachs, not limiting a function or operation to a specific implementation makes the claim broad, not abstract.
Sachs recognized the Interim Subject Matter Guidelines have a primary focus on satisfying the machine-ortransformation test, and that many examiners often require method claims to recite a machine—often in the form of processor, memory or storage recitations—to qualify as patent-eligible processes. Sachs argued that such limitations typically limit the scope of claims to specific implementations that are easily designed around. As evidence, Sachs presented an example of a claim to a method of processing a search query including a number of steps performed by a processor and memory. Sachs argued that one could avoid infringement of such a claim by employing multiple processors and/or memories, as opposed to a singular processor and memory. This argument, however, seems faulty in that applicants are entitled to be their own lexicographer, and may define “processor” and “memory” to include any of a number of different types of processors and memories, and may include singular as well as plural processors and memories. Further, the argument ignores Federal Circuit precedent holding that, in claims including the transitional phrase “comprising,” the indefinite articles “a” and “an” carry the meaning of “one or more” unless the patentee evidences a clear intent to limit the meaning to “one.”13
Notwithstanding Sachs’ somewhat overreaching arguments regarding the ease of designing around a method claim reciting hardware, his philosophical slant on the issue of a patent-ineligible abstract idea raised a number of good points. It also illustrated the difficulties that courts and PTO have encountered defining the bounds of patent-eligible subject matter. As illustrated by Sachs, the Supreme Court has at times characterized its own precedential cases as standing against abstract ideas when a careful read of the cases suggests they were decided on other grounds (e.g., written description, enablement). These difficulties may also be the reason why the Court has at times seemed to characterize a claim as being directed to an abstract idea without explaining exactly what constitutes an abstract idea, other than by relying heavily on its own—perhaps mischaracterized—precedent. Hopefully in future cases, the courts will provide further guidance on what exactly constitutes an abstract idea.
In Wait for Further Guidance. As a complement to Chen’s presentation, practitioner Erika Arner presented the audience with an overview of a number of the cases before the Federal Circuit that Chen cited as being the next opportunities for the court to provide guidance on patent eligibility and what constitutes an abstract idea.
In Prometheus Labs, Inc. v. Mayo Collaborative Servs., the Federal Circuit found that a method of optimizing therapeutic efficacy including administering a drug and determining the level of metabolites satisfied the transformation prong of the machine-or-transformation test, and therefore constituted patentable subject matter. The court reasoned that the human body necessarily undergoes a transformation when administered a drug, and that determining the level of metabolites necessarily involves a transformation as the levels could not be determined by mere inspection. The Supreme Court granted certiorari, vacated the Federal Circuit decision and remanded back to the Federal Circuit to further consider in view of its Bilski decision.
In comparison to Prometheus Labs, Inc., in Classen Immunotherapies, Inc. v. Biogen IDEC, the Federal Circuit found that a method including immunizing mammals in a treatment group, and comparing characteristics of a particular type of disorder in the treatment group with a control group, did not satisfy the machine-or-transformation test, and therefore did not constitute patentable subject matter. Similar to Prometheus Labs, Inc., the Supreme Court granted cert, vacated and remanded the case back to the Federal Circuit to further consider in view of Bilski.
In a number of other cases, the Federal Circuit stayed district court decisions invalidating claims as failing to satisfy the machine-or-transformation test, or is just now hearing the appeals. For example, in Research Corp. Techs. v. Microsoft Corp., an Arizona district court invalidated claims to a method of halftoning gray-scale images. In CyberSource Corp. v. Retail Decisions, Inc., a California district court invalidated claims to a computerreadable medium including program instructions for detecting fraud in a credit-card transaction. In DealerTrack, Inc. v. Huber, another California district court invalidated claims to a computer-aided method of managing a credit application that included communication with a number of devices (remote application entry and display device, and remote funding source terminal devices). In Every Penny Counts, Inc. v. Bank of America Corp., a Florida district court invalidated claims to a system including a network and a number of “means” (including “computing means”) for performing a number of functions including determining and apportioning an excess payment amount. In Fort Props., Inc. v. Am. Master Lease, LLC, the district court that decided DealerTrack, Inc. found claims to a method of creating a real estate investment instrument invalid for failing to define statutory subject matter. And although mentioned by Chen but not addressed by Arner, in FuzzySharp Techs. Inc. v. 3D Labs Inc., Ltd., the district court that decided CyberSource Corp. found claims to a method of reducing visibility computations in 3D computer graphics invalid for failing to define statutory subject matter.
Arner did not give the audience a guess as to the ultimate outcomes of the aforementioned cases before the Federal Circuit. However, she did draw some comparisons between the claims in those cases with the claims of prior cases in which the Federal Circuit found claims to define statutory subject matter, and offered that these prior cases may provide clues as to how the court will decide the current cases. She noted, for example, that in State Street Bank, the court upheld claims to a data processing system that included a number of means (including a “computer processor means” and “storage means”). In Alappat, the court upheld claims to a rasterizer including means for converting data representing sample magnitudes of an input waveform to displayable, pixel illumination intensity data. And in AT&T Corp., the court upheld claims to a method for use in a telecommunications system, including generating a message record and including particular information in the record. And in Arrhythmia Research Technology, Inc. v. Corazonix Corp.,14 the court upheld claims to a method of analyzing electrocardiograph signals including converting QRS signals to time segments and processing the time segments.
The New Transparent PTO. As in prior years, this year’s Partnership Meeting included opening remarks by Focarino. Focarino noted efforts to transform the PTO to a more transparent organization, highlighting the Office’s new online Patents Dashboard whereby users may view current Office-wide measures such as backlog, pendency and number of examiners.15 Focarino also briefly introduced the audience to the Office’s new Patent Examiner Technical Training Program (PETTP) whereby the Office will permit scientists and experts to provide technical training to examiners (without compensation and at their own expense).16
Also as in prior years, Coggins provided a number of statistics regarding application filings, pendency and allowance in Class 705. Application filings in Class 705 continue to show a gradual increase.17 Notably, at mid-year 2010, Class 705 reported a pendency-to-first action and pendency-to-disposal (issuance or abandonment) on par with those statistics reported at the end of 2009 (31.7 months to first action in 2010, compared to 31.9 in 2009; and 46.7 months to disposal in 2010, compared to 46.6 months in 2009). Coggins did highlight, however, that Class 705 is currently reporting an allowance rate of 23 percent, which is up from the 17-22 percent rate reported in recent past years.
Conclusion: Until Further Guidance, it’s Machine-or-Transformation. This year’s Partnership Meeting offered an opportunity for PTO leadership, practitioners and industry participants to discuss patent eligibility, which is arguably the most important issue facing those patenting business methods. In the past few years, the patent community has experienced the Federal Circuit’s enumeration of the machine-or-transformation test, and the Supreme Court’s endorsement of the test as a test, but not the exclusive test, for assessing patentable subject matter.
Unfortunately, although the Supreme Court did not endorse the machine-or-transformation test as the exclusive test, the Court did not provide much if any guidance on judging a claim patent eligible even though it fails the machine-or-transformation test. For this reason, the patent community is left waiting on future cases to provide that guidance. And until the guidance arrives, many will likely see the machine-or-transformation test applied as the de facto test.
This was originally published in BNA’s Patent, Trademark & Copyright Journal.