The recent Federal Circuit In Re Bilski2—now under Supreme Court review—has already had a clear and dramatic effect on patenting of processes in areas traditionally viewed as “nontechnological arts” such as business methods, requiring substantial changes in claim structure and scope. Telecommunications patent counsel cannot ignore the impact of Bilski, thinking that most telecommunications patents involve hardware systems and are untouched by Bilski. While this may be true for pure hardware patents, as various forms of information processing and software development continue to develop and grow in importance, telecommunications patent counsel must consider the implications of Bilski—and especially the Supreme Court’s forthcoming decision.

Inventive ideas in telecommunications increasingly relate to methods of processing and transferring information including relatively less concrete concepts, such as nuances in circuitry, orders of data transfer, and methods of data processing and transfer. In some circumstances these concepts may be embodied in computer software or hardware, but in other situations the concepts may stand alone as a “method.” Consequently, the Bilski decision may have far reaching impact on the industry’s ability to use patents to protect business methods. The appellate decision sets forth a new test for determining whether a method or process defines subject matter that is eligible for patent protection. As framed in Bilski, the question is not whether an invention is sufficiently new and non-obvious when compared with “prior art” – the typical battle ground for those seeking patent protection – but rather whether patent law may foreclose an entire class of inventive activity (methods) from protection entirely.

The Supreme Court granted review of the case in June 2009 and heard oral argument in November. The oral argument included a fairly substantial discussion of two key telecommunications patents from the industry’s foundation: the Alexander Graham Bell patent on the telephone and the Samuel Morse patent on the Morse code used in telegraphy. Here we review the appellate court’s decision and consider the implications of the recent oral arguments before the Supreme Court. We then discuss some practical considerations on how best to protect telecommunications innovations during the current period of uncertainty, and perhaps beyond, depending on how the Supreme Court ultimately decides the case.

I. Bilski

In Bilski, the applicant sought to patent “a method for managing the consumption risk costs” in a commodities transaction.3 Claim 1 fairly illustrates what Bilski was trying to protect:

A method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of:

(a) initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said consumer;

(b) identifying market participants for said commodity having a counter-risk position to said consumers; and

(c) initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions4

The U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”) noted that Bilski was trying to claim a basic “method of hedging risk in the field of commodities trading.”5 To use the Federal Circuit’s example, coal-fired power plants want to avoid the risk of high-priced coal (or shortages), and coal mines want to avoid the risk of low-priced coal (or a drop in demand).6 “The claimed method envisions an intermediary, the ‘commodity provider,’ that sells coal to the power plants at a fixed price” and “buys coal from mining companies at a second fixed price,” thus hedging the commodity provider’s risk.7

A. The Patent Office and Board of Patent Appeals

The patent examiner rejected the claims under 35 U.S.C. § 101, the statutory provision that defines patent-eligible subject matter, because the claims were not implemented on a specific apparatus and were not directed toward technological arts.8

The Board of Patent Appeals and Interferences (“Board”) affirmed the rejection of the claim, but on different grounds.9 The Board found that the case law does not support the examiner’s technological arts test10 and does not require a specific apparatus if, for example, there is a transformation of physical subject matter from one state to another.11 The Board determined that the Bilski claims did not include any patent-eligible transformation and were thus not eligible for patent protection.12 The Board concluded that the claim described only an abstract idea and that the idea was ineligible for patent protection. The Board further noted that the process as claimed did not produce a “useful, concrete and tangible result,”13 which had been the touchstone of patent-eligible subject matter in the so-called “business method” context since the State Street Bank & Trust v. Signature Financial Group, Inc. decision in 1999.14

B. Federal Circuit Decision

On appeal, the Federal Circuit sua sponte granted en banc review of the Board’s decision.15 The Federal Circuit focused on the standard for determining whether method claims recite patent-eligible subject matter under Section 101.16 Section 101’s requirement of patenteligible subject matter is the threshold test for patentability. If the subject matter of the invention is not patent-eligible, it does not matter whether the invention meets the remaining requirements of novelty (Section 102) and non-obviousness (Section 103). Historically, the patent-eligibility standard was very broad. One frequently cited case used a patent-eligibility standard that “everything under the sun created by man” was patent-eligible.17 Later decisions narrowed the scope of patent-eligible subject matter, but without agreement on a single test. For example, in State Street Bank the Federal Circuit held that a claim had no patent-eligible subject matter unless the claim produced a “useful, concrete and tangible result . . . .”18 This test was based on a Supreme Court explanation that “certain types of mathematical subject matter, standing alone, represent nothing more than abstract ideas until reduced to some type of practical application . . . .”19

In Bilski, the Federal Circuit specifically rejected this test as inadequate.20 The court stated that “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 patenteligible under § 101.”21 Instead of this test, the Federal Circuit’s Bilski opinion established what has become known in the past year as the “machine or transformation test”: whether the claimed process: (1) is tied to a particular machine or apparatus, or (2) transforms a particular article into a different state or thing.22 To satisfy this test, “the use of a specific machine or transformation of an article must impose meaningful limits on the claim’s scope to impart patent-eligibility,” and “the involvement of the machine or transformation in the claimed process must not merely be insignificant extra-solution activity,” or a mere “data-gathering step.”23 Moreover, the transformation “must be central to the purpose of the claimed process.”24 In articulating this test, the Federal Circuit acknowledged that Bilski’s claims did not in any way claim the use of a “machine.25 Thus, the Court was forced to demur on this important prong of its newly stated test, simply stating that “[w]e leave to future cases the elaboration of the precise contours of machine implementation, as well as the answers to particular questions, such as whether or when recitation of a computer suffices to tie a process claim to a particular machine.”26 So despite the Federal Circuit’s framing of a new test for patent-eligible subject matter, the opinion does not answer some critical questions for computer-related inventions.

C. Supreme Court Oral Argument

The Supreme Court heard argument on November 9, 2009. A number of the Justices expressed skepticism over the patent-eligibility of business methods and probed the attorneys on each side for a test that would appropriately balance the competing interests. Justice Sotomayor asked for a reasonable limit on the definition of “useful arts” in Section 101, questioning whether there is some benefit to society of allowing patents on human methods that cannot be accomplished by allowing patents on the machines used to perform such methods.27 Justice Ginsburg suggested a “technical arts” approach like that used in Europe and other countries, which neither party supported.28 After discussing several options, Justice Breyer admitted that he did not know how to strike the proper balance such that “patent protection will do no harm or more harm than good.”29

Several justices also asked whether the State Street Bank case would come out the same way under the machine-or-transformation test.30 Justice Breyer questioned whether simply including the use of a general purpose machine, such as a generic computer, should be sufficient to limit meaningfully the patent-eligibility of business methods, suggesting that this would render the eligibility requirement too easy to circumvent.31

At several points during the argument, the Justices asked questions specifically about telecommunications-related inventions. Some questions and comments were incidental (such as Justice Breyer’s statement that “every successful businessman typically has something. . . . He thinks of a new thing to say on the telephone.”32). At other points, however, the Court discussed well-known patents in the industry, such as Alexander Graham Bell’s patents on the telephone and Morse’s patents on the telegraph and Morse code, and how those patents would have fared under Bilski’s machine or transformation test.33 The Justices clearly believed that the telephone and Morse code cases reached the right result and they were concerned that any new test for patentability would may have lead to a different result.34

For example, at one point the Court discussed whether the device or transformation test would have resulted in invalidating Bell’s patent. Bell’s patent read: “The method of, and apparatus for, transmitting vocal or other sounds telegraphically, as herein described, by causing electrical undulations, similar in form to the vibrations of the air accompanying the said vocal or other sounds, substantially as set forth.”35 Justice Scalia suggested that Bell’s patent would be allowable under the new test,36 although the petitioner’s attorney (seeking to eliminate the machine-or-apparatus test) denied it.37 Since the claim quoted above is not specifically directed toward a machine, the key would be whether the claimed process involved a “transformation.” The Federal Circuit had not reached the issue of whether transformations of an electrical current would satisfy the newly stated patent eligibility test,38 thus leaving open the kind of question at issue in the Telephone Cases: whether the transformation of sound onto electric current undulations (essential to the Bell Telephone’s functioning) was a “transformation” under 35 U.S.C. § 101. Justice Scalia believed that Bell’s invention would satisfy the “transformation” prong of the current test.39 Justice Scalia noted that “sound is not transmitted over the wires. Sound has been transformed into current, and current is transmitted over the wire and then transformed back at the other end into sound. . . . I think it clearly – clearly would have been covered by [the machine or transformation test] . . . .”40

The Court also discussed the Morse invention. The government argued that the only Morse claims that were upheld involved the use of Morse code on a machine – and thus would have satisfied the machine or transformation test.41 The Court also discussed whether or not a simple recitation of a machine was enough to save a process from a Section 101 rejection, with many of the Justices skeptical that mere wordplay could convert un-statutory subject matter into statutory subject matter.42 Although all of the Justices who spoke on the matter saw both the Bell and Morse patents as involving a “transformation,“ the discussion highlighted some uncertainties that the Federal Circuit’s Bilski decision created for other technological arts, not just business method patents. In addition to the uncertain meaning of “transformation,” there is real uncertainty as to what will qualify as a machine. For example, can an applicant claim that a business method’s use of a computer satisfies the machine or transformation test?

The Solicitor General had opposed the Supreme Court’s granting certiorari in Bilski, suggesting that the particular patent application was a poor vehicle for addressing the important issues surrounding the scope of 35 U.S.C. § 101. Whether or not Mr. Bilski goes home emptyhanded is less important than how the Supreme Court reaches that conclusion. For example, it is possible for the Court to affirm the rejection of Bilski’s claims as mere “abstract ideas” under existing precedent. More likely, the Court will try to refine or revise the Federal Circuit’s machine or transformation test to balance the competing considerations: the need (on the one hand) to impose reasonable limits on patent protection, and (on the other hand) to provide enough flexibility so that new (and as-yet unknown) technologies are not inadvertently (and wrongly) excluded from patentability.

II. Method Patents in the Telecommunications Industry

Telecommunications devices are commonly electrical, mechanical, or electromechanical type devices. These types of devices are likely patent-eligible subject matter even in the wake of Bilski: the decision addresses only the patent-eligibility of methods, not devices. If a telecommunications innovation can be claimed as a device, its patent-eligibility should be unaffected by Bilski. But telecommunications methods are fully subject to Bilski. Often enough the method will be integrally related to a device or apparatus. But there are circumstances (for example, methods involving processing data) where a method’s innovative character derives from the sequence or steps and not the interaction with a particular device.  

Telecommunications innovators and practitioners alike need to fully consider the nature of the inventions at issue and determine the most suitable way to protect it. Until the Supreme Court decides Bilski and offers more guidance, inventors should consider two strategies. The primary strategy involves careful consideration of how to write the patent claim to maximize the potential for a method patent coming within whatever test flows from the Supreme Court’s anticipated decision in Bilski. The secondary strategy involves consideration of other means of protecting the invention.

A. Patent Claims Drafting

Many issued patents and pending applications in the telecommunications industry that have method claims may be vulnerable under the Bilski machine or transformation test because they fail to explicitly link the claimed method steps to a machine, such as a computer or network device, and do not recite a qualifying transformation. Indeed, several district courts have cited Bilski to invalidate issued patents for failing to meet the machine or transformation test.43 Some of these recent cases also offer more guidance on how closely a method must be tied to a machine in order to pass the new machine or transformation test. For example, Fuzzysharp Technologies v. 3D Labs Inc., Ltd. involved patents for improving 3D graphics by a faster method of performing visibility calculations.44 Claim 1 of the patent at issue read:

1. A method of reducing the visibility related computations in 3-D computer graphics, the visibility related computations being performed on 3-D surfaces or their subelements, or a selected set of both, the method comprising:

[a] identifying grid cells which are under or related to the projections or extents of projections associated with at least one of said 3-D surfaces or their subelements;

[b] comparing data associated with said at least one of 3-D surfaces or their subelements with stored data associated with the grid cells;

[c] determining which of said at least one of 3-D surfaces or their sub elements is always invisible or always visible to a viewpoint or a group of viewpoints by projection based computations prior to a visibility computations; and

[d] ignoring said determined at least one of the 3-D surfaces or their sub elements during said visibility computation.45

The court found that because the claims were drawn to “[specifying] a sequence of calculations that involve ‘identifying,’ ‘comparing,’ determining,’ and ‘ignoring’ data,” the patent was invalid for failure to be tied to a particular computer.46 Thus although the Fuzzysharp patent referenced a computer, the computer aspect was not claimed with enough specificity and structure to be considered a machine under the Bilski machine or transformation test.

Other cases have held that merely reciting general and broad terms such as “the internet” or “a transmission” likely will not be sufficient to tie the claimed process to a machine because the internet is not a particular machine,47 and the word “transmission” has many meanings encompassing many means of transmitting something.48 Claimants have also been unsuccessful in arguing that despite the broad scope of a term, practically speaking, the only legitimate use was on a machine. In those cases, regardless of the argument, the failure to structurally link the process with the computer was fatal to the patent claims at issue.49

Under the transformation prong of the machine or transformation test, courts have routinely required data transformations to be representative of a physical object or structure.50 Two data transformations that have been upheld have been in the form of computer-based images51 and a method reciting the creation of computer-generated instruction manuals.52

In short, Bilski has already dramatically impacted the patenting of non-technological arts such as business methods, requiring a wholesale shift from the actual method itself to specific implementations of the method on a machine and focusing on tangential byproducts (such as the generation of data used to track the method). Whether or not this survives the Supreme Court’s decision is yet to be seen.

Many telecommunications patents already relate to hardware systems, and the Bilski impact on these patents will be less dire. Well-drafted patents that define a technological scope and do not try and claim every particular application of the method are probably still valid under Bilski. Moreover, moving device or field limiting language out of the preamble and into the claim body is good practice when a practitioner is concerned about a Bilski rejection.

Patent applicants seeking patent protection for a telecommunications “business method” should include claims that clearly are cast as part of a machine. The extent to which the machine has to be tied into the method is unclear as the discussion of the Telephone Cases demonstrates. One approach is to simply recite “performed by a computer” after each step. This might be enough, but the Federal Circuit did caution that superficial attempts to create patent-eligible subject matter might not be allowable.53 Of course, in times of uncertainty, seeking a variety of claims of different scope (and in this context, with a variety of ties between the process and the machine) will provide the best opportunity to obtain the most robust protection possible.

Take, for example, the invention of a new and non-obvious form of insurance policy. If the application simply describes the method steps of underwriting that policy, without more, then the application will not satisfy the subject-matter eligibility requirement. Simply reciting that the method steps are “performed on a computer” may or may not help. Alternatively, the underwriting process might be patented as a method of generating the actual policy data on the computer. The application could recite various steps of inputting certain data into a computer, transforming the data into risk metrics, and generating a policy based on such risk metrics, in an effort to satisfy the current “transformation” prong of the machine or transformation test. Moving closer to a “machine,” the claim could recite a computer system with an input device for inputting data, a storage device for storing the data, a processor for reading the data from the storage device and performing the steps required to underwrite the policy, and an output device for generating the policy. While these approaches may not result in patenting the insurance policy itself, in businesses that rely extensively on the use of computers to enter, store, retrieve, and manipulate data, a patent on the computer generating the data for a policy may have the practical effect of patenting the new form of policy itself.

The same approach can be applied in the telecommunications industry, whether claims are sought for new ways of billing customers or new ways of routing calls in a congested network. Consider the following hypothetical claim:

1. A method for receiving content in a data network, the method comprising:

1. Initiating a transfer of data over a first connection that supports a first data rate, wherein the data has a selected quality level;

2. Establishing a second connection that supports a second data rate; comparing the first data rate to the second data rate; and

3. Processing a data download based on a predetermined metric resulting from said comparing.

The claim may be vulnerable like the aforementioned claims because a mere connection to a machine may not be sufficient to tie the process to a machine. It could be argued that this claim is not sufficiently “limited to a particular application of the principle” and may be an undue preemption of a fundamental principle in all applications.54 The recitation of technological or device limiting language in the preamble (here “data network”) to save a claim from a Bilski attack may not be effective, since language in a claim preamble does not always operate as a claim limitation.55 In fact, the U.S. Patent and Trademark Office has taken the position that the recitation of a device in the preamble of the claim was not sufficient to establish the requisite tie under Bilski in a recent case.56

One possible way to improve the chances of having the claim satisfy the requirements of patent eligibility would be to amend the claim to insert broad structural elements from the network into the claim limitations. For example, the first element may recite a “router” or a “server” initiating a transfer of data over a first connection “between a first terminal device and a second terminal device.” Of course, these recitations will be viewed as claim limitations and should therefore be described and claimed broadly so as not to unduly reduce claim scope.

Telecommunications companies would be well advised to contact their patent attorney regarding any pending applications that might need amendment to ensure the patents comply with the ruling in Bilski.

B. Alternatives to Patent Protection

The Bilski-induced uncertainty over patent-eligible subject matter may cause some inventors or companies to consider two alternative means to protect innovations: trade secrets and copyrights.

1. Trade Secrets

Trade secret protection, unlike patent protection, is not limited to a particular subject matter and thus does not have a similar eligibility requirement. As such, trade secret protection can often be turned to for innovations that are not patent-eligible. In contrast to patents, almost anything can be protected by a trade secret. For example, a trade secret may exist in the form of a formula, process, design, device or compilation of information. The requirements of a trade secret are that (a) it is not generally known or reasonably ascertainable and (b) the trade secret generally has some value in the fact that it is not generally known. Strict secrecy is not required, only that the secret is not generally known.

Practically, this means that to be suitable for trade secret protection, an innovation should not be easily discoverable to others by reverse engineering – which means that innovations in products that can readily be purchased, disassembled, and analyzed are not good candidates for trade secret protection. Telecommunications inventors should consider whether trade secret protection is a viable option.

2. Copyrights

Copyright is a useful form of protection for some types of innovation. Copyright attaches to original works of authorship fixed in a tangible medium of expression, and copyright protection for the software component of a telecommunications invention might seem to be an attractive alternative to patents in the wake of Bilski. Software is eligible for copyright protection,57 but only its expressive content, not the underlying idea that the software embodies and expresses. Courts struggle to define just how close a competitor’s software program can come before infringing.58 For example, does paraphrasing of the code constitute infringement? And what about copying the overall structure of the code?

In any event, telecommunications innovators and companies should consider obtaining both patent protection on methods and ideas within the software and copyright protection on the expression of the software itself. This is possible as copyright and patent are not mutually exclusive, unlike patent and trade secret protection.

III. Conclusion

The Federal Circuit’s Bilski decision introduced a period of uncertainty for inventors in telecommunications and other fields. The appeals court decision brought a real and substantive limit to patent-eligible subject matter, and the Supreme Court decision will likely confirm some substantive limitation. The effects of that limitation can be minimized through careful attention to claims-drafting. Telecommunications patent prosecutors should focus on the real innovation in the invention and find where it can be described as transformative or machine-dependent. By limiting the claim, the patent prosecutor may forego some arguable scope of protection but will overall strengthen the patent’s surviving claims.