With the advent of the information age and the rise of automation and computerization during the last two decades, business method patents have become an important source of protection for innovators and entrepreneurs. Business method patents have risen to the forefront of intellectual property issues particularly in the last few years, especially following the decision of the United States Supreme Court in its prominent Bilski decision. Recently, the United States Court of Appeals for the Federal Circuit has issued several precedential opinions addressing business method patents that have helped to further define the requirements and limitations.

35 U.S.C. Section 101 sets forth the categories of subject matter that are eligible for patent protection, stating that “[w]hoever invents or discovers any new or useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.” In Bilski v. Kappos, the Supreme Court stated that “[i]n choosing such expansive terms modified by the comprehensive ‘any,’ Congress plainly contemplated that the patent laws would be given wide scope.”1 Further, century-old Supreme Court precedent created only three categories of subject matter that are not eligible for protection under Section 101: laws of nature, physical phenomena, and abstract ideas.2 Of these three excluded categories, two, laws of nature and physical phenomena have not proved intractably difficult to interpret or define. In contrast, the category of “abstract ideas” has presented many interpretive hurdles, particularly with respect to the “process” category under Section 101.

The term “process” is defined as “process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material.”3 Prior to Bilski, the Federal Circuit had arrived at and set forth an exclusive “machine-or-transformation test” to determine if an invention qualified as a patentable “process.”4 Under the test, an invention was deemed a patent-eligible “process” if: “1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.”5 However, in Bilski, the Supreme Court concluded that “method” as it is used in the definition of “process” may include at least some methods of doing business, and further, that the “machine-or-transformation” test, while it is one important investigative tool, is not the sole test for deciding whether an invention is a patent-eligible process.6

The Federal Circuit has recently issued several opinions attempting to further define the bounds of patentable subject matter. More importantly, through these decisions, the court has attempted to clarify when Section 101 should even be invoked as grounds for invalidating patent claims, and when it should be set aside in favor of other more well defined statutory provisions that may be available as alternate grounds of rejection.7

Ultramercial, LLC v. Hulu, LLC, 657 F.3d 1323 (Fed. Cir. 2011)

Ultramercial v. Hulu involved a patent that provided a method for distributing copyrighted products through the Internet wherein the product is free to the consumer in return for viewing an advertisement and the advertiser pays a copyright fee.8 Ultramercial filed suit against three content providers including WildTangent, alleging infringement of the patent.9 The district court granted a motion to dismiss filed by WildTangent for failure to state a claim based on the argument that the patent did not claim patent-eligible subject matter under Section 101.10

On appeal, the Federal Circuit found the claims to be patent-eligible.11 First, the court determined that the claims were directed to a patent-eligible subject matter, a “process,” because the claims disclosed a method for monetizing and distributing copyrighted products over the Internet.12 Further, the method required complex computer programming to implement.13 The method also satisfied the machine portion of the machine-or-transformation test in that “programming creates a new machine, because a general purpose computer in effect becomes a special purpose computer once it is programmed."14

Lastly, the patent did not “claim a mathematical algorithm, a series of purely mental steps, or any similarly abstract concept."15 Rather, it claimed “a particular method for collecting revenue from the distribution of media products over the Internet.”16

The court distinguished the claims in suit from claims invalidated in an earlier case, Cybersource, stating that the current claims required, among other things, “controlled interaction with a consumer via an Internet website, something far removed from purely mental steps.”17 The claims in Cybersource related to verifying credit card transactions over the Internet.18 The Federal Circuit in that case determined that those claims failed to satisfy the machine-or-transformation test but instead were drawn to an unpatentable mental process since all of the claims could be performed “in the human mind, or by a human using a pen and paper.”19

Interestingly, the court in Ultramercial seemingly continued to support a previously-voiced theory that would potentially lower the stringency of the Section 101 bar on the grounds that “subject matter eligibility is merely a threshold check, claim patentability ultimately depends on ‘the conditions and requirements of this title,’ such as novelty, nonobviousness, and adequate disclosure.”20 Section 101, on this theory, could serve more as an eligibility filter than an absolute exclusionary bar.21

Dealertrack, Inc. v. Huber, No. 2009-1566, -1588 (Fed. Cir. Jan. 20, 2012)

In Dealertrack, the two patents at issue were directed to a computer-aided method and system for processing credit applications over electronic networks.22 The district court granted, among other motions, summary judgment of invalidity of all claims of one of the patents for failure to claim patent-eligible subject matter under Section 101.23 The claims essentially recited a “computer aided method of managing a credit application” that included receiving application data, forwarding application data, and forwarding funding decision data.24

The Federal Circuit concluded that “the claims are invalid as being directed to an abstract idea preemptive of a fundamental concept or idea that would foreclose innovation in this area.”25 The court found that the claims explained the basic concept of a credit clearinghouse, just as Claim 1 in Bilski explained the basic concept of hedging.26“Neither Dealertrack nor any other entity is entitled to wholly preempt the clearinghouse concept.”27 The fact that the method as claimed was “computer aided” was not sufficient to make the method patent eligible because the patent did not specify how the computer hardware was specifically programmed to perform the claimed steps.28“The undefined phrase ‘computer aided’ is no less abstract than the idea of a clearinghouse itself.”29 The court went on to state that “adding a ‘computer aided’ limitation to a claim covering an abstract concept, without more, is insufficient to render the claim patent eligible.”30

The court noted that the case was distinguishable from Ultramercial in that the patent in that case claimed “a practical application with concrete steps requiring an extensive computer interface.”31 Further, in Dealertrack, the court found that specific algorithms disclosed in the specification were not helpful to save subject matter validity because the analysis under § 101 must be limited to the claims alone.32

MySpace, Inc. v Graphon Corp., No. 2011-1149 (Fed. Cir. Mar, 2, 2012)

In MySpace, the four patents at issue related to the ability to create, modify, and store database records over a computer network.33 To enable enhanced searchability of hierarchical databases over a network, relational databases were developed in the mid-1990s in which the data is stored in tables that are connected through the use of a unique identifier or identification (“ID”) field.34 Prior to the priority date of all the patents at issue, the Mother of all Bulletin Boards (“MBB”) was developed and offered for public use.35 The MBB stored information in a hierarchical database in contrast to a relational database.36

The term “database” was common to all the claims and construed by the district court to include both hierarchical and relational systems.37 Thus, the district court concluded all the claims of the patents were either anticipated by or obvious over the MBB.38 On appeal, the Federal Circuit concluded that the claim construction was both reasonable and supported by the context.39 Then the Federal Circuit turned to the Section 102 and 103 analysis by the district court and found no error in the overall conclusion that the claims were anticipated or obvious.40

The panel majority went on to address Section 101 as well, primarily because the dissent proposed that the appeal should be decided based on Section 101 rather than under Sections 102 and 103.41 The dissent argued that the subject matter eligibility requirements in Section 101 are an “antecedent question” that must be addressed before Sections 102 and 103 are addressed.42

The majority found several problems with the dissent’s alternate theory. First, Section 101 was not briefed by the parties or decided by the trial court, and therefore, the majority held, should and could not be addressed on appeal.43 Second, the majority noted in dicta that addressing Section 101 initially every time it is presented as a defense creates a problem in that it requires “the search for a universal truth: in the broad sweep of modern innovative technologies . . . does this invention fall outside the breadth of human endeavor that possibly can be patented under § 101?”44 The panel majority analogized Section 101 to the Bill of Rights of the Constitution.45 Section 101, like the Bill of Rights, defines the broadest terms of protection.46 However, just as the Supreme Court has adopted a “policy of not deciding cases on broad constitutional grounds when they can be decided on narrower, typically statutorily limited, grounds,” patent law issues should when possible, the majority argued, be decided on narrower grounds — specifically, under Sections 102, 103, and 112 — whenever possible.47

In essence, the MySpace majority returned to a theme discussed in Ultramercial — the suggestion that there is a distinction between the threshold check of Section 101 and the “conditions of patentability” contained in Sections 102, 103, and 112.48 If a case can be decided on the latter, efficiency dictates that the Section 101 inquiry need not be undertaken.49 This is a suggestion that the Federal Circuit and Supreme Court have — perhaps optimistically — fallen back upon going back to the earliest modern business method decisions as they struggled with the inherent challenges of providing workable bright-line standards to subject matter eligibility.50

Summary

In its recent post-Bilski decisions on subject matter patentability, it appears that the Federal Circuit — or at least certain panels of the court — may be attempting to step away from deciding a case on the basis of Section 101 when it can be decided on other grounds.51 Further, the court has shown a willingness still to apply the machine-or-transformation test as an initial filter to determine patent-eligibility.52 If claims fail the machine-or-transformation test, further analysis (whether under Section 101 or other Sections) may be required.53

Finally, in computer-related processes, the level of complexity of the interaction with the computer may be important. For instance, in Cybersouce, the steps of the process could be performed in the human mind even though the claims recited using the Internet.54 Likewise, in Dealertrack, the claims indicated the process was “computer aided” but the court held that the claims were unpatentable and directed to an abstract idea.55 In contrast, the claims in Ultramercial were patent-eligible partly because they involved complex computer programming.56 It seems likely that the Federal Circuit, and perhaps ultimately the Supreme Court, will continue to try to refine and adapt the guidelines for comporting with the broad statutory scope of “any process” while preventing patenting of the long-excluded class of abstract ideas.