The U.S. Court of Appeals for the Federal Circuit, finding that the claims in issue were neither tied to a machine nor require transformation of any article into a different state or thing, affirmed the USPTO Board of Patent Appeals and Interferences (the Board) that under Bilski (seeIP Update, Vol. 11, No. 11 ) the claims in issue lacked subject-matter eligibility. In re Ferguson, Case No. 07-1232 (Fed. Cir., March 6, 2009) (Gajarsa, J.; Newman, J. concurring). In doing so, the Court rejected the applicants’ invitation to introduce a new “scintilla of interaction with the real world” patent eligibility test.

The application in issue was directed to a marketing paradigm for bring products to market and included both apparatus and “paradigm” claims. The examiner rejected the claims under §§ 102, 103, but on appeal the Board entered a new rejection under § 101, concluding the claims were not directed to statutory subject matter. On the applicants’ request for rehearing, the Board, citing to the USPTO’s Interim Guidelines for Examination of Patent Applications for Patent Subject Matter Eligibility (Guidelines) clarified its rejections, noting that the method claims were directed to an “abstract idea”—not patent-eligible subject matter—and that the “paradigm” claims (directed to a pattern, example or model) did not clearly fall within any of the four enumerated categories of statutory subject matter. The applicants appealed.

As to the method claims, the Court explained that its recent Bilski decision was dispositive. Noting that in Bilski the Court “stated that the Supreme Court’s machine-or-transformation test is the definitive test to determine whether a process claim is tailored narrowly enough to encompass only a particular application of a fundamental principle rather than to pre-empt the principle itself” and that a claim 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.”

Citing Nuijten (IP Update, Vol. 10, No. 10 ) for the proposition that “a machine is a concrete thing, consisting of parts, or of certain devices and combination of devices. This ‘includes every mechanical device or combination of mechanical powers and devices to perform some function and produce a certain effect or result,’” the Court quickly concluded that the claimed method (directed to the use of a shared marketing force) was not tied to any particular machine or apparatus.

The Court also found the method did not transform any article into a different state or thing: “[a]t best it can be said that Applicants’ methods are directed to organizing business or legal relationships in the structuring of a sales force (or marketing company). But as this court stated in Bilski, [p]urported 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 physical objects or substances, and they are not representative of physical objects or substances.”

In an important footnote (and in an apparent response to Judge Newman’s concurrence) the panel majority noted that in Bilski, it did not overturn State Street, but only that it’s the “useful, concrete and tangible result test” was “insufficient to determine whether a claim is patent eligible under § 101” and “should no longer be relied on.”

The Court also summarily rejected the new test urged by the applicants—i.e., “Does the claimed subject matter require that the product or process has more than a scintilla of interaction with the real world in a specific way?”—noting its “clear statement” in Bilski that the “sole,” “definitive,” “applicable,” “governing” and “proper” test for a process claim under § 101 is the Supreme Court’s machine-or-transformation test.

Finally the Court rejected the applicants’ assertion that its method claims, like those in issue in State Street, were directed to business methods and should therefore be treated as statutory: “[i]n State Street, as is often forgotten, we addressed a claim drawn not to a process but to a machine.” (emphasis in original)

With regard to the paradigm claims, the Court analyzed (as in Nuijten) whether the claimed subject matter fit into any of the four statutory categories of eligible subject matter under § 101 and concluded they did not.

In her concurring opinion Judge Newman echoed her dissent in Bilski, taking issue with the majority’s characterization of the “machine-or-transformation” test as being a Supreme Court articulated test. Based on her perception that the majority was treating State Street and the Freeman-Walter-Abele line of cases as having been overturned, she also took issue with the majority’s discussion of those cases: “[t]his sweeping rejection of precedent simply enlarges the taint on the thousands of patents that were granted on application of these tests.”

Perhaps with an eye arched toward the Supreme Court as it considers Bilski’s petition for certiorari, Judge Newman further argues “this case is not the appropriate vehicle for dictum of potentially large consequence. For example, the court disposes of the Ferguson method on the ground that it is an ‘abstract idea,’ although it is definite and concrete and limited, and not at all abstract.” Judge Newman would have resolved the Ferguson claims on the same basis as did the USPTO examiner, i.e., § 103.

Practice Note: With Ferguson now decided, the USPTO is now 4-0 in the “first wave” of § 101 cases, In re Nuijten, In re Comiskey (IP Update, Vol. 10, No. 10 ), In re Bilski and In re Ferguson. Notwithstanding how the Supreme Court disposes of Bilski’s pending petition for cert, the coming months (and years) are almost sure to bring a second wave of post-Bilski § 101 cases up to the Federal Circuit and with it some granularity to the apparently broad sweep now accorded § 101 in terms of the rather substantial patent eligibility threshold these case represent. See IP Update Vol. 12, Nos. 1, 2 and 3 for a summary of some recent post-Bilski Board decisions, several of which are likely to percolate up to the Federal Circuit.