In In re Ferguson, No. 07-1232 (Fed. Cir. Mar. 6, 2009) (Gajarsa, J.), the Court of Appeals for the Federal Circuit held 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.’ ” Id. at 6 (citing In re Bilski, 545 F.3d 943, 954 (Fed. Cir. 2008)). The Court also remarked that it was not overruling State Street or rendering business-method claims unpatentable by singling out this test as the only test to be used in determining whether a process claim is patentable under § 101. Id. at 7 n.3

Ferguson involved process and “paradigm” claims. Id. at 2. The process claims were directed to a method of marketing a product by developing a shared market force and using the shared market force to exclusively market a number of different products that are made by a number of different companies in exchange for a share of the total profits obtained. Id. The paradigm claims were directed to a marketing company that markets software using the method described above in return for a contingent share of a total income stream while allowing the company to retain its autonomy. Id.

During prosecution, the examiner rejected all of Ferguson’s claims under 35 U.S.C. §§ 102, 103 and/or 112 as anticipated by the prior art, obvious, or not enabled. Id. at 3. During a Patent and Trademark Office appeal, the Board of Patent Appeals and Interferences (“Board”) issued a superseding rejection under § 101 finding that the claims were not drawn to patent-eligible subject matter. Id. The Board concluded that Ferguson’s process claims were directed to abstract ideas that were not patentable. Id. at 4. It found that the paradigm claims were not directed to subject matter within the four recognized categories of patentable inventions and were also unpatentable abstract ideas. Id.

On appeal to the Federal Circuit, the Court explained that § 101 “recites four categories of subject matter: processes, machines, manufactures, and compositions of matter.” Id. at 5. However, even if a claim fits “within one or more of the statutory categories, it may not be patent eligible” because, as the Supreme Court has repeatedly cautioned, natural phenomena, mental processes, and abstract ideas are not patentable subject matter. Id.

For the process claims, the Federal Circuit held that the test to be applied is the machine-or-transformation test. Id. at 5–6. That is, “ ‘[a] claimed process is surely 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.’ ” Id. at 5 (quoting Bilski, 545 F.3d at 954). Applying this test, the Federal Circuit affirmed the Board’s rejection under § 101 because Ferguson’s process claims were not tied to any particular machine or apparatus (i.e., a concrete thing consisting of parts or devices) and did not transform any article into a different state or thing. Id. at 6–7. The Court also found that merely manipulating “ ‘public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the [transformation] test because [these obligations] are not physical objects or substances, and they are not representative of physical objects or substances.’ ” Id. at 7 (citing Bilski, 545 F.3d at 963).

During its discussion of the process claims, the Federal Circuit also noted that the “useful, concrete, and tangible result” test is not the test to be applied when determining patentable subject matter under § 101 for process claims. Id. Still, the Court specifically observed that it was not overruling State Street and that the claims at issue in State Street were tied to a machine and thus would pass the machine-or-transformation test. Id. at 8–9. Finally, the Court rejected Ferguson’s suggestion that a new patentable subject-matter test should consider whether “the claimed subject matter require[s] that the product or process [have] more than a scintilla of interaction with the real world in a specific way.” Id. at 8.

For the paradigm claims, the Federal Circuit found that these claims did not fall into any of the four enumerated categories of statutory subject matter. Id. at 9. Specifically, the Court found that the paradigm claims were not directed to processes, manufactures, or compositions of matter. Id. at 10. Further, the claims were also not directed to a physical thing (i.e., a machine or something analogous) and thus the Court concluded that the claims also did not fit in the machine category. Id. Agreeing with the Board, the Court held that the claims were directed to unpatentable abstract ideas. Id. at 11. Accordingly, the Court affirmed the Board’s superseding rejection of Ferguson’s claims under § 101. Id.

Judge Newman concurred in the judgment because she would have affirmed the examiner’s obviousness rejection but she wrote separately to criticize the majority for going “farther than is necessary or appropriate” by redefining Bilski and “expounding dicta that transcend[s] the facts of this case.” Id. at 12, 15 (Newman, J., concurring). According to Judge Newman, the majority inappropriately overturned State Street and other precedents that employ alternative patentable subject-matter tests such as the “technological arts” and the “physical steps” tests. Id. at 12 (Newman, J., concurring). Judge Newman cautioned that narrowly defining patent eligibility may stifle technological advancement and creativity. Id. at 14–15 (Newman, J., concurring).