AIPLA Reports

A Periodic Notification of AIPLA Activities and
Current Developments in Intellectual Property Law
Copyright © 2008 AIPLA

October 31, 2008

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Patents/Eligible Subject Matter
Patent-Eligible Process Must Meet Machine-or-Transformation Test
In re Bilski, Fed. Cir., No. 2007-1130, 10/30/08.

In an eagerly-awaited decision, the en banc Federal Circuit on October 30, 2008 decided that a process patent directed to a method of managing risk in the commodities market is not patentable subject matter because it fails to transform any physical article or data representing physical objects.

The 9-3 ruling attempted to clarify the patchwork of legal tests for determining patent eligibility under 35 U.S.C. §101, requiring that process claims be tied to a particular machine or apparatus, or that they transform a particular article into a different state or thing.  In so doing, the court reaffirmed the patentability of business methods, but said that the “useful, concrete and tangible result” test recited in State Street is insufficient.

Background

The Bilski patent application is directed to a method of “hedging” that manages the consumption risk costs of a commodity sold by a commodity provider at a fixed price.  In brief, the steps in the process comprise (1) initiating a series of transactions between a commodity provider and commodity consumer, (2) identifying market participants for the commodity with a counter-risk position to consumers, and (3) initiating a series of transactions between the provider and market participants at a fixed rate.

The PTO rejected the application under the Supreme Court’s judicial exclusions from patentable subject matter, finding that the recited process amounted to no more than an abstract idea.  After Bilski filed his appeal, the Federal Circuit announced sua sponte that it would review the case en banc.

Machine or Transformation Test

Chief Judge Paul Michel reviewed the Supreme Court’s decisions excluding from patent eligibility those process claims that are directed to laws of nature, natural phenomena and abstract ideas.  Gottschalk v. Benson, 409 U.S. 63 (1972); Parker v. Flook, 437 U.S. 584, 198 USPQ 193 (1978); Diamond v. Diehr, 450 U.S. 175 (1981).

The unifying test running through those decisions, he explained, is that a patent-eligible process (1) must be tied to a particular machine or apparatus, or (2) must transform a particular article to a different state or thing.  The appellate court turned away the argument that the Supreme Court did not intend the machine-or-transformation test to be the sole Section 101 test, pointing out that Benson explicitly referred to transformation as “the clue” to the patentability of process claims, not merely “a clue.”  Other analytical tools, Judge Michel added, include an inquiry into whether the claimed process preempts a fundamental principle and whether asserted physical steps amount to no more than insignificant post-solution activity.

The Federal Circuit expressed confidence in relying on the machine-or-transformation test, but also acknowledged that future developments in technology may present challenges, just as computers and the Internet have done so recently. Judge Michel added the following:

Thus, we recognize that the Supreme Court may ultimately decide to alter or perhaps even set aside this test to accommodate emerging technologies. And we certainly do not rule out the possibility that this court may in the future refine or augment the test or how it is applied. At present, however, and certainly for the present case, we see no need for such a departure and reaffirm that the machine-or-transformation test, properly applied, is the governing test for determining patent eligibility of a process under §101.

Discarded Tests

The court reviewed and discarded several subject matter tests from past Federal Circuit cases, including the Freeman-Walter-Abele test and the “useful, concrete, and tangible result” test from In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994), and State St. Bank & Trust Co. v. Signature Fin. Group, 149 F.3d 1368 (Fed. Cir. 1998).  In addition, the court reaffirmed its rejection of any type of “categorical exclusion” as with patents for business methods from State Street or software patents.  And while the court found that the PTO correctly argued here that the Bilski application claims failed the machine-or-transformation test, it refused to accept the agency’s “technological art” test as ambiguous and ever-changing. 

In addition, the court disavowed the suggestion that In re Comiskey, 499 F.3d 1365 (Fed. Cir. 2007), announced a test that denies patentability for a mental process that lacks significant “physical steps.”  The test applied there was merely a summarization of the machine-or-transformation test discussed here, Judge Michel wrote. Even a process claim that recites “physical steps” but neither recites a particular machine nor transforms any article is not drawn to patent-eligible subject matter, he explained.

What Constitutes an ‘Article’ That Is Transformed

Since it was undisputed that no machine or apparatus is recited in Bilski’s claim, the issue is whether the claimed process “transforms any article,” according to the court, and what qualifies as an “article” for transformation.  While there is no denying that chemical or physical objects qualify as such articles, Judge Michel pointed out that the materials of the information age are electronic signals and electronically manipulated data.

The court observed that it has taken a “measured approach” to this question in the past and found no reason to expand here the boundaries for patent-eligible articles.  Judge Michel offered examples of broad independent claims to displaying data from In re Abele, 684 F.2d 902 (CCPA 1982), which was found ineligible, and narrow dependent claims from Able to a specific X-ray data displayed in a tomography scanner, which was found eligible. Judge Michel wrote the following:

This data clearly represented physical and tangible objects, namely the structure of bones, organs, and other body tissues.  Thus, the transformation of that raw data into a particular visual depiction of a physical object on a display was sufficient to render that more narrowly-claimed process patent-eligible.

We further note for clarity that the electronic transformation of the data itself into a visual depiction in Abele was sufficient; the claim was not required to involve any transformation of the underlying physical object that the data represented. …  So long as the claimed process is limited to a practical application of a fundamental principle to transform specific data, and the claim is limited to a visual depiction that represents specific physical objects or substances, there is no danger that the scope of the claim would wholly pre-empt all uses of the principle.

Concurring and Dissenting Opinions

Judge Timothy Dyk agreed with the majority and wrote a concurring opinion to respond to the dissenters and to add historical support to the court’s Section 101 test. Judge Dyk disputed the contention that the 1952 Patent Act broadened the scope of patentable subject matter.

Judge Pauline Newman’s dissent denied that the test propounded by the court can find support in Diehr, and charged the court with defying the legislative desire that the scope of patentability be expansive.  Judge Randal Rader likewise complained that the majority relied on dicta from Supreme Court opinions dealing with technology of the past, adding that the Bilski claims could have been disposed of by merely finding them directed to abstract ideas. 

Judge H. Robert Mayer’s dissent, on the other hand, would contract the scope of patentable subject matter to exclude business methods altogether and would overrule State Street and AT&T Corp. v. Excel Commc'ns, Inc., 172 F.3d 1352 (Fed. Cir. 1998). “The patent system is intended to protect and promote advances in science and technology, not ideas about how to structure commercial transactions,” he wrote.

To read the court’s opinion, click here.

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