In a decision that is expected to have a significant impact on patent lawsuits and applications involving business methods and other subject matter areas, on October 30, 2008, the Court of Appeals for the Federal Circuit issued its en banc decision in In re Bilski, No. 2007-1130 (Fed. Cir. Oct. 30, 2008). The Federal Circuit focused on U.S. Supreme Court precedent and stated that the proper test for patent-eligibility of processes is a machine-or-transformation test. Under the machine-or-transformation test, “[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.” Bilski, slip op. at 10.
The en banc Federal Circuit sought to stay true to Supreme Court precedent in outlining the test for patent eligible subject matter for processes. The Court carefully evaluated the Supreme Court precedent and adopted what it believed to be a test centered around the core principle of whether granting protection to a particular application would completely pre-empt use of a fundamental principle or just foreclose a particular application of that fundamental principle. The Court made clear that business method patents and software patents can be patent eligible if they meet the machine-or-transformation test. See Bilski, slip op. at 21. Significantly, the Court left open whether a process is “tied” to a machine by merely reciting a computer.
Basic Machine-or-Transformation Test
The Court began its discussion of the applicable law by focusing on the Supreme Court’s prohibition against patenting “fundamental principles” of phenomena of nature, mental processes, and abstract ideas in its Benson and Diehr decisions. The Court explained the underlying question in light of these cases is “whether Applicants’ claim recites a fundamental principle and, if so, whether it would pre-empt substantially all uses of that fundamental principle if allowed.” Bilski, slip op. at 10. The Court noted that the Supreme Court, through its various precedent, had already formulated the “machine-or-transformation” test as the “definitive test” to evaluate this question. Bilski, slip op. at 10.
The Court stated some corollaries to its main test. The Court indicated that the use of a specific machine or transformation of an article must impose “meaningful limits” on the claim’s scope to impact patent eligibility. Bilski, slip op. at 24. The Court stated the recited machine or transformation must not constitute “insignificant postsolution activity.” Bilski, slip op. at 16. In addition, according to the Court, “[m]ere field-of-use limitations are generally insufficient to render an otherwise ineligible process claim patent eligible.” Bilski, slip op. at 15. This will keep the door open to challenges as well as applicants seeking patent protection, at the boundaries.
In announcing this machine-or-transformation test as the appropriate test for patent-eligibility, the Court also emphasized that a claim must be analyzed as a whole, and not just the individual limitations in the claim, noting that “even though a fundamental principle itself is not patent-eligible, processes incorporating a fundamental principle may be patent-eligible.” Bilski, slip op. at 17-18.
Useful, Concrete, and Tangible Result Test Is Useful, But Not Sufficient
In adopting the machine-or-transformation test as the appropriate test for patent-eligibility, the Federal Circuit also disposed of its prior “useful, concrete, and tangible result” test laid out in its State Street Bank opinion. Bilski, slip op. at 19-20. The Court noted that “[t]o be sure, a process tied to a particular machine, or transforming or reducing a particular article into a different state or thing, will generally produce a ‘concrete’ and ‘tangible’ result.” Bilski, slip op. at 20. Looking for a “useful, concrete, and tangible result,” the Court suggested, may in fact be a useful tool for analyzing whether a claim is drawn to a fundamental principle or a practical application. Bilski, slip op. at 20. However, the Court held that the “useful, concrete, and tangible result” test was insufficient in and of itself to determine patent-eligibility. Bilski, slip op. at 20.
Some Further Details Regarding the Court’s Test
The Court provided limited clarification as to the details of how to apply the machine-or-transformation test, mostly leaving such clarification for future cases. Regarding the machine part of its two-part test, the opinion did not further discuss the application of machine implementations as Bilski’s claims did not involve a machine implementation. Bilski, slip op. at 24. As noted, the Court expressly left open the issue “whether or when recitation of a computer suffices to tie a process claim to a particular machine.” Bilski, slip op. at 24.
With respect to transformation of articles, however, the opinion did clarify that the transformation must be “central to the purpose of the claimed process.” Bilski, slip op. at 24. The Court confirmed that physical transformations are sufficient. Bilski, slip op. at 25. The Court also stated that data transformations with more, such as showing data on a scanner that represents bones or organs, can be sufficient. Bilski, slip op. at 26. Also, it is insufficient to add a data-gathering step without specifying how the data is gathered. Bilski, slip op. at 26.
While the machine-or-transformation test may be seen by some as restricting the subject matter eligible for patenting, the Court was careful to specify that it was not adopting any new categorical exclusions such as exclusions against business method patents or software. The Court stated that “although invited to do so by several amici, we decline to adopt a broad exclusion over software or any other such category of subject matter beyond the exclusion of claims drawn to fundamental principles set forth by the Supreme Court.” Bilski, slip op. at 21.
Application to Mr. Bilski’s Application and Possible Effects Going Forward
Turning to Mr. Bilski’s patent, the Court found that the subject matter of the claims was not patent-eligible. Bilski, slip op. at 28. Significantly, it was uncontested that the claims did not require a machine-implementation and, therefore, the “machine” portion of the test was not met. Bilski, slip op. at 28. The Court found that the claims did not involve “the transformation of any physical object or substance, or an electronic signal representative of any physical object or substance.” Bilski, slip op. at 28.
The Court noted that the first claim involved purely mental processes coupled with a post-solution step of consummating the transaction. Bilski, slip op. at 28. According to the Court, “a claimed process wherein all of the process steps may be performed entirely in the human mind is obviously not tied to any machine and does not transform any article into a different state or thing. As a result, it would not be patent-eligible under § 101.” Bilski, slip op. at 23. Accordingly, the Court found that the claim would preempt the fundamental concept of hedging and mathematical calculations inherent in hedging if found patent-eligible, and declared the claims patent-ineligible. Bilski, slip op. at 32.
Notably, two dissenting opinions (Rader, J., Newman, J.) believed that the court placed new restrictions on the scope of § 101 that were inconsistent with prior Supreme Court precedent excluding only laws of nature, natural phenomena, and abstraction ideas from § 101 and with congressional intent of broadly interpreting § 101 to cover nearly "any" new and useful process. The other dissenting opinion (Mayer, J.) believed that the court had not gone far enough to rid the patent system of business method patents and that the § 101 test adopted by the Federal Circuit would be easily circumvented. Collectively, these dissents illustrate the varied thinking of the potential scope of § 101.
The “machine-or-transformation” test announced in Bilski also will affect patent litigation. In particular, expert testimony is likely to be needed to fully address the issues created by the Court’s test.
For example, the Court left the machine branch of the § 101 patent eligibility test for processes without a clear definition. The opinion sought to reconcile the Supreme Court’s decision in Benson with other Supreme Court precedent. While a claim to a machine-implemented process may be patentable, the recitation of a specific machine “must impose meaningful limits on the claim’s scope” and “must not merely be insignificant extra-solution activity.” The Court expressly reserved elaboration of issues related to the machine implementation branch of the test for future cases. Future litigation on this aspect of the test, likely including liberal use of expert opinions regarding whether a claim’s scope is limited in a meaningful way, is certain.
Similarly, in litigation, expert testimony also will be needed if patentability is argued under the transformation branch of the test. In particular, experts will likely be asked to opine on the significance of any claimed transformation.
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Sharon R. Barner
Chair, Intellectual Property Department
Pavan K. Agarwal
Chair, Electronics Practice
Brett P. Belden
George C. Best
Palo Alto, California
David G. Luettgen