Center for Advanced Study & Research on Intellectual Property

 

CASRIP Newsletter - Fall/Winter 2009, Volume 16, Issue 1

In re Bilski: the Machine and Transformation Test is “the test” – For Now

By Brad Riel1

I. OVERVIEW

The Federal Circuit’s opinion is in. For now, a claimed “process” is patent-eligible subject matter only if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. In accordance with the Federal Circuit’s 9-3 en banc opinion, addressing the patentability of a method for managing consumption risk costs of a commodity, the Federal Circuit rejected numerous other tests for determining the patentability of a process under § 101 – including the well-known “useful, concrete, and tangible result” test.

II. BACKGROUND

On April 10, 1997, Bernard L. Bilksi and Rand A. Warsaw (hereinafter “Bilski”) filed a patent application with the United States Patent and Trademark Office (hereinafter “USPTO”).2 Claim 1 recited a method for managing consumption risk costs of a commodity sold by a commodity provider at a fixed price. The method comprised three steps: (a) initiating a series of transactions between a commodity provider and consumers, (b) identifying market participants, and (c) initiating a series of transactions between the commodity provider and the market participants. Both the USPTO examiner and the Board of Patent Appeals and Interferences rejected all claims of the application on grounds that, inter alia, the claims were not directed to patent-eligible subject matter under 35 U.S.C. § 101.3 Bilski appealed to the Federal Circuit. However, before the panel issued a decision, the Federal Circuit sua sponte ordered en banc review. The stated purpose: to clarify the standards applicable in determining whether a claimed method constitutes a statutory “process” under § 101.4

III. FEDERAL CIRCUIT EN BANC OPINION

  • Majority Opinion
  • The court began its analysis by reviewing the statutory language in § 101 and Supreme Court interpretations of this language.5 Recognizing that the statutory term “process” itself is ordinarily broad enough in meaning to encompass Bilski’s claimed invention, the court noted that Supreme Court decisions have narrowed the scope of “process” to exclude “fundamental principles,” such as laws of nature, natural phenomena, and abstract ideas.6

    The court thus narrowed the legal question to: what test is appropriate for determining whether a process claim is drawn to a fundamental principle, and whether the claim, if allowed, would pre-empt substantially all uses of that fundamental principle.7 According to the court, a fundamental principle is patent eligible only if the process claim is tailored narrowly enough to encompass only a particular application of the fundamental principle.8 The process claim may not pre-empt the principle itself.9

    In answering this question, the court looked to past Supreme Court decisions including Benson, Flook, and Diehr. In Benson, the Supreme Court enunciated the machine or transformation test – a claimed 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.10 Although Flook, issued after Benson, may not have explicitly followed the machine or transformation test of its predecessor, the court found this irrelevant since Diehr, issued after Flook, reaffirmed the test.11

    The court reiterated two valuable corollary’s to the test. First – “mere field-of-use limitations are generally insufficient to render an otherwise ineligible process claim patent-eligible.”12 In other words, merely indicating that a formula is used in a particular technological environment is insufficient to satisfy the machine or transformation test. Second – “insignificant postsolution activity will not transform an unpatentable principle into a patentable process.”13 In other words, merely adding insignificant limitations such as a step of recording a formula is insufficient to satisfy the machine or transformation test.

    Prior to In re Bilksi, numerous other tests were used by the USPTO and courts and proposed by various commentators. Such tests included the Freeman-Watler-Abele test, the State Street “useful, concrete, and tangible result” test, the “technological arts” test, and the “physical steps” test. Various amici curiae submitted to the court also pushed for a categorical exclusion of patentability for business method claims.14 The court rejected them all.15

    The court then considered how to apply the machine or transformation test. Since Bilski admitted that the claim language did not limit any process step to a specific machine or apparatus, the court found the machine portion of the test inapplicable.16

    With respect to the transformation portion, notably, the court defined “articles” as including physical objects, substances, and electronic data defined with specificity.17 In applying the transformation test to Bilski’s claims, the court determined that this test was not satisfied.18 The claimed process was directed to “transactions” which was, as disclosed in the application, broad enough to encompass the exchange of legal rights. Since the process was broad enough to encompass the exchange of legal rights, it did not transform an “article” as previously defined.

  • Concurring Opinion
  • Judge Dyk submitted a concurring opinion, joined by Judge Linn, attempting to reconcile the machine or transformation test with patent law history.19

  • Dissenting Opinions
  • Judge Newman submitted a dissenting opinion, emphasizing that the statutory text, legislative history, and previous Supreme Court interpretations conflict with the majority’s interpretation of “process” and that the courts decision results in a detrimental impact on existing patent rights and future innovation.20

    Judge Mayer submitted a dissenting opinion expressing a desire to overturn State Street Bank and categorically reject business method patents.21

    Judge Rader submitted a dissenting opinion asserting that the courts decision only required a single line ("because Bilski merely claims an abstract idea, this court affirms the Board's rejection”) and that § 101 should only limit inventions that embrace natural laws, natural phenomena, and abstract ideas.22

VI. CONCLUSIONS

  • Valuable Nuggets for Patent Prosecutors
  • This decision provides some valuable insight for patent prosecutors to consider when drafting claims for new applications.

    First, process claims cannot likely rely on a mere “computer-implemented” limitation for patent eligibility under § 101. Considering the machine test, the court commented on Benson, where a claim for a process of converting data in binary-coded decimal format to pure binary format via an algorithm programmed onto a digital computer was found non-patent eligible under § 101.23 The court pointed out that even though the claims recited a machine, the machine or transformation test was still not satisfied since “the limitations tying the process to a computer were not actually limiting because the fundamental principle at issue, a particular algorithm, had no utility other than operating on a digital computer.”24 Accordingly, for patent eligibility of a fundamental algorithm, the claims should be limited to a “specific machine or apparatus”; that is, one that does not pre-empt all uses of the algorithm.

    Second, process claims cannot rely on a transformation of intangibles, like legal rights, for patent eligibility under § 101. Considering the transformation test, the court pointed out that articles include physical objects, substances, and electronic data defined with specificity.25 Specificity includes the type or nature of data, how or from where the data was obtained, and what the data represented. Accordingly, for patent eligibility claiming a transformation, the claims should recite a transformation of either a physical object, a substance, or specifically defined electronic data.

  • Effect of Decision
  • Although business method patents have not been categorically banned, the Federal Circuit has begun to reign in on business method patent-eligibility. For “pure” business method patents, such as business methods not tied to any machines and not transformative of any “article” as defined by the Federal Circuit, their validity is in serious question. For all other business method patents, a case-by-case analysis is necessary to determine how close they will come to requiring a particular machine that doesn’t pre-empt all applications of a fundamental principle, or transforming an “article.” The closer they are to reciting a particular machine or transformation, the closer they are to validity under § 101.

    In addition to business method patents, software patents are also likely to be affected, at least to the extent that they do not require a particular machine or transform data that is defined with specificity.

  • What’s Next?
  • At the end of January, Bilski filed an appeal to the U.S. Supreme Court. The Supreme Court may hear their appeal since this Federal Circuit decision affects numerous existing patents and has garnered significant public interest.26 However, this likelihood is tempered since the Federal Circuit decision was fundamentally based on previous prior Supreme Court decisions and is consistent with the recent Supreme Court trend of limiting the rights of a patent holder.27

End Notes

  1. Brad Riel is a J.D. and IP L.L.M. candidate at the University of Washington School of Law.
  2. In re Bilski, 545 F.3d 943, 949 (Fed. Cir. 2008)
  3. Id. at 950.
  4. Id. at 949.
  5. Id. at 951.
  6. Id. at 952.
  7. Id.
  8. Id. at 954.
  9. Id.
  10. Gottschalk v. Benson, 409 U.S. 63, 70, 93 S.Ct. 253, 256-57
  11. Bilski at footnote 8.
  12. Id. at 957.
  13. Id.
  14. See, e.g., Br. of Amicus Curiae Fin. Servs. Indus. at 20.
  15. Bilski at 958-61.
  16. Id. at 962.
  17. Id. at 962-63.
  18. Id. at 963-66.
  19. Id. at 966-76.
  20. Id. at 976-95.
  21. Id. at 998-1011.
  22. Id. at 1011-15.
  23. Id. at 953.
  24. Id. at 955.
  25. Id. at 962-63.
  26. 39 amicus curiae briefs were submitted to the Federal Circuit for the In re Bilski decision.
  27. See, e.g., Quanta Computer, Inc. v. LG Electronics, Inc., 128 S.Ct. 2109 (Sup. Ct. 2008)(strengthening the doctrine of patent exhaustion); Microsoft Corp. v. AT & T Corp., 550 U.S. 437, 127 S.Ct. 1746 (Sup. Ct. 2007)(restricting the extraterritorial reach of U.S. patent law); KSR Int’l Co. v. Teleflex, Inc., 550 U.S. 398, 127 S.Ct. 1727 (Sup. Ct. 2007)(increasing the standard of obviousness); MedImmune,Inc. v. Genentech, Inc., 549 U.S. 118, 127 S.Ct. 764 (Sup. Ct. 2007)(increasing the scope of jurisdiction for federal courts to hear declaratory judgments in patent cases).

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Last updated 4/27/2012