CAN BUSINESS METHOD PATENTS BE CONSTITUTIONAL – PART I

20.06.2017

By Lawrence Hoffman

Introduction:

Before you dismiss this subject as pointless because the Supreme Court has said that some business methods can be patent eligible, consider the following:

  • The drafters of the U.S. Constitution surely intended it to apply to situations that did not exist in the 18th Century and could not have been foreseen at the time.
  • To properly apply the Constitution to modern times, the words of the constitution must still be interpreted according to how the drafters understood those words.
  • According to the Constitutional, to be patent eligible, an invention must be directed to the “useful arts”.
  • A business method patent, by its very nature, relates to the conduct of commerce.

I cannot think of any reasonably basis for disagreeing with these statements, yet Congress does not seem to have taken them adequately into account in drafting §101 of the Patent Act. And to make matters worse, the Supreme Court hasn’t done so in its §101 jurisprudence.

I have not seen anything written which does not deplore the current state of U.S. patent eligibility jurisprudence. I have even seen arguments that advocate repeal of §101 of the Patent Law which identifies the subject matter that is patent eligible. The only positive thing I know that anyone has said is that the patent office and the courts are doing the best they can, given what they have to work with.

Most observers seem to agree that the biggest problem is how to handle the exceptions, particularly in the context of methods related to commerce. Many argue that business methods should categorically be patent eligible, but I do not believe the drafters of the Constitution considered conduct of commerce to be a “useful art”.

Nevertheless, I believe that a method should not be excluded from patent eligibility just because it has applicability to commerce as long as it can be claimed in a way that is consistent with the useful arts requirement.

Rumblings of Discontent:

Now, to get to the point of this discussion, in a post on 29 March 2017, the Patent Docs blog reported a proposed revision of §101 that was submitted to USPTO Director Michelle Lee by the IP Law Section of the American Bar Association. There are now two proposals on the table; the one from the ABA and one from the Intellectual Property Owners organization (here) which was published in February 2017. Neither calls for repeal of §101 or total abrogation of existing Supreme Court law, perhaps in an effort to make revision palatable to Congress. Both prove thoughtful starting points for a serious effort to fix the patent eligibility nightmare created by the Supreme Court beginning with its 1972 decision in Gottschalk v. Benson. Both are enormous improvements even as they stand, but, to this observer, they fall short because they don’t address the patent eligibility of process patents in constitutional terms.

Why You Should Keep Reading:

My purpose here is to initiate an discussion of a way to revise §101 that takes explicit account of the IP Clause and clarifies the manner in which an invention applicable to commerce can be constitutionally valid. In the remainder of this part of the article, I will discuss and compare the two proposals, the historical underpinnings and meaning of the IP Clause of the Constitution, the succession of patent laws as they dealt with patent eligibility, and the jurisprudence leading up to the 2010 decision in Bilski v. Kappos in which patent eligibility of business method patents was first addressed by the Supreme Court.

In the second part, I will address Bilski v. Kappos itself and the problems it and the subsequent Mayo and Alice cases created for the U.S. Patent and Trademark Office and the courts by failing to address the constitutional basis for patent law. I will conclude with my suggestions for how to improve the IPO and ABA proposals to bring their treatment of process inventions into conformity with the Constitutional imperative, and the reasons for my suggestions.

The Two Proposals:

Let’s look at the two proposals side-by-side:

IPO PROPOSAL ABA PROPOSAL
101(a) ELIGIBLE SUBJECT MATTER

Whoever invents or discovers, and claims as an invention, any useful process, machine, manufacture, composition of matter, or any useful improvement thereto, shall be entitled to a patent for a claimed invention thereof, subject only to the exceptions, conditions, and requirements set forth in this Title.

101(b) SOLE EXCEPTION TO SUBJECT MATTER ELIGIBILITY

A claimed invention is ineligible under subsection (a) if and only if the claimed

invention as a whole, as understood by a person having ordinary skill in the art to

which the claimed invention pertains, exists in nature independently of and prior to any human activity, or exists solely in the human mind.

101(c) SOLE ELIGIBILITY STANDARD

The eligibility of a claimed invention under subsections (a) and (b) shall be determined without regard as to the requirements or conditions of sections 102, 103, and 112 of this Title, the manner in which the claimed invention was made or discovered, or the claimed invention’s inventive concept.

 

(a) Eligible Subject Matter.- Whoever invents or discovers any useful process, machine, manufacture, or composition of matter, or any useful improvement thereof, shall be entitled to obtain a patent on such invention  or discovery, absent a finding that one or more conditions or requirements under this title have not been met.

(b) Exception.- A claim for a useful process, machine, manufacture, or

composition of matter, or any useful improvement thereof, may be denied

eligibility under this section 101 on the ground that the scope of the exclusive rights under such a claim would preempt the use by others of all practical applications of a law of nature, natural phenomenon, or abstract idea. Patent eligibility under this section shall not be negated when a practical application of a law of nature, natural phenomenon, or abstract idea is the subject matter of the claims upon consideration of those claims

as a whole, whereby each and every limitation of the claims shall be fully considered and none ignored. Eligibility under this section 101 shall not be negated based on considerations of patentability as defined in Sections 102, 103 and 112, including whether the claims in whole or in part define an inventive concept.

 

As may be seen, in both proposals, Subsections (a) largely follow the current language of §101. Similarly, both exclude consideration of novelty, obviousness and sufficiency of disclosure in determining patent eligibility.

What’s Wrong with the IPO Proposal:

The proposals differ mainly in what they exclude from patent eligibility. The IPO proposal does two things I consider problematic. First, while it does away with the “abstract idea” problem, it introduces an equally bad alternative – subject matter that “exists solely in the human mind”. Is that supposed to exclude business method patents? After all, if a program is written to implement a business method, it surely no longer is solely in a human mind. If the intent is to render such software patentable per se, it categorically contradicts what the Constitution likely means by “useful arts”. I will demonstrate that, later on.

The second problem is that it does not address eligibility of inventions directed solely to laws of nature. It’s not clear why this was done. Perhaps the IPO considers a law of nature to be something that “exists in nature independently of and prior to any human activity”. If so, there doesn’t seem to be any good reason not to mention it specifically. If that is not the intention, why should claims directed to things that exist in nature be ineligible, but claims directed to laws of nature not also be ineligible?

The IPO proposal is supported by a carefully thought through analysis. In considering the validity of the IPO’s arguments, however, it should be kept in mind that they reflect a patent owner’s point of view and are intended to demonstrate that decisions of the Supreme Court have narrowed patent eligibility significantly from what Congress intended. Perhaps the IPO is correct, but the important question remains unaddressed: whether Congress and the Supreme Court have transgressed the constitutional requirement that inventions, including process inventions in general, and business method inventions in particular, must relate to the useful arts.

Ariosa:

The IPO proposal cites the CAFC decision in Ariosa Diagnostics v. Sequenom, and the refusal of the Supreme Court to review the CAFC decision as a horrible example of how the law has gone wrong. The patent in Ariosa was directed to implementation of discovery by the inventors that cell-free fetal (paternal) DNA (cffDNA) was present in the serum of a blood sample taken from a pregnant woman, and that it could be used for detection of fetal genetic abnormalities. That discovery largely obviated the need for invasive procedures such as amniocentesis and the dangers such procedures posed to the fetus and was apparently regarded generally as revolutionary. According to the patent the serum was “routinely discarded by investigators studying noninvasive prenatal diagnosis using foetal (sic) cells in maternal blood”.

The case arose out of an action filed by Ariosa and others to have the patent based on this discovery declared invalid. The district court held the patent invalid and the CAFC affirmed and denied a petition for en banc (full court) reconsideration. A subsequent request for Supreme Court review was also denied.

Three independent claims were involved in the case. Claim 1 was directed to as “method for detecting a paternally inherited nucleic acid of fetal origin performed on a maternal serum or plasma sample from a pregnant female”.  Claim 24 was directed to a “method for detecting a paternally inherited nucleic acid on a maternal blood sample”. Claim 25 was directed to a “method for performing a prenatal diagnosis on a maternal blood sample”. All three claims utilized what the CAFC characterized as conventional methodologies though these methodologies had never been applied to processing of cffDNA.

In this observer’s opinion, the CAFC went wrong in several ways, not the least of which were its characterizing the invention as directed to cffDNA (a naturally-occurring substance) when in fact it was plainly directed to a method of use, and its misapplication of what has come to be known as the Alice two-part test. However, it is not the purpose of this discussion to dissect or criticize the CAFC opinion or the decision of the Supreme Court not to grant review.

That having been said, it still seems unfortunate that some way could not have been found to hold an invention of such acknowledged significance to be patent eligible. For example, the court could have relied on the definition in §100(b): “process” means process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material.” From the opinion, it seems clear that the combination of known techniques recited in the claims had never been used to provide cffDNA in sufficient quantity for genetic testing.

The ABA Proposal:

The ABA proposal follows a very different path. It only states a single exclusion, namely, that:

a claim…may be denied eligibility on the ground that the scope of the exclusive rights under such a claim would preempt the use by others of all practical applications of a law of nature, natural phenomenon, or abstract idea. Patent eligibility under this section shall not be negated when a practical application of a law of nature, natural phenomenon, or abstract idea is the subject matter of the claims upon consideration of those claims as a whole, whereby each and every limitation of the claims shall be fully considered and none ignored.

In this observer’s view, this approach is problematic because it does not make denial of eligibility mandatory, because it suggests lack of a practical application as the sole criterion for invoking the exception, and because it, too, ignores the constitutional issue.

The ABA justifies its proposal as directed to overcoming the problems resulting from the decisions of the Supreme Court on eligibility over the past 50 years. It notes the Court’s consistent preoccupation with a concern that patents not preempt all applications of laws of nature, natural phenomena and abstract ideas. It also cites the Ariosa case as an example of the law gone wrong. It does not, however, discuss or allude to a departure from a Congressional purpose.

Perhaps use of the phrase “may be denied eligibility” was not intended to suggest that denial of eligibility should be optional; the explanatory comments in the ABA letter do not seem to address the point. If it does intend ineligibility to be optional, why would it create such an option without any suggestion as to how it should be implemented?

So what is Constitutionally Patent Eligible?

The ABA’s practicality formulation inevitably forces us to confront the elephant in the room: when is a process claim (business method of otherwise) directed to useful art. In this observer’s view, a workable test or criterion for making that determination must be part of any revision of §101.

The stated objective of what is often called the copyright or IP clause of Article 1, Section 8 of the Constitution is “to promote the progress of science and useful arts”. The manner in which this objective is to be achieved is “by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries”. Unfortunately, this sounds simpler than it really is.

For one thing, what did the terms “science” and “useful arts” mean to the drafters of the Constitution? Second, are we to associate “science” exclusively with “authors” and “useful arts” exclusively with “inventors” or can inventors also promote the progress of science? Third, works of authorship clearly include novels and such, but are they “science”? Finally, why cannot “discoveries” promote the progress of science?

The one thing that is probably not a problem is that the word “respective” makes it clear that “authors” get exclusive rights to their “writings” and “inventors” get exclusive rights to their “discoveries”. But how do we square that with any of the possible answers to the four questions in the preceding paragraph?

Understanding the difference between science and the useful arts as understood by the drafters will help answer these questions. Today, when we talk about science, we mean something like:

the systematic study of the nature and behavior of the material and physical universe, based on observation, experiment, and measurement, and the formulation of laws to describe these facts in general terms. (Collins English Dictionary – Complete and Unabridged, 12th Edition 2014 © HarperCollins Publisher)

However, in the 18th century, science simply meant knowledge. The word comes from the Latin word scientia. That more comprehensive meaning is almost surely what the drafters of the Constitution had in mind.

But what about useful arts? The Oxford Living Dictionary defines as “industrial arts” and characterizes the term as “historical”.

A Wikipedia article states that the term refers to “the skills and methods of practical subjects such as manufacture and craftsmanship”. The phrase is said to have “gone out of fashion, but it was used during the Victorian era and earlier as an antonym to the performing art and the fine art“. That sounds a lot like what we would to refer to now as “technology”. We will consider technology as a useful filter for patent eligibility later in Part II.

Logically, too, if skills and methods associated with practical subjects such as manufacture and craftsmanship are useful arts (or “technology”, if you will), so must also be the results of such skills and methods to permit patents for machines, manufactures and compositions of matter. That inclusiveness is actually reflected in the organization of the U.S. Patent Office: applications are distributed for examination to Technology Centers according to classification of subject matter, and within a Technology Center, to subgroups called “Art Units”.

Scholarly Research:

Is there any thorough research into a historical basis to determine if methods associated with commerce are useful arts? The Wikipedia article cites a letter from George Washington to Marquis de Lafayette dated Jan. 29, 1798, in which he distinguished commerce from useful arts by stating:

While our commerce has been considerably curtailed for want of that extensive credit formerly given in Europe, and for default of remittance; the useful arts have been almost imperceptibly pushed to a considerable degree of perfection.

While we can view his characterization of the useful arts having reached perfection with benign amusement today, the distinction Washington makes certainly suggests, if not demonstrates, that in those times, methods of commerce, i.e., business methods, were not regarded as part of the “useful arts.”

A scholarly study that strongly supports the view that business methods were not regarded as useful arts at the time the Constitution was drafted is The Multiple Unconstitutionality of Business Method Patents: Common Sense, Congressional Choice, and Constitutional History by Malla Pollack, originally published in 2002 at  28 Rutgers Computer & Tech. L.J. 61. The article may be found at https://works.bepress.com/malla_pollack/12/.

Pollack’s paper seems very well researched with 244 references, many contemporary with the events discussed. The paper relies in part (as does almost everything written on this subject) on the 1623 English Statute of Monopolies, in this, Parliament effectively put an end to the royal power to grant of commercial monopolies. At the same time, however, it validated the power to grant “letters patent” for inventions of new manufactures for up to 14 years. This distinction is often used to demonstrate a distinction be commerce and useful arts in the 17th and 18th centuries.

Interestingly, Washington’s letter noted above is not cited in the Pollack paper but she does rely on Edward C. Walterscheid, To Promote the Progress of Useful Arts: American Patent Law and Administration, 1798-1836, William s Hein & Co., 2000, and on his The Nature of the Intellectual Property Clause: A Study in Historical Perspective.

Walterscheid is generally acknowledged as the preeminent source on the early history of U.S. patent law. I have not had access to either of these books, but I have seen no suggestion that Walterscheid regarded commerce as within the useful arts

The literature is replete with economically-based and philosophical arguments that business methods, and even abstractions, should be patent eligible, some well-documented and others not. Nevertheless, though my research has not been extensive, I have not encountered a convincing study based solely on historical sources demonstrating that methods of commerce were or could likely have been understood by the drafters of the Constitution to be within the useful arts.

The Supreme Court Checks In:

Under the constitutional system of separation of powers, until Congress says otherwise, a federal statute is constitutional if the Supreme Court says it is. Therefore, if we are to make credible suggestions for improving the patent system, we need to be aware of what we are trying to improve, in this instance, the Court’s §101 jurisprudence.

Early patents related to commerce were evidently not directed the methods of conducting commerce, but to solving technical problems such as creating banknotes resistant to counterfeiting. There were some exceptions, but patents directed to actual methods of commerce did not fare well in the courts. Actually, the abstract idea-naturally occurring substance-law of nature triad of exclusions to patent eligibility was well established in the 1800s. As applied to arts or processes, 19th Century law on eligibility is best reflected by the 1877 Supreme Court decision in Cochrane v. Deener, in which the Court stated:

A process is a mode of treatment of certain materials to produce a given result. It is an act, or a series of acts, performed upon the subject matter to be transformed and reduced to a different state or thing. If new and useful, it is just as patentable as is a piece of machinery. In the language of the patent law, it is an art. The machinery pointed out as suitable to perform the process may or may not be new or patentable; whilst the process itself may be altogether new, and produce an entirely new result. The process requires that certain things should be done with certain substances, and in a certain order; but the tools to be used in doing this may be of secondary consequence.

Modern process eligibility jurisprudence began with the 1972 Supreme Court decision in Gottschalk v. Benson. The case came to the Court from a final rejection that had been reversed by the Court of Customs and Patent Appeals (CCPA), predecessor to the present Court of Appeals for the Federal Circuit (CAFC).

The application related to a method for programming a general-purpose digital computer to convert binary-coded decimal (BCD) numerals into pure binary numerals. The claims were not directed to any practical application, i.e., end use or to implementation by any specific apparatus. In fact the claims just recited the algorithm itself. The only apparatus mentioned was in one claim which called for part of the process to be performed using a shift register.

The Supreme Court reversed, holding essentially that a patent on an algorithm would cover the idea, and not a practical use of the idea and would therefore wholly pre-empt practical application of the mathematical formula. Note that patent eligibility of processes using machines or involving materials was expressly acknowledged.

Both the reasoning and result in Benson appear to be sound, but there was trouble ahead. In 1978, the Court decided the case of Parker v. Flook. Like Benson, , the case arose out of a final rejection that had been reversed by the CCPA. The application related to a known process for controlling a reaction in petrochemical and oil-refining by updating process alarm limits. The application’s only innovation was reliance on a new mathematical algorithm.

Flook held the invention was not a patentable “process.” The Court conceded the invention at issue, unlike the algorithm in Benson, had been limited so that it could still be freely used outside its intended industry application. Nevertheless, the Court rejected “[t]he notion that post-solution activity” (an unfortunately fuzzy term apparently intended to refer to eligible elements of the claimed process), can transform an unpatentable principle into a patentable process.” The Court concluded that the process at issue there was “unpatentable under §101, not because it contain[ed] a mathematical algorithm as one component, but because once that algorithm [wa]s assumed to be within the prior art, the application, considered as a whole, contain[ed] no patentable invention.”

That sounds a lot like a rejection based on lack of novelty, does it not?

The next landmark is in the 1980 decision in Diamond v. Chakrabarty. Again, the case arose out of a final rejection, but which had been reversed by the CCPA.

The invention here was a genetically engineered bacterium capable of breaking down crude oil. No naturally occurring organism had this property. The application was rejected on the basis that a living organism is not patent eligible,

The Court affirmed the CCPA reversal, holding that the claimed subject matter  was a “manufacture” or “composition of matter” within the scope of §101

In 1981, the Court decided Diamond v Diehr. The application in Diehr claimed a previously unknown method for “molding raw, uncured synthetic rubber into cured precision products”. The method involved, among other steps, determining the mold opening time by making continuous temperature measurements in the mold and processing the temperature measurements according to a known mathematical formula implemented on a computer. The Court held that “an application of a law of nature or mathematical formula

Importantly, also, the Court cautioned against “dissect[ing] the claims into old and new elements and then … ignor[ing] the presence of the old elements in the analysis.” Finally, the Court concluded that because the claim was not “an attempt to patent a mathematical formula, but rather [was] an industrial process for the molding of rubber products,” it fell within §101’s patentable subject matter.

Notice that none of these cases involved business methods. The Court finally confronted that issue in 2010 in the case of Bilski v. Kappos. We will begin Part II of this paper with a discussion of that decision.

 

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