REINVENTING 35 U.S.C. 101 – WE’RE STILL MISSING THE POINT – PART II

12.06.2017

By Lawrence Hoffman

Introduction:

In Part I of the Article, we discussed three recent proposals for amendment of patent eligibility §101 of the U.S. Patent Law and the history leading to the 1997 CAFC decision in State Street Bank & Trust Co. v. Signature Financial Group, its 2008 decision in In re Bilski, and the  2010 Supreme Court decision in Bilski v. Kappos in which patent eligibility of business method inventions was first addressed.

I argued persuasively, I believe, that that the drafters of the Constitution did not regard methods of conducting commerce as being within the scope of the “useful arts” requirement of the IP Clause of Art. 1, §8 of the Constitution.

Nevertheless, I suggested that a process should not categorically be ineligible because it has application to commerce as long it can be claimed as a useful art, and promised to suggest a way to amend §101 to bring that about. That way, I believe, is to incorporate the concept of technology explicitly into §101.

State Street  Bank & Trust Co. v. Signature Financial Group – The Run-up:

We might not even be talking about business method patents but for the 1998 decision of the CAFC in State Street Bank & Trust Co. v. Signature Financial Group,.  Of interest for our purposes, the court held that patent eligibility of claims directed to a business method should not be determined on that basis, but are to be treated for determining eligibility the same as any other process claim. In other words, business method claims were patent eligible if they did not fall within any other exception applicable to processes.

The case arose out of a declaratory judgment action by State Street against the patent owner Signature. The claims were directed  to a data processing system specifically programmed to perform calculations needed to permit operation of a specific multilevel business structure – a group of mutual funds that participated to different degrees in a collective investment portfolio, and which each needed real time financial data from which their respective share prices could be determined.

The District Court granted State Street’s Motion for Summary Judgment on the basis that the claims were not patent eligible and Signature appealed. The CAFC reversed. The case was not reviewed by the Supreme Court.

The claims were directed to a computer system, bur were written in “means plus function” form. The District Court treated them as method claims because the description purportedly did not disclose apparatus for implementing the recited functions. However, the CAFC rejected this construction and treated the claims as directed to a computer system.

I think the court could legitimately have stopped there, but instead, it addressed the two alternative grounds on which the District Court based its decision, namely that the claims were directed to a “mathematical algorithm” or to a “business method”.

The court began its discussion by referring to a statement in the legislative history saying that Congress intended § 101 to extend to “anything under the sun that is made by man”. (We will have more to say about this “everything under the sun fallacy” a bit later.)

The court then addressed the theories on which the District Court based its decision. Regarding the mathematical algorithm exception, it stated that:

In Diehr, the [Supreme] Court explained that certain types of mathematical subject matter, standing alone, represent nothing more than abstract ideas until reduced to some type of practical application, i.e., “a useful, concrete and tangible result”

and held that:

. . . the transformation of data, representing discrete dollar amounts, by a machine through a series of mathematical calculations into a final share price, constitutes a practical application of a mathematical algorithm, formula, or calculation, because it produces “a useful, concrete and tangible result. . .”

In addressing the business method exception, the court essentially said there is no such thing; that in determining eligibility, claims should not be categorized as methods of doing business. Instead such claims should be treated like any other process claims.

Interestingly, that is precisely the view taken by the USPTO in its then-current (1996) Examination Guidelines, and was expressly adopted by the court:

We agree that this is precisely the manner in which this type of claim should be treated. Whether the claims are directed to subject matter within § 101 should not turn on whether the claimed subject matter does “business” instead of something else.

The decision in State Street has been subject to much criticism, but my biggest problem with it is that the court didn’t just stop after interpreting the claims as directed to a specifically programmed machine. Courts, especially appellate courts, generally avoid deciding issues that don’t determine the outcome of a case and in State Street, the outcome was determined when the CAFC interpreted the claims as directed to a machine.

Nevertheless, State Street is really no more than a footnote in the history of §101 jurisprudence; the CAFC itself overturned it when it decided In re Bilski in 2008. And then, in 2010, the Supreme Court had its say, and reversed In re Bilski – sort of.

Bilski v. Kappos  – The Main Event:

Before we can properly understand what the Supreme Court did in Bilski v. Kappos, we should look at what it was reviewing. To begin with, In re Bilski involved claims directed to a business method. And as it did in State Street, the court wandered off into deciding issues that didn’t determine the outcome of a case. At the end of the day, the Court decided that the claims in question fell under the abstract idea exception, it then created a new test for process claim eligibility based on two separate threads of existing law: method claims are patent eligible if, and only if, (1) it they are tied to a particular machine or apparatus, or (2) directed to transformation of a particular article into a different state or thing. The exclusiveness of the Machine or Transformation Test is what the Supreme Court had to decide.

Bilski’s application was directed to a method of hedging risk in the field of commodities trading, and in particular, to a method buyers and sellers in the energy market can protect, or hedge, against the risk of price changes. General purpose computers were used in implementing the method, but use of a computer is not even mentioned in the base claim.

The claims had been rejected on the ground that:

the invention is not implemented on a specific apparatus and merely manipulates [an] abstract idea and solves a purely mathematical problem without any limitation to a practical application, therefore, the invention is not directed to the technological arts.

Note that the Examiner in his rejection was following what was then standard practice, i.e., effectively looking at method claims for a connection to technology.

The Board of Patent Appeals and Interferences rejected the Examiner’s “technological arts” test on the ground that it lacked support in the case law. Instead, it considered “if there [was] a transformation of physical subject matter from one state to another.” Finding no such transformation, it sustained the rejection.

. On appeal to the CAFC, the Board’s decision was sustained. However, the court, relying on Benson and Diehr, announced its Machine or Transformation Test. Notice that the “transformation” part of the test essentially affirmed the Board’s approach. The “particular machine” part of the test essentially affirmed the Examiner’s rejection. The court then held that the claims did not meet either of these requirements and were therefore not patent eligible.

A final point regarding the majority opinion – the court specifically considered a so-called “technological arts test” advocated in some of the “friend of court” submissions. In rejecting this, the courts stated:

We perceive that the contours of such a test, however, would be unclear because the meanings of the terms “technological arts” and “technology” are both ambiguous and ever-changing. And no such test has ever been explicitly adopted by the Supreme Court, this court, or our predecessor court, as the Board correctly observed here.

While I do agree that a techno-centric understanding of useful arts would be a substantial departure from existing law, I do not believe its contours would be unclear, as I will show below.

Reading its opinion, the CAFC was clearly influenced by the statement in Diehr that “while a claim drawn to a fundamental principle”, i.e., an abstract idea or a mental process, is unpatentable, “an application of a law of nature or mathematical formula to a known structure or process may well be deserving of patent protection.” Nevertheless, by finding that the claims were not directed to a specific structure, or result in a transformation, it probably did not need to enshrine the machine-or-transformation test as the exclusive test for eligibility. That, as we will see, is what troubled the Supreme Court.

Foreshadowing future problems, the case resulted in five separate opinions. In his opinion, Judge Dyk concurred fully with the majority opinion, but looked for historical support for the court’s approach, He concluded that methods of organizing human activity such as business methods were not useful arts as the term was used in the Constitution.

In a dissenting opinion, Judge Mayer also looked to history and concluded that claims directed to a method of conducting business were not patent eligible. He specifically argued for a “technological standard for patentability” as suggested by the Examiner and that State Street should be overruled. Judge Rader would have affirmed on the basis that the claims were directed to an abstract idea. Only Judge Newman argued that the claims met the requirements of §101. (Judge Dyk noted that he wrote mainly to respond the arguments of Judge Rader and
Judge Newman.)

Judge Dyk’s opinion is interesting in many ways. He cites, for example, the language of the Patent Act of 1793 under which a patent may be granted “for any new and useful art, machine, manufacture or composition of matter, or any new and useful improvement on any art, machine, manufacture or composition of matter”. He notes that this remained essentially unchanged until 1952, when Congress amended § 101 by replacing the word “art” with “process” and by defining “process” in § 100(b) as meaning “process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material”. He further pointed out that the Supreme Court had held that this did not alter the substantive understanding of the statute; it did not broaden the scope of patentable subject matter.

Judge Dyk then proceeded to consider what the drafters of the early patent statutes understood to be the scope of patent eligibility, and concluded that the understanding of “art” would have been derived from the English Statute of Monopolies.

Here, use of the term “working…of any manner of new manufactures” indicated that only processes that related to “manufactures” (including machines or compositions of matter) could be patented. He supported this in part by reference to a listing of process patents published in the mid-1800’s by Bennet Woodcroft, the first head of the English Patent Office. Judge Dyk noted that except for a single aberration, whose validity was never tested, the list gave:

no suggestion in any of this early consideration of process patents that processes for organizing human activity were or ever had been patentable. Rather, the uniform assumption was that the only processes that were patentable were processes for using or creating manufactures, machines, and compositions of matter.

Turning next to U.S. Patent Office practice and early Supreme Court decisions, Judge Dyk found no evidence that patents were granted under the 1793 Act on methods of organizing human activity not involving manufactures, machines or the creation of compositions of matter. Any seemingly contrary cases, he said, “are plainly distinguishable”.

For example, in its 1853 opinion in Corning v. Burden, the Supreme Court stated:

A process, [by that name], is not made the subject of a patent in our act of Congress. It is included under the general term ‘useful art.’ An art may require one or more processes or machines in order to produce a certain result or manufacture. The term machine includes every mechanical device or combination of mechanical powers and devices to perform some function and produce a certain effect or result. But where the result or effect is produced by chemical action, by the operation or application of some element or power of nature, or of one substance to another, such modes, methods, or operations, are called ‘processes.’ A new process is usually the result of discovery; a machine, of invention. The arts of tanning, dyeing, making water-proof cloth, vulcanizing India rubber, smelting ores, and numerous others are usually carried on by processes, as distinguished from machines. . . . It is for the discovery or invention of some practicable method or means of producing a beneficial result or effect that a patent is granted, and not for the result or effect itself. It is when the term process is used to represent the means or method of producing a result that it is patentable, and it will include all methods or means which are not effected by mechanism or mechanical combinations.

Although he did not say so in so many words, Judge Dyk clearly saw the constitutional purpose consistently reflected in the Patent Acts over the years and consequently, that processes (or methods, or arts) had to be useful arts to be patent eligible.

Judge Mayer’s dissenting opinion is also of interest. Even more forcefully than Judge Dyk, he argues that both constitutional history and Supreme Court precedent  compel the conclusion that processes must relate to technological advances to be patent eligible.

Another matter addressed by both Judge Dyk and Judge Mayer is what I regard as the “under the sun fallacy”. As described by Judge Mayer:

Business method patents have been justified, in significant measure, by a misapprehension of the legislative history of the 1952 Patent Act. In particular, proponents of such patents have asserted that the Act’s legislative history states that Congress intended statutory subject matter to “include anything under the sun that is made by man” . . . Read in context, however, the legislative history says no such  thing. The full statement from the committee report reads: “A person may have ‘invented’ a machine or a manufacture, which may include anything under the sun that is made by man, but it is not necessarily patentable under section 101 unless the conditions of the title are fulfilled.” This statement does not support the contention that Congress intended “anything under the sun” to be patentable. To the contrary, the language supports the opposite view: a person may have “invented” anything under the sun, but it is “not necessarily patentable” unless the statutory requirements for patentability have been satisfied. Thus, the legislative history oft-cited to support business method patents undercuts, rather than supports, the notion that Congress intended to extend the scope of section 101 to encompass such methods. Moreover, the cited legislative history is not discussing process claims at all. The quoted language is discussing “machines” and “manufactures;” it is therefore surprising that it has been thought a fit basis for allowing patents on business processes.

Bilski v. Kappos – The Supreme Court Opinion:

  1. Enough wishful thinking about what might have been. Let’s look at what happened when the case got to the Supreme Court.

The Court was offered three theories under which to find the claims not to be patent eligible: (1) failure to satisfy the machine or transformation requirement; (2) categorical ineligibility of business methods; and (3) categorical ineligibility of claims directed solely to an abstract idea.

Regarding the first theory, as the Court has often done, it rejected the CAFC’s effort to create clarity through an objective test as unduly rigid. The Court held that the machine-or-transformation test “is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101”, but it found nothing in its past decisions to support the machine-or–transformation test as the sole test for deciding whether an invention is a patent-eligible “process.”

As to the second theory, the Court held that patents for business methods are not categorically excluded from patent eligibility. It based this on the fact that the definition of “process” in §100(b) of the Patent Act specifically included methods, and the lack of any dictionary definition or other indication that a common contemporary understanding would exclude methods of doing business from the general category of methods. As an example, the Court cited the definition of “method” in the 1954 Edition of Webster’s New International Dictionary as “[a]n orderly procedure or process … regular way or manner of doing anything; hence, a set form of procedure adopted in investigation or instruction”.

The Court also cited the original (1999) version of §273 which established a prior user defense for business methods as demonstrating that Congress did not regard business methods as categorically as beyond the scope of §101.

Turning finally to the third theory, relying on Benson, Flook, and Diehr, the Court held that the claims were not patent eligible because they were directed solely an abstract ideas.

Yuk. Characterizing the claims as directed to an abstract idea was certainly correct, but why didn’t the Court just say that and be done with the matter. Everything else was dicta, and frustratingly bad dicta at that.

No tests for process eligibility (other than the discredited “technology” test) had ever been articulated except in terms of relationship to a machine or transformation of matter, so it can be said that these were in fact the “sole tests”. Even though the Court’s concern about validity of the test in the Information Age is certainly valid, , given its decision, there was no reason for it to address the machine or transformation test at all.

Nevertheless, having done so, the Court frustratingly gave no indication of what else should inform a decision as to patent eligibility of a process. It made this clear by stating:

It is important to emphasize that the Court today is not…holding that any… technologies from the Information Age should or should not receive patent protection….[T]he patent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles. Nothing in this opinion should be read to take a position on where that balance ought to be struck.

As to categorical ineligibility of business methods, we have demonstrated in Part I the likelihood that methods of commerce are not within the useful arts understood in the 18th Century and Judges Dyk and Mayer did so most convincingly in their opinions in In re Bilski.

Yet even if the evidence that business methods per se were never regarded as useful art, given the decision, the Court had no reason to address patent eligibility for business methods. But if the Court felt it had to address the issue, it would have been much more constructive to say something like, “just because a process has applicability to commerce does not make it ineligible if it otherwise involves the useful arts”. That would at least have opened a dialog box, as it were, for consideration of how to determine which business methods were patent eligible.

Justice Stevens Gets it Right:

Justice Stevens, in his opinion concurring in the judgment, saw the problem clearly. While he agreed with the majority’s declaring that the machine or transformation test should not be treated as an exclusive test, he argued:

Rather than making any broad statements about how to define the term “process” in §101 or tinkering with the bounds of the category of unpatentable, abstract ideas, I would restore patent law to its historical and constitutional moorings.

Justice Stevens’ opinion is a classic of clarity and insight, and to do it justice would lengthen this article beyond reason. I strongly recommend that everyone interested in improving §101 who has not read it or has not read it recently, do so.

Apart from his historical analysis, to me, his most persuasive argument that the term “useful arts” was widely understood to encompass the fields that we would now describe as relating to technology or “technological arts”. This part of his analysis may be found beginning at page 21 of the Slip Opinion.

Let’s Put Technology Where it Belongs in Patent Law:

Can we justify use of “technology” as a constitutionally valid filter to determine patent eligibility? If we Google the phrase “what does technology mean”, the first reference states:

the application of scientific knowledge for practical purposes, especially in industry; “advances in computer technology”, machinery and equipment developed from the application of scientific knowledge’; the branch of knowledge dealing with engineering or applied sciences.

The next reference is from dictionary.com:

  1. the branch of knowledge that deals with the creation and use of technical means and their interrelation with life, society, and the environment, drawing upon such subjects as industrial arts, engineering, applied science, and pure science.
  2. the application of this knowledge for practical ends.
  3. the terminology of an art, science, etc.; technical nomenclature.
  4. a scientific or industrial process, invention, method, or the like.
  5. the sum of the ways in which social groups provide themselves with the material objects of their civilization. (Based on the Random House Dictionary, © Random House, Inc. 2017)

Don’t you think that if the Constitution were being written today the IP Clause would have said “…to promote the progress…of technology”?

So how would I amend §101? First, I would add a definition of “technology” to §100, for example, “the application of the laws of nature to create material objects, machines or compositions of matter and the resulting creations”. We could even add a definition “technical” as something like “pertaining to technology”.

I would then incorporate the terms “technology” and “technical” into §101. Using Subsection 101(b) of the IPO proposal as a base, I would say something like:

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, (i) is directed to a law of nature and not to application of such a law using technology or technical means, or (ii) exists in nature in its claimed form independently of and prior to any human activity, or (iii) exists solely in the human mind is directed to a method of organizing human activity that is simply implemented by a machine with no other application of technology or technical means. A process within the scope of sub-part (iii) shall not be excluded from eligibility simply because it has application to commerce or other endeavor not constituting technology.

These suggestions, which I regard as a basis for discussion, seem to cover what I believe the Constitution intends to be patent eligible. I am sure some of you can think of better ways to say what I have in mind.

Some Final Words:

Let me leave you with a further thought, and something else I think you should read. As you can see from above, I am hardly the first one to suggest a technological test for patent eligibility. In fact, it is already part of the Chinese Patent Law and in the EPC, to say nothing of its use in the definition of a “covered business method” in 37 CFR 42.301.

Finally, I refer you to a thoughtful criticism of Bilski v. Kappos which also advocates a renewed emphasis on technology: Forty Years of Wondering in the Wilderness and No Closer to the Promised land: Bilski’s Superficial Textualism and the Missed Opportunity to Ground Patent Law Interpretation and Return Patent Law to its Technology Mooring (here) by Peter S. Menell, Professor of Law, University of California at Berkeley School of Law and Director, Berkeley Center for Law & Technology. That, like the Pollack paper, Justice Stevens’ concurring opinion in Bilski v. Kappos, and the opinions of Judges Dyk and Mayer in In re Bilski are essential reading.

About the author: Larry Hoffman has a B.S. in Electrical Engineering and Comp. Sci. from Massachusetts. Institute of Technology and a J.D. from the George Washington University School of Law. He has been a lawyer since 1965 specializing in IP law and product liability defense. He is registered to practice before the U.S. PTO, the U.S. Court of Appeals for the Federal Circuit and the state and federal courts in New York, Maryland, and the District of Columbia. His work has included preparation and prosecution of patents in countries throughout the world, and counseling on IP and product safety matters. He has been involved in the trial of close to 100 lawsuits of various kinds. You can reach him at Lawrence@ipatent.co.il.

 

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