A Madness to the Method? The Future of Method Patents After Bilski Brian S. Mudge July 19, 2010

Agenda Overview History of Bilski case Bilski v Kappos (S. Ct. June 28, 2010) Lessons of Bilski Practice Pointers

Overview of Bilski v Kappos Bilski involves claims directed to hedging risk in the field of commodities trading. –Business method claim Primary issue – 35 U.S.C. § 101 –Does the Machine or Transformation test control the determination of whether a claim to a process is patent-eligible under § 101? Computer-implemented and software method claims, business methods and as well as medical process claims are affected by this issue

Overview - 35 U.S.C. § U.S.C. § 101 –Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title. 35 U.S.C. § 100(b) defines “process” –The term "process" means process, art, or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material.

Overview - § 101 Jurisprudence Patent-eligible Subject Matter under § 101 –Expansive view taken by Supreme Court Congress intended § 101 to extend to “anything under the sun that is made by man.” Diamond v. Chakrabarty. Exceptions: laws of nature, physical phenomena, and abstract ideas are not patentable. Gottschalk v. Benson; Parker v. Flook –Since the 1970’s, § 101 case law developed a variety of tests for patent eligibility of claims reciting, directly or implicitly, the use of a mathematical algorithm.

Overview - § 101 Jurisprudence The Freeman-Walter-Abele test (CCPA) recited a two-step test to determine whether a claim is statutory under § 101. –Is a mathematical algorithm recited directly or indirectly in the claim? –If so, is the claimed invention as a whole no more than the algorithm itself; that is, is the claim directed to a mathematical algorithm that is not applied to or limited by physical elements or process steps? If yes, such claims are nonstatutory.

Overview - § 101 Jurisprudence The Federal Circuit developed the “useful, concrete, and tangible result” test In re Alappat (1994): a apparatus for converting vector list data and smoothing a waveform display in an oscilloscope was a specific machine that produced a “useful, concrete, and tangible result” State Street Bank (1998): business method producing “useful, concrete, and tangible result” AT&T v. Excel (1999): physical transformation not required for method claims

Overview - § 101 Jurisprudence In re Comiskey (Fed. Cir. 2007) –Claims directed to a method for mandatory arbitration resolution (no machine required) were unpatentable under § 101 because they only recited mental processes to resolve a legal dispute –Mental process combined with a machine, manufacture or composition may be patentable –Thus, other claims tied to computer or communications apparatus were patent-eligible In re Nuijten (Fed. Cir. 2007) –Claims to signals are not patent-eligible (not process, etc.)

History of Bilski Case Bilski’s claims directed to method for hedging risk 1. A method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of: (a) initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said consumer; (b) identifying market participants for said commodity having a counter-risk position to said consumers; and (c) initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions. Bilski’s claims not machine-implemented

Ex parte Bilski (BPAI) Ex parte Bilski (BPAI 2006): The Board held Bilski’s claims were not statutory subject matter under § 101: –Bilski’s claims did not involve a patent-eligible transformation –Bilski’s claims preempt every possible way of performing the steps of the claimed process, by human or by any kind of machine –Bilski’s claims did not produce a “useful, concrete, and tangible result.”

In re Bilski (CAFC) In re Bilski (Fed. Cir. 2008) (en banc) –The Federal Circuit held that the “Machine or Transformation” test is the definitive test to determine whether a process claim is tailored narrowly enough to encompass only a particular application of a fundamental principle rather than to preempt the principle itself.

In re Bilski (CAFC) The “Machine or Transformation” test: a claimed process is patent-eligible under §101 if: –It is tied to a particular machine or apparatus or –It transforms a particular article into a different state or thing. –Either prong must: Impose meaningful limits on the claim’s scope to impart patent-eligibility Not merely be insignificant extra-solution activity

In re Bilski (CAFC) Validity of other § 101 tests: –Freeman-Walter-Abele test –inadequate –“Useful, concrete, and tangible result” test – inadequate; not intended to supplant the machine-or- transformation test. Repudiates State Street and AT&T. –No “Technological arts” test –No categorical exclusions for business methods or software –Rejected requirement for “physical steps” or “physical limitations”

In re Bilski (CAFC) Bilski’s claims (business method – hedging risk) failed Machine or Transformation test: –No machine recited –Claim does not constitute a transformation of physical object or representation of any physical object or substance. –Mere “transformation” or manipulation of legal obligations, business risks or other abstractions cannot meet test for this reason. Even though physical acts may be involved

In re Bilski (CAFC) Judge Rader’s dissent: –Claim directed to abstract idea and therefore unpatentable. –§ 101 should be read broadly and a patentability inquiry should concentrate on questions of novelty and utility, not subject matter.

Bilski v. Kappos (S.Ct. 2010) Issues before Supreme Court: Whether patent-eligible processes must satisfy the Machine or Transformation test under § 101 Whether business methods are excluded category of patent-eligible subject matter

Bilski v. Kappos (S.Ct. 2010) Supreme Court - answers: The Machine or Transformation test is not the exclusive test for patent-eligibility There is no categorical exclusion for business methods

Bilski v. Kappos (S.Ct. 2010) Analysis - Machine or Transformation Test: Statute § 101 broadly describes subject matter eligible for patenting –4 independent categories of patentable subject matter -- processes, machines, manufactures, and compositions of matter. Precedents - only 3 exceptions to broad patentability principles: –Laws of nature –Abstract ideas –Natural phenomena

Bilski v. Kappos (S.Ct. 2010) Analysis - Machine or Transformation Test: An Exclusive Machine or Transformation test inconsistent with broad statutory language and Court’s precedents But test is “a useful and important clue, an investigative tool”

Bilski v. Kappos (S.Ct. 2010) Analysis – business methods: Court rejected broad conclusion that business methods are unpatentable under §101 Statutory definition of process – covering methods – may include some business methods Prior user defense §273 contemplates patentability of some business methods

Bilski v. Kappos (S.Ct. 2010) Analysis – Bilski’s claims: Reviewed Benson, Flook and Diehr cases: addressed whether claims involving mathematical algorithms met the eligibility requirements for processes under § 101 In Benson, the claim was an unpatentable abstract idea because it broadly covered a BCD to binary algorithm –Claim would preempt the only practical use of the algorithm – on a computer

Bilski v. Kappos (S.Ct. 2010) Analysis – Bilski’s claims: In Flook, the claimed method for updating alarm limits was unpatentable because it recited little more than a mathematical algorithm –Limiting field of use in preamble did not make the claim patent- eligible –Insignificant postsolution activity did not make claim patent- eligible In Diehr, the claimed process for curing synthetic rubber using a mathematical formula on a computer was patentable subject matter because it was an application resulting in molded rubber products –Claim did not preempt all uses of the mathematical formula

Bilski v. Kappos (S.Ct. 2010) Analysis – Bilski’s claims: In light of Benson, Flook and Diehr cases, Bilski’s claims 1 & 4 are directed to an abstract idea – risk hedging – and not patentable Would preempt uses of the risk hedging approach in all fields

Bilski v. Kappos (S.Ct. 2010) Analysis – Bilski’s claims: Remaining claims providing broad examples of hedging in commodities and energy markets do no more than attempt to limit abstract idea to field of use or add token postsolution activity –But under Flook these do not render claims patent- eligible

Bilski v. Kappos (S.Ct. 2010) Breyer (concur.): 4 points of agreement among all justices: Section 101 is broad, but not without limit. Phenomena of nature, mental processes and abstract intellectual concepts are not patentable, since allowing patents on such fundamental principles would preempt the public’s access to basic tools of scientific and technological work Machine or Transformation test has been used for over 100 years to help determine what is a patentable process Although the M or T test is useful and important clue, it has never been the sole test for patent-eligibility. Thus, while M or T test is an important example of how a court can determine patentability under §101, the CAFC erred by treating it as the exclusive test Though M or T is not exclusive test, does not mean that anything that produces “useful, concrete and tangible result” (State Street) is patent-eligible

Lessons of Bilski Statute broadly describes subject matter eligible for patenting Only 3 exceptions to broad patentability principles: –Laws of nature –Abstract ideas –Natural phenomena Otherwise, limited guidance for deciding future cases Look to Benson-Flook-Diehr line of cases

Lessons of Bilski Patent-eligible subject matter broader than Industrial Age inventions meeting Machine or Transformation test Leaves room for asserting patentability of Information Age inventions that would not meet Machine or Transformation test Machine or Transformation test may still be a key test (“a useful and important clue, an investigative tool”) –Court declines to endorse prior interpretations of §101 (State Street; AT&T)

Lessons of Bilski Machine or Transformation test: permissive, not exclusive What happens if you apply the M or T test? Bilski does not say Does meeting test guarantee patent-eligibility? Benson: BCD-binary algorithm operated (in claim 8) using a shift register, clearly part of a digital computing apparatus, so the claim might very well have met the M or T test –But claim ruled not patentable Does failing the M or T test mean claim is not patentable? –not necessarily - since test not exclusive

Lessons of Bilski Idea Preemption – the new battleground for patent-eligible subject matter? Preemption is key factor in analysis of whether method claim is directed to mere abstract idea – Benson: Claim preempted only practical use of the BCD to binary algorithm – on a computer – Diehr: Claim did not preempt all uses of the mathematical formula Bilski: Claims preempted uses of risk hedging approach

Lessons of Bilski Software processes – open questions: –How to address Idea Preemption? –How to apply Machine or Transformation test?

Lessons of Bilski Software processes – M or T test: –What are the requirements to satisfy tying a process to a particular machine? Recitation of a processor? Recitation of “computer-implemented method”? Recitation of the processor or machine in the preamble or the body of the claim? –Note: Alappat ruled that a general purpose computer becomes in effect a specific machine once programmed to perform specific functions per software instructions (cited favorably in CAFC Bilski ruling) –Transformation of physical object by a computer-controlled method remains patentable (Diehr)

Lessons of Bilski Electronic Signals – M or T test: Look to Abele (cited in CAFC Bilski ruling)? –Unpatentable – process of graphically displaying variances of data from average values –Claim did not specify any particular type or nature of data –Claim did not specify how or from where data was obtained or what the data represented –Patentable – electronic transformation of x-ray attenuation data produced by a CAT scan into a visual depiction –Data represented physical/tangible objects: structure of bones, organs and body tissues. –Transformation of raw data into particular visual depiction of physical object sufficient. –No transformation of underlying physical object represented by the data necessary. –Did not preempt all uses of a fundamental principle.

Lessons of Bilski Business Methods – category survives Supreme court: Some business methods may be patent-eligible, as contemplated by prior user defense (§ 273) But § 273 “does not suggest broad patentability of such claimed inventions” Stevens concurrence – business methods unpatentable subject matter Court’s rejection of Bilski’s claims may signal that claims to business methods are particularly susceptible to attack as mere abstract ideas

Lessons of Bilski Impact on Medical Process claims - Supreme court vacated/remanded these 2 cases: Classen Immunotherapies, Inc. v. Biogen Idec –Prior ruling - process for determining the effectiveness of an immunization schedule was unpatentable under Section 101 (no transformation) Mayo Collaborative Services v. Prometheus Laboratories, Inc. –Prior ruling - methods for calibrating the proper dosage of thiopurine drugs held patentable, because the claimed step of administering a drug involved a transformation of the human body in response as well as changes to the drug’s metabolites

Classen v. Biogen: Claim 1 1. A method of determining whether an immunization schedule affects the incidence or severity of a chronic immune-mediated disorder in a treatment group of mammals, relative to a control group of mammals, which comprises: immunizing mammals in the treatment group of mammals with one or more doses of one or more immunogens, according to said immunization schedule, and comparing the incidence, prevalence, frequency or severity of said chronic immune-mediated disorder or the level of a marker of such a disorder, in the treatment group, with that in the control group.

Prometheus v. Mayo: Claim 1 1. A method of optimizing therapeutic efficacy for treatment of an immune-mediated gastrointestinal disorder, comprising: (a) administering a drug providing 6-thioguanine to a subject having said immune-mediated gastrointestinal disorder; and (b) determining the level of 6-thioguanine in said subject having said immune-mediated gastrointestinal disorder, wherein the level of 6-thioguanine less than about 230 pmol per 8.times.10.sup.8 red blood cells indicates a need to increase the amount of said drug subsequently administered to said subject and wherein the level of 6-thioguanine greater than about 400 pmol per 8.times.10.sup.8 red blood cells indicates a need to decrease the amount of said drug subsequently administered to said subject.

PTO Reaction to Bilski PTO issued memo to examiners on day Bilski opinion issued Examiners instructed to examine method claims for compliance with § 101, using the Machine or Transformation test as a presumptive tool –If the claimed method meets the Machine or Transformation test, it is likely patent-eligible under Section 101 “unless there is a clear indication that the method is directed to an abstract idea.” –If the claimed method does not meet the Machine or Transformation test, the examiner should issue a rejection under section 101 “unless there is a clear indication that the method is not directed to an abstract idea.”

PTO Reaction to Bilski Thus, the Machine or Transformation test will remain, at least in the near term, as a test for patent-eligibility of processes during examination For any claim not meeting the Machine or Transformation test, the PTO will presume (except in rare cases) it is an abstract idea, putting the burden on applicants to establish patentability PTO is reviewing the Bilski decision and will develop further guidance on subject matter eligibility under Section 101

Practice Pointers Drafting/prosecuting applications - minimize preemption: –Define idea(s) for solving the problem broadly –Focus claims on practical application (not preempting broadly stated idea) –Apply arguments/evidence (expert?) to show claim does not preempt all use of idea

Practice Pointers Drafting/prosecuting applications – use Machine or Transformation test as guide (to improve chances of allowance) –Claims – include method claims tied to particular machine implementations or emphasize results of transformation of physical object or data representing physical objects and articles –Include written description support for machine implementation or transformation

Practice Pointers Issued patents –Evaluate method claims in issued patents to determine idea preemption or compliance with Machine or Transformation test –Consider filing reissue application to address potential § 101 issues with method claims

Practice Pointers Defensively –Consider § 101 defense – is asserted claim nonstatutory? –Define “idea” narrowly - look for opportunities to challenge claims that preempt an idea or fail Machine or Transformation test –Introduce evidence supporting idea preemption arguments (expert?)