Introduction to Section 101 Patent Law: Prof. Robert Merges

Subject Matter: Overview § 101 Categories Process Machine Manufacture Composition of Matter Improvements

Main Themes Living Subject matter Business Methods/Software Gene Patents

General Historical Progression First: Early software cases: Benson, Flook, Diehr Supreme Court grapples with early computer technology/software

A Rough Start? Gottschalk v. Benson (1972) Claim to a simple algorithm: converting “binary coded decimal” to pure binary numbers From simple text storage to binary numbers that can be operated on

Benson holding Algorithms are not patentable They are mathematical; “discovered” and not invented So outside section 101

Living Things: Historical progression 1.Chakrabarty (1980) – on the cusp of “classical genetic engineering” 2.Recurring Controversy (plants, animals, cloning, etc.) 3.Mayo v. Prometheus

Today’s controversy Ass’n Molecular Pathology – the “Myriad” gene patent case Fed Cir. Opinion 2011 – GVR, new opinion (“Myriad II”), now cert. petition

Who is Chakrabarty? Ananda Chakrabarty, PhD is a distinguished professor of microbiology and immunology at the University of Illinois College of Medicine. His most notable creation is a biology-based solution for cleaning up toxic spills using the generically engineered Pseudomonas (today classified as Burkholderia cepacia or B. cepacia).

Ananda Chakrabarty

Chakrabarty: Claims Process claims “Inoculum” including a carrier (combination claim) “the bacteria themselves”

Chakrabarty Claims: p A bacterium from the genus Pseudomonas containing therein at least two stable energy- generating plasmids, each of said plasmids providing a separate hydrocarbon degradative pathway.

Chakrabarty Process claims – never a problem –Why not? Process comprising steps of (1), (2), (3), where (2) involves living subject matter

Combination claims “An inoculum”... Also allowed Why?

Combination claims

Section 101 Categories in Chakrabarty Manufacture Composition of Matter –“chemical union or mechanical mixture”

The now-famous punch-line Legislative history  statutory language, 1952 Act –“Anything under the sun that is made by [humans]”

Laws of nature Physical phenomena Abstract ideas What are the limits?

The Court’s examples of unpatentable things “a new mineral discovered in the earth, or a new plant found in the wild” Einstein’s “law” (E=mc 2 ) Newton’s law of gravitation

This is not to suggest that § 101 has no limits or that it embraces every discovery. The laws of nature, physical phenomena, and abstract ideas have been held not patentable.

Thus, a new mineral discovered in the earth or a new plant found in the wild is not patentable subject matter. Likewise, Einstein could not patent his celebrated law that E = mc2; nor could Newton have patented the law of gravity. Such discoveries are “manifestations of... nature, free to all men and reserved exclusively to none.”

So: § 101 Has Two Components (1) The categories listed in the statute itself (process, machine, manufacture, composition of matter) (2) The traditional (“common law”) exceptions: (laws of nature, physical phenomena, abstract ideas)

Back to Chakrabarty’s oil- eating bacterium “His claim is not to a hitherto unknown natural phenomenon, but to a nonnaturally ocurring manufacture or composition of matter – a product of human ingenuity...”

What are the limits? “not nature’s handiwork, but his own” –How does this limit the scope of patent law? –Is it predictable? Too open-ended?

Counter-arguments Plant-specific Acts Congress should make IP policy, not the courts

“Congress thus recognized that the relevant distinction was not between living and inanimate things, but between products of nature, whether living or not, and human- made inventions.”

“Purified and isolated” claims –§ 101 Issues –Practical advantages Natural substance patents

From living subject matter to business methods/software What is the connection? Traces back to Benson: algorithms (math) as something “discovered”, not “invented” Phenomena of nature; abstract idea

In re Bilski 130 S Ct 3218 (2010)

Messrs. Bilski and Barnard filed their patent application on April 10, Claims were rejected by examiner and appealed to Board of Patent Appeals and Interferences (“BPAI”). BPAI issued decision sustaining the rejection of all the claims in an order Sept. 26, An appeal from the BPAI was made to the Court of Appeals for the Federal Circuit (CAFC). Prior to disposition by the regular three-judge panel, the CAFC sua sponte ordered en banc review.

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;

Bilski claim 1 cont’d (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.

What is this claim about? Fixed price contract: creates a risk that prices will fall; protects against the risk that prices will rise What if you wanted to reduce the risk without losing the protection?

Hedging Simple examples: travel insurance; spending money on a “backup plan” More formally: Hedging risk from a major purchase by making an offsetting investment

WeatherWise USA, located in Pittsburgh, PA, is the premier provider of customized consumer energy products including SetYourBill SM, WeatherProof Bill®: fixed bills, capped bills, EnerCheck® energy efficiency... Our unique use of computerized models based on engineering, rather than econometric principles enables the development of products and services that reduce financial risk for energy providers and their residential and commercial consumers.

Can you patent something like this? The section 101 question NOTE: Distinct from other requirements of patentability –NOT asking whether claim 1 in Bilski is new, nonobvious, etc.

Bilski v. Kappos Holding “Roads not taken” History, context – and future?

The Court's precedents provide three specific exceptions to § 101's broad patent-eligibility principles: “laws of nature, physical phenomena, and abstract ideas.” Chakrabarty, supra, at 309. While these exceptions are not required by the statutory text, they are consistent with the notion that a patentable process must be “new and useful.” And, in any case, these exceptions have defined the reach of the statute as a matter of statutory stare decisis going back 150 years. -- Casebook, p.81

The Holding Rather than adopting categorical rules that might have wide-ranging and unforeseen impacts, the Court resolves this case narrowly on the basis of this Court's decisions in Benson, Flook, and Diehr, which show that petitioners' claims are not patentable processes because they are attempts to patent abstract ideas. Indeed, all members of the Court agree that the patent application at issue here falls outside of § 101 because it claims an abstract idea.

Two “Roads Not Taken” 1.Federal Circuit “machine or transformation” test 2.“Categorical prohibition” on business methods

Under the Court of Appeals' formulation, an invention is a “process” 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.” 545 F.3d, at 954. This Court has “more than once cautioned that courts ‘should not read into the patent laws limitations and conditions which the legislature has not expressed.’ ” Diamond v. Diehr....

Ordinary meaning: Adopting the machine-or- transformation test as the sole test for what constitutes a “process” (as opposed to just an important and useful clue) violates [several] statutory interpretation principles.

Categorical exclusion Again, plain meaning; dictionary definition of “process” does not exclude business methods/processes Section 273(b)(1) of the Patent Act – prior user defense for business methods

The Holding (again) Rather than adopting categorical rules that might have wide-ranging and unforeseen impacts, the Court resolves this case narrowly on the basis of this Court's decisions in Benson, Flook, and Diehr, which show that petitioners' claims are not patentable processes because they are attempts to patent abstract ideas. Indeed, all members of the Court agree that the patent application at issue here falls outside of § 101 because it claims an abstract idea.

Holding (cont’d) The concept of hedging, described in claim 1 and reduced to a mathematical formula in claim 4, is an unpatentable abstract idea, just like the algorithms at issue in Benson and Flook. Allowing petitioners to patent risk hedging would pre-empt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea.

One rejected view Respondent urges the Court to look to the other patentable categories in § 101-machines, manufactures, and compositions of matter-to confine the meaning of “process” to a machine or transformation, under the doctrine of noscitur a sociis. Under this canon, “an ambiguous term may be given more precise content by the neighboring words with which it is associated. [But] § 100(b) already explicitly defines the term “process.”

What lies behind this rejected view? “Patents are about technology” – machines, manufactures, compositions of matter... “Technological arts” concept in Europe and some earlier US cases: rejected

The plurality portions of the majority opinion – Justice Kennedy The machine-or-transformation test may well provide a sufficient basis for evaluating processes similar to those in the Industrial Age-for example, inventions grounded in a physical or other tangible form. But there are reasons to doubt whether the test should be the sole criterion for determining the patentability of inventions in the Information Age.

Dissent: Justice Stevens The wiser course would have been to hold that petitioners' method is not a “process” because it describes only a general method of engaging in business transactions-and business methods are not patentable. More precisely, although a process is not patent-ineligible simply because it is useful for conducting business, a claim that merely describes a method of doing business does not qualify as a “process” under § 101.

Dissent (cont’d) “[p]erhaps this was in part a function of an understanding – shared widely among legislators, courts, patent office officials, and inventors – about what patents were meant to protect. Everyone knew that manufactures and machines were at the core of the patent system.” Merges, Property Rights for Business Concepts and Patent System Reform, 14 Berkeley Tech. L.J. 577, 585 (1999) (hereinafter Merges)

Huge Growth in PTO Budget, Examiner Hiring Now a $2 billion agency Hired thousands of new examiners in the past few years –Turnover problems …

Reactions to the “Patent Flood” Revisit patentable subject matter Process reforms Radically alter the system

State Street Bank HUB (Pooled fund) MF

United States Patent 7,249,083 Noraev, et al. July 24, 2007 Securities, supporting systems and methods thereof: Lehman Brothers Abstract A financial instrument, equity dilution inhibitor and security upgrade account are disclosed based on an enhanced call-spread option. Implementation of the investment vehicle and/or upgrade account are managed via program controlled data processor governing system operation in accordance with investment parameters. Enhanced flexibility for this investment vehicle increases its usefulness to a broad spectrum of potential investors

1. A computer implemented method for creating an investment vehicle, comprising: creating via software stored on a computer a debt security providing a fixed income return to a purchaser for a pre-set period of time that further provides to said purchaser an equity conversion arrangement for a select underlying equity security based on future contingent events; and creating … a derivative instrument coupled to, but separate from, said debt security by providing an option to an issuer of said debt security to purchase shares of said equity security at a select price …