1. Nutter McClennen & Fish LLP World Trade Center West 155 Seaport Boulevard Boston, Massachusetts 02210 Telephone 617.439.2000 www.nutter.com WHAT IS PATENT ELIGIBLE? In re Bilski and its Impacts on the Patent Landscape

2. Nutter McClennen & Fish LLP www.nutter.com2 In re Bilski Part 1.Background Part 2.The Bilski Decision Part 3. Impact on Business Methods and Software Patents Part 4.Impact on Diagnostic Methods Part 5.Strategies

3. Nutter McClennen & Fish LLP World Trade Center West 155 Seaport Boulevard Boston, Massachusetts 02210 Telephone 617.439.2000 www.nutter.com In re Bilski Part 1, Background

4. Nutter McClennen & Fish LLP www.nutter.com4 A Little History Patent Act of 1793 a patent may be granted to any person or persons who “shall allege that he or they have invented any new and useful art, machine, manufacture or composition or matter, or any new and useful improvement on any art, machine, manufacture or composition of matter.... (1 Stat. 318, 319 § 1 (1793)). Criteria remained essentially unchanged until 1952, when Congress amended § 101 as follows:

5. Nutter McClennen & Fish LLP www.nutter.com5 1952 Patent Act – “Process” 35 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) The term “process” means process, art, or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material.

6. Nutter McClennen & Fish LLP www.nutter.com6 Enter the Computer: Gottschalk v. Benson, 409 U.S. 63 (1972) Patent claims a method for converting binary-coded decimal (BCD) numerals into pure binary numerals. Claims were not limited to any particular art or technology, to any particular apparatus or machinery, or to any particular end use. Claims purported to cover any use of the claimed method in a general purpose digital computer of any type.

7. Nutter McClennen & Fish LLP www.nutter.com7 Pre-195 Benson (cont.) “It is conceded that one may not patent an idea. But, in practical effect, that would be the result if the formula for converting BCD numerals to pure binary numerals were patented in this case. The mathematical formula involved here has no substantial practical application except in connection with a digital computer, which means that, if the judgment below is affirmed, the patent would wholly preempt the mathematical formula and, in practical effect, would be a patent of the algorithm itself.” Gottschalk v. Benson, 409 U.S. 63, 71-72 (1972)

8. Nutter McClennen & Fish LLP www.nutter.com8 Benson (cont.) “It is argued that a process patent must either be tied to a particular machine or apparatus or must operate to change articles or materials to a "different state or thing." We do not hold that no process patent could ever qualify if it did not meet the requirements of our prior precedents.... It is said we freeze process patents to old technologies, leaving no room for the revelations of the new, onrushing technology. Such is not our purpose....” Gottschalk v. Benson, 409 U.S. 63, 71 (1972)

9. Nutter McClennen & Fish LLP www.nutter.com9 Pre-195 Diamond v. Diehr, 450 U.S. 175, (1981) A method of operating a rubber-molding press for precision molded compounds with the aid of a digital computer, comprising:... ; repetitively comparing in the computer, at frequent intervals during each cure, the Arrhenius equation for reaction time during the cure, which is ‘ln v = CZ +x’, repetitively comparing in the computer at frequent intervals during the cure each said calculation of the total required cure time calculated with the Arrhenius equation and said elapsed time, and opening the press automatically when a said comparison indicates completion of curing.

10. Nutter McClennen & Fish LLP www.nutter.com10 Pre-195 Diehr (cont.) Claim is patentable: “Arrhenius equation is not patentable in isolation, but when a process for curing rubber is devised which incorporates in it a more efficient solution of the equation, that process is at the very least not barred at the threshold by § 101.” Diamond v. Diehr, 450 U.S. 175, 188 (1981)

11. Nutter McClennen & Fish LLP www.nutter.com11 Pre-195 State Street State Street Bank v. Signature Financial Group, Inc., 149 F.3d 1368 (1998) Provides a system (“Hub and Spoke”) which facilitates a structure whereby mutual funds (spokes) pool their assets in an investment portfolio (Hub) organized as a partnership

12. Nutter McClennen & Fish LLP www.nutter.com12 “Useful, Concrete, and Tangible” “Today, we hold 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"--a final share price momentarily fixed for recording and reporting purposes and even accepted and relied upon by regulatory authorities and in subsequent trades.” State Street, 149 F.3d 1368, 1373 (1998)

13. Nutter McClennen & Fish LLP www.nutter.com13 Pre-195 State Street to Bilski According to Justice Newman’s dissent in Bilski, almost 40,000 Business Method patent applications filed since State Street decision. As noted in Justice Mayer’s dissent in Bilski, issued patents include:

14. Nutter McClennen & Fish LLP www.nutter.com14 Pre-195 State Street to Bilski U.S. Patent 6,119,099 (method of enticing customers to order additional food at a fast food restaurant) U.S. Patent No. 6,329,919 (system for toilet reservations) U.S. Patent No. 7,261,652 (method of putting a golf ball) U.S. Patent No. 6,368,227 (method of swinging on a swing) U.S. Patent No. 5,443,036 (method of inducing cats to exercise) U.S. Patent No. 6,049,811 (method of obtaining a patent)

15. Nutter McClennen & Fish LLP World Trade Center West 155 Seaport Boulevard Boston, Massachusetts 02210 Telephone 617.439.2000 www.nutter.com In re Bilski Part 2, The CAFC Decision

16. Nutter McClennen & Fish LLP www.nutter.com16 In re Bilski Claim 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; (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.

17. Nutter McClennen & Fish LLP www.nutter.com17 Examiner’s Rejections The Examiner rejected claims 1-11 under 35 U.S.C. 101 The Examiner’s rational: “[r]egarding … claims 1-11, 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 technological arts.”

18. Nutter McClennen & Fish LLP www.nutter.com18 Board’s Decision The Board held the Examiner erred to the extent that he relied on a “technological arts” test because the case law did not support such a test The Board also held that the requirement of a specific apparatus was also erroneous as a claim that does not recite a specific apparatus may still be patent-eligible if it transforms physical subject matter from one state to another (e.g., “’mixing’ two elements or compounds to produce a chemical substance or mixture is clearly a statutory transformation …”)

19. Nutter McClennen & Fish LLP www.nutter.com19 Board’s Decision (cont.) The Board, however, concluded that Applicants’ claims did not involve any patent-eligible transformation as they were merely directed to “non-physical financial risks and legal liabilities of the commodity provider, the consumer, and the market participants.” The Board also held that Applicants’ claims “preempt[] any and every possible way of performing the steps of the [claimed process], by human or by any kind of machine or by any combination thereof…,” and hence an abstract idea ineligible for patenting

20. Nutter McClennen & Fish LLP www.nutter.com20 Board’s Decision (Cont.) The Board also held that the claimed process did not produce “useful, concrete, tangible result,” and for this reason also was not directed to patent-eligible subject matter.

21. Nutter McClennen & Fish LLP www.nutter.com21 CAFC The Supreme Court has held that the meaning of “process” as used in Section 101 in narrower that its ordinary meaning. The Supreme Court has held that a claim is not a patent-eligible “process” if it claims “laws of nature, natural phenomena, [or] abstract ideas.” “The true issue before us is then whether Applicants are seeking to claim a fundamental principle (such as an abstract idea) or mental process”

22. Nutter McClennen & Fish LLP www.nutter.com22 CAFC (cont.) “Diehr can be understood to suggest that whether a claim is drawn only to a fundamental principle is essentially an inquiry into scope of that exclusion; i.e., whether the effect of allowing the claim would be to allow the patentee to pre-empt substantially all uses of that fundamental principle.”

23. Nutter McClennen & Fish LLP www.nutter.com23 CAFC (cont.) How does one determine whether a claimed process would pre-empt all uses of a fundamental process? Machine-or-Transformation test: (1) is the claimed process tied to a particular machine or apparatus? (2) does it transform a particular article into a different state or thing?

24. Nutter McClennen & Fish LLP www.nutter.com24 CAFC (cont.) “We hold that the Applicants’ process as claimed does not transform any article to a different state or thing.” “Purported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances.”

25. Nutter McClennen & Fish LLP www.nutter.com25 CAFC (cont.) The claim “is not limited to transactions involving actual commodities, and the application discloses that the recited transaction may simply involve options, i.e., rights to purchase or sell the commodity at a particular price within a particular timeframe”

26. Nutter McClennen & Fish LLP www.nutter.com26 CAFC (cont.) “… it is inappropriate to determine the patent-eligibility of claim as a whole based on whether selected limitations constitute patent-eligible subject matter.” “… the use of a specific machine or transformation of an article must impose meaningful limits on the claim’s scope to impart patent-eligibility” “… the involvement of the machine or transformation in the claimed process must not merely be insignificant extra-solution activity.” “We leave to the future cases the elaboration of the precise contours of machine implementation, as well as the answers to particular questions, such as whether or when recitation of a computer suffices to tie a process claim to a particular machine.”

27. Nutter McClennen & Fish LLP www.nutter.com27 CAFC (cont.) In Benson, the claimed process, though tied to a machine, was found not to be patent eligible In Benson, “… 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.”

28. Nutter McClennen & Fish LLP www.nutter.com28 CAFC (cont.) “It is virtually self-evident that a process for a chemical or physical transformation of physical objects or substances is patent-eligible subject matter.” “The raw materials of many information-age processes, however, are electronic signals and electronically-manipulated data.”

29. Nutter McClennen & Fish LLP www.nutter.com29 CAFC (cont.) A broad independent claim reciting a process of graphically displaying variances of data from average values was held patent ineligible. In re Abele, 684 F.2d 902 (CCPA 1982) “The claim did not specify any particular type or nature of data…”, and “… nor did it specify how or from where the data was obtained or what the data represented.”

30. Nutter McClennen & Fish LLP www.nutter.com30 CAFC (cont.) One of Abele’s dependent claim reciting “said data is X-ray attenuation data produced in a two dimensional field by a computed tomography scanner” was deemed patent eligible “This data clearly represented physical and tangible objects …” “… transformation of that raw data into a particular visual depiction of a physical object on a display was sufficient …” for patent eligibilty

31. Nutter McClennen & Fish LLP www.nutter.com31 CAFC (cont.) Certain active steps, such as gathering data and/or recording output data, may be construed as insignificant “extra-solution activity” and hence insufficient to render an otherwise patent-eligible claim into a patent-eligible one “This court and our predecessor court have frequently stated that adding a data-gathering step to an algorithm is insufficient to convert that algorithm into a patent-eligible process.” “A requirement simply that data inputs be gathered – without specifying how – is a meaningless limit on a claim to an algorithm because every algorithm inherently requires the gathering of data inputs.”

32. Nutter McClennen & Fish LLP www.nutter.com32 CAFC (cont.) Method of conducting an auction of multiple items in which the winning bids were selected in a manner that maximized the total price of all items. In re Schrader, 22 F.3d 290 (Fed. Cir. 1994) Claims were patent-ineligible as being merely directed to a mathematical optimization algorithm. No specific machine or apparatus was recited. The claimed method did require a step of recording bids on each item, though no particular manner of recording was specified. The step of recording the bids constituted “extra-solution activity.”

33. Nutter McClennen & Fish LLP www.nutter.com33 CAFC (cont.) “Nevertheless, we agree that future developments in technology and the sciences may present difficult challenges to the machine-or- transformation test …” “Thus, we recognize that the Supreme Court may ultimately decide to alter or perhaps even set aside this test to accommodate emerging technologies.” “And we certainly do not rule out the possibility that this court may in the future refine or augment the test or how it is applied.”

34. Nutter McClennen & Fish LLP World Trade Center West 155 Seaport Boulevard Boston, Massachusetts 02210 Telephone 617.439.2000 www.nutter.com In re Bilski Part 3, Impact on Business Methods and Software Patents

35. Nutter McClennen & Fish LLP www.nutter.com35 Future of Business Methods End of Business Method patents? Transformation of Legal Relationships and Business Obligations –Abstract; Not Tangible Is there a Machine?

36. Nutter McClennen & Fish LLP www.nutter.com36 Cybersource Corporation v. Retail Decisions, 2009 U.S. Dist. LEXIS 26056 3. A method for verifying the validity of a credit card transaction over the Internet comprising the steps of: a) obtaining other transactions utilizing an Internet address that is identified with the credit card transaction; b) constructing a map of credit card numbers based upon the other transactions and; c) utilizing the map of credit card numbers to determine if the credit card transaction is valid.

37. Nutter McClennen & Fish LLP www.nutter.com37 Cybersource Corporation (cont.) No Transformation; court finds that “manipulation” of data is not transformation – “’Transformation’ suggests a fundamental change, whereas ‘manipulation’ does not.... Simply collecting data into a vague sort of ‘map’ does not amount to a transformation.” – Even if manipulation could be considered transformation, there is no transformation of an article “i.e., any physical object or substance, or any electronic signal representative of any physical object or substance.” No machine; internet is not a particular machine

38. Nutter McClennen & Fish LLP www.nutter.com38 Cybersource Corporation (cont.) As for the future of Business Method patents: “In analyzing Bilski, one is led to ponder whether the end has arrived for business method patents, whose numbers swelled following the decision in State Street.... Although the majority declined say so explicitly, Bilski’s holding suggests a perilous future for most business method patents.” “... The closing bell may be ringing for business method patents, and their patentees may find they have become bagholders.”

39. Nutter McClennen & Fish LLP www.nutter.com39 In re Ferguson (Fed. Cir.) March 6, 2009 A method of marketing a product, comprising: developing a shared marketing force, said shared marketing force including at least marketing channels, which enable marketing a number of related products; using said shared marketing force to market a plurality of different products that are made by a plurality of different autonomous producing company, so that different autonomous companies, having different ownerships, respectively produce said related products; obtaining a share of total profits from each of said plurality of different autonomous producing companies in return for said using; and obtaining an exclusive right to market each of said plurality of products in return for said using.

40. Nutter McClennen & Fish LLP www.nutter.com40 Software Patents Is a Computer a “Machine”? –If so, how detailed do you need to be? Is there a “Transformation” of an “Tangible Article”?

41. Nutter McClennen & Fish LLP www.nutter.com41 Every Penny Counts v. BOA (May 2009) A system, comprising: a network; entry means coupled to said network for entering into the network an amount being paid in a transaction by a payor;... said computing means in said network being responsive to said data and said identification entering means for determining an excess payment to the basis of the determinant established by the payor, and said computing means in said network being responsive to the excess payment for apportioning at least a part of the excess payment among said accounts on the basis of the excess determined and established by the payor and on the basis of commands established by the payor and controlled by other than the payee.

42. Nutter McClennen & Fish LLP www.nutter.com42 Ex parte Nawathe, February 9, 2009 Ex parte Nawathe (February 9, 2009) Representative claim: 1.A computerized method comprising: inputting multiple extensible Markup Language (XML) documents; creating a data representation of said multiple XML documents; and reducing redundancy across said multiple XML documents via a fixed set of tables. Rejection Affirmed

43. Nutter McClennen & Fish LLP www.nutter.com43 Ex parte Nawathe (cont.) No machine; just a general purpose computer No transformation because documents are not articles

44. Nutter McClennen & Fish LLP www.nutter.com44 Ex parte Halligan, April 8, 2009 96.A programmed computer method based upon the six factors of a trade secret from the First Restatement of Torts for providing documentation, analysis, auditing, accounting, protection, and other management relating to an existence,... of a plurality of trade secrets of an organization, said method implemented by the programmed computer to effect the following steps:

45. Nutter McClennen & Fish LLP www.nutter.com45 Ex parte Halligan, (cont) Fails both prongs Merely a general purpose computer No transformation because numerical value assigned by computer is abstract – not a “tangible article”

46. Nutter McClennen & Fish LLP www.nutter.com46 In re Shahabi, April 20, 2009 1.A method, comprising: processing at least one query using a wavelet transformation to produce a transformed query; and performing a range-sum query on a database using the transformed query to produce a result. No machine No transformation

47. Nutter McClennen & Fish LLP www.nutter.com47 In re Richter, May 29, 2009 21. In a host multiprocessor system for emulating the operation of a target n-processor system (n>1) by execution of one of more threads representing the operation of the target system, a method for emulating the target system’s memory addressing using a virtual-to-real memory mapping mechanism of the host multiprocessor system’s operating system, said method comprising: (a) reading a target system virtual memory address (ATV); (b) mapping said ATV to a target real address (ATR); (c) mapping said ATR to a host virtual memory address (AHV); and (d) mapping said AHV to a host real memory address, wherein the emulation of the target system’s memory addressing is treated as an application running on the host multiprocessor system.

48. Nutter McClennen & Fish LLP www.nutter.com48 In re Richter, (cont.) “Claim 21 recites a method performed in a host multiprocessor system that emulates a target n- processor system; therefore the process claim includes use of a specific machine. ” “... We further find use of the specific machine imposes meaningful limits on the scope of the claims – the host processor emulates a target system’s memory addressing causing it to behave like the target processor.”

49. Nutter McClennen & Fish LLP World Trade Center West 155 Seaport Boulevard Boston, Massachusetts 02210 Telephone 617.439.2000 www.nutter.com In re Bilski Part 4, Implications for Diagnostic Methods

50. Nutter McClennen & Fish LLP www.nutter.com50 Diagnostic Methods The application of “machine-or-transformation” test to diagnostic methods can curtail the scope of available patent protection Diagnostic methods typically involve diagnosing disease conditions and/or optimizing therapeutic treatments based on comparative inferences and/or correlations between various biochemical compounds and/or markers Under a narrow interpretation of the test the identification of such inferences and correlations can be deemed as discovery of natural phenomena without transforming an article from one state to another

51. Nutter McClennen & Fish LLP www.nutter.com51 Classen Immunotherapies, Inc. v. Biogen Idec. Classen patents were directed to a process of identifying lower risk vaccines (U.S. Patent Nos. 5,723,283; 5,728,385; 6,638,739; 6,420,139) 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. (claim 1 of ‘283 patent)

52. Nutter McClennen & Fish LLP www.nutter.com52 Classen Immunotherapies, Inc. v. Biogen Idec, Supp. 2d 452, 2005 U.S. Dist. LEXIS 17075 (D. Md 2005) “Although articulated as a process, the 283 patent does not claim a specific technique or technical process of testing vaccine safety. Instead, the 283 patent describes only a general inquiry of whether the proposed correlation … exists.” “Clearly, the correlation between vaccination schedules and the incidence of immune mediated disorders that Dr. Classen claims to have discovered is a natural phenomenon.”

53. Nutter McClennen & Fish LLP www.nutter.com53 Classen “As such, the process is indistiguishable from the idea itself. Accordingly, the 283 patent seeks to patent an unpatentable natural phenomenon.” The 139 and 739 patents were also deemed as patent-ineligible even though they included the active step of immunizing patients in accordance with a schedule determined to be low risk

54. Nutter McClennen & Fish LLP www.nutter.com54 Classen Immunotherapies, Inc. v. Biogen Idec, 304 Fed. Appx. 866, 2008 U.S. App. LEXIS 25661 (Fed. Cir. 2008) “In light of our decision in In re Bilski …, we affirm the district court’s grant of summary judgment that these claims are invalid under 35 U.S.C. 101.” Classen’s claims are neither tied to a particular machine or apparatus, nor do they transform a particular article into a different state or thing

55. Nutter McClennen & Fish LLP www.nutter.com55 Prometheus Laboratories Inc. v. Mayo Collaborative Services Fed. Supp. 2d, 2008 WL 878910 (S.D.Cal 2008) Patents were directed to methods of measuring the level of certain metabolites (6-thioguinine and 6-methylmercaptopurine) in blood of patients taking certain drugs for autoimmune diseases and indicating that the adjustment of the drug dosage may be required based on the measurements to avoid toxic side effects. U.S. Patent Nos. 6,355,623 and 6,680,302 The claims embody only the correlations between the level of metabolites and therapeutic efficacy and toxicity in patients taking the drug. The court deems the correlations deemed as “natural phenomena.” Patents are invalid as directed to patent-ineligible subject matter.

56. Nutter McClennen & Fish LLP World Trade Center West 155 Seaport Boulevard Boston, Massachusetts 02210 Telephone 617.439.2000 www.nutter.com In re Bilski Part 5, Strategies

57. Nutter McClennen & Fish LLP www.nutter.com57 Tips for Success (1)Keep Filing Patent Applications (2)Include Sufficient Disclosure -How is data gathered? -What does data represent? -How is data transformed? (3)Draft Claims In View of Recent PTO Guidelines (4)Include Claims of Varying Scope (5)Review Existing Portfolio (6)Watch For the Supreme Court Decision

58. Nutter McClennen & Fish LLP www.nutter.com58 The End Thank you Thomas Engellenner Reza Mollaaghababa Michael Doyle Nutter, McClennen & Fish, LLP Boston