Are Process Patents Passé?
Intellectual Property Law Update 01/09/09 Dale F. Regelman
In October 2008, the Court of Appeals for the Federal Circuit redefined the test for determining whether a business method is patent-eligible. In its long-awaited In re Bilski decision, the Federal Circuit abandoned a decade-old test and clarified the Supreme Court's nearly 40-year-old decision that process inventions are patent-eligible. In re Bilski, 545 F.3d 943 (Fed. Cir. Oct. 30, 2008) (en banc). See Gottschalk v. Benson, 409 U.S. 63 (1972). The impact of the new test, now more narrow but better defined, will affect patent drafting, acquisition and litigation strategies, not only in the financial and software industries described in Bilski, but for any company that relies on proprietary processes.
What You Need to Know
Process patent claims should be tied to a machine, apparatus or transformed article or other patent-eligible subject matter.
When acquiring a company with registered process patents, consider reducing the offered price if process patent claims do not meet the Bilski test.
Consider a review of competitor-blocking process patents to determine if a suit for invalidity is an option.
The In re Bilski decision sits against a backdrop of a patent system shaped by the United States Constitution, the United States Code and the courts. The Constitution couples innovation with intellectual property protection so that owners of publicly disclosed inventions are given the right to exclude others from practicing the invention for a limited period of time. See U.S. Const. art. 1 §8. Under the United States Code, the exclusionary rights are available for new, useful and non-obvious inventions that fall under patentable subject matter, including "process, machine, manufacture, or composition of matter." 35 U.S.C. §§ 101-103. Patentable subject matter excludes laws of nature, natural phenomena and abstract ideas. Diamond v. Diehr, 450 U.S. 175 (1981). The challenge before the Federal Court in the In re Bilski case was to apply these principles to a patent relating to the globalizing information economy.
The Bilski claims are directed to methods for hedging risks in the field of commodities trading. The claimed inventions describe an intermediary party managing consumption risks by buying commodities at a fixed price and selling the commodities at a different fixed price. In this manner, market price fluctuations of the commodities are mitigated for the intermediary's buyers and sellers.
The Federal Circuit had to determine whether a method claim for hedging risks fell within the boundaries of patentable subject matter. Nearly 40 amici briefs were submitted from organizations such as American Express, the financial services industry (including Bank of America Corporation, the Clearing House Association L.L.C., Lehman Brothers Inc., the Financial Services Roundtable, MetLife, Inc., Morgan Stanley and Wachovia Corporation) and IBM, expressing distinct and sometimes opposing concerns about the impact of the decision in the information age. For example, the financial services industry amici expressed fear that, under the current standard, business method patents may protect abstract ideas, threatening "innovation, consumer welfare, and economic efficiency." Brief for Financial Services Industry as Amici Curiae in Support of Affirmanol at 4, In re Brenard L. Bilski and Rand A. Warsaw, No. 2007-1130 (Fed Cir. April 7, 2008). In contrast, American Express argued that the decade-old test was adequate and that business methods need not result in a physical transformation in order to constitute patentable subject matter. Brief for Amicus Curiae American Express Company in support of Appellants at 2, In re Brenard L. Bilski and Rand A. Warsaw, No. 2007-1130 (Fed Cir. April 7, 2008).
The en banc court held that the Bilski application claimed an invention that did not constitute patent-eligible subject matter. The Federal Circuit first assessed its previous tests, declaring them to be "inadequate." Thereafter, the Federal Circuit determined the two-prong Supreme Court test as the appropriate test, in which a process is considered patent-eligible if "(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing." In re Bilski, 545 F.3d at 954 (emphasis in original). The Federal Circuit added two caveats to the "machine-or-transformation" test: "First, the use of a specific machine or transformation of an article must impose meaningful limits on the claim's scope to impact patent-eligibility. . . . Second, the involvement of the machine or transformation in the claimed process must not merely be insignificant extra-solution activity." Id. at 962.
The Bilski claimed invention failed the test. In answer to the first prong, the appellants conceded that the claimed method could be implemented without a physical device (e.g., a computer). Addressing the second prong, the Federal Circuit held that Bilski's method for hedging was a non-transformative mental process involving fundamental hedging concepts and inherent mathematical calculations. The court stated that the "[p]urported 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 substance." Finally, the Federal Circuit held that limiting the scope of hedging to the area of consumable commodities was insufficient to traverse the threshold to patent eligibility because field-of-use limitations "are insufficient to impart patent-eligibility to otherwise unpatentable claims drawn to fundamental principles." Id. at 966 (citing Diehr, 450 U.S. at 191-192).
While the general impact of the Federal Circuit's decision in In re Bilski is presently unclear, the decision will have far-reaching influence into patent drafting, acquisition and litigation strategies for business method inventions. For example, in a December 19, 2008 decision, the Federal Circuit upheld the invalidity of biotech claims under In re Bilski. Classen Immunotherapies v. Biogen IDEC, 2008 WL 5273107 (Fed. Cir. 2008). Claim 1 at issue in Classen Immunotherapies reads:
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.
The Federal Circuit, employing fewer words in its decision than are recited by the claim at issue, held the claim to be invalid. "In light of our decision in In re Bilski, 545 F.3d 943 (Fed. Cir. 2008) (en banc), we affirm the district court's grant of summary judgment that these claims are invalid under 35 U.S.C. § 101. Dr. 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.' Bilski, 545 F.3d at 954. Therefore we affirm." Id. at *1.
On the other hand, on December 3, 2008, the U.S. Patent and Trademark Office (PTO) biotechnology, chemical and pharmaceuticals (BCP) technology groups held their most recent quarterly customer partnership meeting. During one of six presentations, a Quality Assurance Specialist from the PTO Technology Center 1600, presented "A Look at Personalized Medicine." The presentation featured several examples showing how relationships between genotype and drug treatment could be claimed. A recommended claim was presented as:
A method for treating a human subject having breast cancer, with the method comprising:
obtaining a nucleic acid sample from said human subject;
subjecting the sample to PCR and identifying the nucleotide present at position 101 of SEQ ID NO:1; and
treating the human subject with "breast cancer drug X" when a cytosine is detected at position 101 of SEQ ID NO:1.
Interestingly, the PTO Specialist did not specifically address compliance of this hypothetical claim with the requirements of In re Bilski, but noted that treatment methods are clearly statutory subject matter (in the U.S.). While medical treatments methods certainly were patentable pre-Bilski, it is not clear that such claims are necessarily either "transformative" or "machine-implemented." This being the case, the patentability of medical treatment claims post-Bilski remains unclear.
Patent prosecutors should use the "machine-or-transformation" test and accompanying explanations of the Federal Circuit to craft claims that are tied to a machine, apparatus or transformed article. For example, if the invention is directed to the transformation of data that does not represent anything physical, the patent drafter may have difficultly prosecuting the respective claims. After Bilski, the invention would be better claimed in the context of data transformation by a particular machine or system, or claimed as an invention under a different patent-eligible subject matter such as a means-plus function or an apparatus claim. See Ex Parte Bo Li at 9, No. 2008-1213, (Board of Patent Appeals and Interferences November 6, 2008) (Finding In re Bilski test not applicable for Beauregard claim).
Acquirers of patents should also pay close attention to whether any patents being purchased that include process claims are tied to a machine, apparatus or transformed article. If they are not, the acquirer may wish to request a reduction in transaction price, either because of the questionable value of the process-only claims after Bilski, or for the funds the acquirer will need to pursue re-issue or continuation filings so that the PTO may evaluate new claims relating to those patents in light of Bilski. If successful, the new claims will have a prima facie presumption of validity, post Bilski.
Method and process claims are likely to face invalidity attacks under In re Bilski. Future and pending litigations may have to scrutinize whether process claims in dispute are tied to a machine, apparatus or transformed article. For example, amicus brief participant Bank of America recently argued that a patent claim at suit against Every Penny Counts Inc. is invalid under In re Bilski and requested the re-opening of discovery in the suit. Motion to Amend Case Management and Scheduling Order, Every Penny Counts v. Bank of America Corp. et al., No. 2:07-CV-0042 (M.D. Fl., December 8, 2008).
The evolution of today's economy, from manufacturing-based to one based on information processing, has produced fertile land for innovation. The United States patent system has supported process claims as patent-eligible as long as they have existed within the confines of practical applications. While the Federal Circuit has decided to continue to do so in its In re Bilski decision, declining to exclude software or other specific category subject matter from the patent arena, it has narrowed the scope of patent-eligible process inventions to more closely align to the Supreme Court's test and overturned a decade of process patent case law. See In re Bilski, 545 F.3d 943 n. 23 (2008). ("Although invited to do so by several amici, we decline to adopt a broad exclusion over software or any other such category of subject matter beyond the exclusion of claims drawn to fundamental principles set forth by the Supreme Court.") This will create uncertainty in the value of patent assets based on process claims that do not comply with Bilski, to the detriment of some and to the benefit of others. Strategically reviewing relevant patent portfolios will be the difference between those companies that suffer and those that benefit from this decision.
For more information, please contact Dale Regelman 520-770-8703 / firstname.lastname@example.org or your Quarles & Brady attorney.