Not being a US patent attorney and not possessing any expertise in US patent law, I am not in a position to comment on the CAFC’s Bilski decision handed down yesterday. However, I do know a few people who are, so I have been in touch with them to get their reactions. Below is what I have had so far. I will continue to add to these until the beginning of next week (3rd/4th November will be the cut-off).

Of note, it seems to me, is that two correspondents have specifically commented that the way the judgment is framed makes it difficult for the Supreme Court to take the case on. Anyway, here is what people have to say. 

From IBM Research, Development & Intellectual Property:

IBM welcomes today's en banc Federal Circuit decision in the In re Bilski case, as it excludes from patent eligibility business method inventions that are not tied to a machine or transformative of an article. The Federal Circuit's "machine-or-transformation" test was a primary component of the test that IBM advocated in our amicus brief.

The ruling applies a principled limitation on the scope of processes eligible for patent protection that should curtail the negative effects of the 1998 State Street decision. That ruling has been interpreted to expand patentable subject matter to include inchoate business methods. Patentability of such methods is contrary to the purpose of the patent laws, is not needed to encourage innovation, and results in an imbalance in the patent system.

IBM commends the Federal Circuit for clarifying that the "useful, concrete, and tangible result" inquiry set forth in dicta in State Street is insufficient to determine whether a claim defines patent eligible subject matter.

Pavan Agarwal, chair electronics practice, and Ed Polk, senior counsel IP litigation practice, Foley & Lardner,  Washington DC

In its Bilski decision issued today, the en banc Federal Circuit sought to stay true to US Supreme Court precedent in outlining the test for patent eligible subject matter for processes. The court carefully evaluated the Supreme Court precedent and adopted what it believed to be a test centered around the core principle of whether granting protection to a particular application would completely pre-empt use of a fundamental principle or just foreclose a particular application of that fundamental principle. The court spoke with clarity in affirming that business method patents can be patent eligible if they meet the machine-or-transformation test. The court, however, did leave open whether a process is tied to a machine by reciting a computer. This will keep the door to challenges, as well as applicants seeking patent protection, at the boundaries.

Notably, two dissenting opinions believed that the court placed new restrictions on the scope of § 101 that were inconsistent with prior Supreme Court precedent excluding only laws of nature, natural phenomena and abstraction ideas from § 101 and with Congressional intent of broadly interpreting § 101 to cover nearly "any" new and useful process. The other dissenting opinion believed that the court had not gone far enough to rid the patent system of business method patents and that the § 101 test adopted by the Federal Circuit would be easily circumvented. Collectively, these dissents illustrate the varied scope of thinking of the potential scope of § 101.

Stephen Kunin, partner, Oblon Spivak, Alexandria

The CAFC carefully stated that it was not announcing any new exclusions against business method patents or software. It averred that: “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.”

The court applied a test focused on whether a claimed process would completely pre-empt use of a fundamental principle or just foreclose a practical application of that fundamental principle. The court made clear that business method patents and software patents can be patent eligible if they meet the particular machine-or-physical transformation test.

Significantly, the court left open whether a process is “tied” to a particular machine by reciting a computer. The court indicated that the use of a specific machine or transformation of an article must impose “meaningful limits” on the claim’s scope to effect patent eligibility. The court stated the recited machine or transformation must not constitute “insignificant post solution activity.” In addition: “Mere field-of-use limitations are generally insufficient to render an otherwise ineligible process claim patent eligible.” This will require clarification by the court in the future.

The court also emphasised that a claim must be analysed as a whole and not focus on the individual limitations in the claim, noting that: “Even though a fundamental principle itself is not patent-eligible, processes incorporating a fundamental principle may be patent-eligible.”

The court noted that: “To be sure, a process tied to a particular machine, or transforming or reducing a particular article into a different state or thing, will generally produce a ‘concrete’ and ‘tangible’ result.” Looking for a “useful, concrete, and tangible result”, the court suggested, may in fact be a useful tool for analysing whether a claim is drawn to a fundamental principle or a practical application. However, the court held that the “useful, concrete, and tangible result” test was insufficient in and of itself to determine patent-eligibility.

The court also stated that data transformations that represents real world objects like bones or organs, can be sufficient. However, the court stated that it is insufficient to add a data-gathering step without specifying how the data is gathered.

The court did not define the test for patent eligibility of machines and manufactures such as computer program product and data structures stored in memory under § 101.

Michael Sandonato, partner, Fitzpatrick Cella Harpo & Scinto, New York:

Today, the United States Court of Appeals for the Federal Circuit issued its opinion in In re Bilski a decision having a high degree of relevance to the patentability of business method, software and Internet-related inventions. Addressing the standard for determining whether a process constitutes patent-eligible subject matter under 35 USC Section 101, the court has now adopted a so-called "machine-or-transformation test", holding that to pass muster under Section 101 a process must either (1) be "tied to a particular machine or apparatus"; or (2) "transform a particular article into a different thing or state". In so doing, the court has expressly abandoned several of its earlier tests, including the decade-old "useful, concrete and tangible result test" of State Street, and declined to adopt a "technological arts" requirement that many would have liked to have seen. Addressing the specifics of the facts before it, the court affirmed the USPTO's finding that claims directed to a method of managing risk by entering into contracts to hedge investments, were unpatentable under Section 101.

With Judge Michel writing for the majority, the Federal Circuit began its analysis by enunciating that the meaning of "process" as used in Section 101 is narrower than its ordinary meaning, and does not include fundamental principles, abstract ideas or mental processes. Recognising that the inquiry as to whether a process qualifies is "hardly straightforward", the court fashioned the machine-or-transformation test from its reading of earlier Supreme Court decisions, most notably Benson (1972), Flook (1979) and Diehr (1981). The court acknowledged, however, that "future developments in technology and the sciences may present difficult challenges" to its machine-or-transformation test, and left open the possibility that it may in the future refine or augment the test or how it is applied.

The test is a two-branched inquiry which may be satisfied by showing either that the claim is tied to a machine or that the claim transforms the article. Because the patent applicants had admitted that their claims were not tied to a machine, the court opted to leave it to future cases to elaborate on "the precise contours of machine implementation", including the very important question of "whether or when recitation of a computer suffices". The opinion does seem to indicate, however, that when the process at issue "has no other utility other than operating on a digital computer", the machine prong of the test may not be satisfied. On the transformation prong, the opinion acknowledges that many modern process inventions operate on electronic signals and data, and sometimes even on things like legal obligations and business risks, and concludes that its prior case law sufficiently illustrates the parameters of what constitutes an appropriate level of transformation. In analysing the specific claims before it, the court finds them unpatentable, holding that: "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."

The court spends several pages revisiting prior tests for patent-eligibility under Section 101 and disavowing them. Most notably, the Federal Circuit finds the "useful, concrete and tangible result" test of State Street, which opened the floodgates for the patenting of business methods 10 years ago, to be inadequate, holding expressly that that test "should no longer be relied upon". At the same time, the court rejects categorical exclusions to patentability and thus reaffirms that portion of State Street which rejects the "business method exception to patentability". The opinion similarly rejects the creation of a "technological arts test", finding the meaning of the term "technology" to be "ambiguous and ever changing".

John Dragseth, principal, Fish & Richardson, Twin Cities office

The Bilski case represents a very big issue, but a not-so-big decision. That is because, although software, business methods, medical diagnostic procedures and other innovations that might have been affected by Bilski are very important, very few of them were truly affected. Instead, the court took a fairly measured approach and used direct quotes from prior Supreme Court decisions to fashion its rule for patentability of method claims.

The decision's effect will also be muted because, although it probably kills "pure" business method claims (i.e., those that are not tied to a computer or other apparatus in any manner), very few of those claims were being granted by the Patent Office recently in any event – because of the Office's "second set of eyes" review for any business method claims that an initial examiner wanted to issue.

Many wonder what effect the decision will have on more traditional forms of software patents and medical process patents. The answer is that, while certain patents at the edges will be invalidated, most existing should survive. Moreover, moving forward, it should not be difficult to draft claims in a manner that they will pass the test of Bilski and will still provide complete coverage for an invention. In addition, by ruling against Bilski's claims, the Federal Circuit has effectively blunted the ability of the Supreme Court to make sweeping changes in the law that would result in the invalidation of massive numbers of software or medical method patents.

Moving forward, patent applicants in these border areas will want to make a check of each independent claim to make sure that it passes the Bilski test. Where an applicant wants to push the edges, they can draft a very broad independent claim, and then add some dependent claims that will definitely survive the Bilski test even if the independent claims do not. Also, patentees may want to look at their existing portfolios of patents to ensure that those patents - or at least the crown jewel patents - pass the Bilski test. If they do not or might not, the patentee may want to correct the error in the Patent Office, via a process known as reissue.

Bruce Wieder, partner, Dow Lohnes PLLC, Washington DC 

Bilski is important both for what it does and what it does not. It adopts the machine-or-transformation test and abandons both the Freeman-Walter-Abele test, calling it “inadequate” and the “useful, concrete and tangible result” test of State Street, calling it “insufficient”.

Bilski specifically “reject[ed] calls for categorical exclusions”, such as the wholesale exclusion of business method or software patents. Under the machine-or-transformation test, a claim is patent-eligible subject matter only if the “claim is tied to a particular machine” or the “claim transforms an article”. But, “the use of a specific machine or transformation of an article” must impose meaningful limits on the claim’s scope to impart patent-eligibility and “the involvement of the machine or transformation in the claimed process must not merely be insignificant extra-solution activity”.

Use of the test is not optional. The Federal Circuit held that “the machine-or-transformation test is the only applicable test and must be applied….”

Bilski is likely to seek review by the Supreme Court. However, the Federal Circuit went to great lengths to cite Supreme Court precedent and explain how it was following that precedent, thus seeking to minimise the chance that a petition for certiorari would be granted.

The Patent Resources Group, Charlottesville

The court acknowledged that: "The Supreme Court may ultimately decide to alter or perhaps even set aside this test to accommodate emerging technologies," and that the Federal Circuit itself "may in the future refine or augment the test or how it is applied."

The court’s decision thus leaves the future of process patents, including business method patents, uncertain. Inventors, their employers, investors and competitors are unable to predict with any reasonable degree of assurance how their process patents and patent applications, and those of their competitors, will fare in the USPTO and courts. 

I also got a press release from Ocean Tomo stating that the Bilski decision will bring about few changes, so the value of most business method patent portfolios is likely to unaffected:

The Federal Circuit’s en banc decision in In re Bilski, while closely watched, is unlikely to substantially change the scope of subject matter eligible for so-called business method patents or to alter the value of business method portfolios. The court, relying on a detailed analysis of Supreme Court precedent, articulated a “machine or transformation test” for patentability. Under this test: “An applicant may show that a process claim satisfies §101 either by showing that his claim is tied to a particular machine, or by showing that his claim transforms an article.” However, because the claim at issue in Bilski was admitted to be “not limited to operation on a computer”, or to carrying out the process by “any specific machine or apparatus”, the court expressly declined to consider the contours of the machine implementation alternative. “[I]ssues specific to the machine implementation part of the test are not before us today. We leave to 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.”

The court also made clear that the “transformation” test is broad. For example, it noted that a claim direct to the “transformation” of the depiction of a physical object on a visual display meets that test. Perhaps of greatest significance, the court overruled the “useful, concrete and tangible result” test established in State Street, holding that it was “insufficient to determine whether a claim is patentable subject matter under §101”. But while this test is no longer the law, the new test will likely not alter the ultimate answer to the question as applied to particular business methods.

Business method patents commonly claim implementation by computer. Accordingly, the court’s refusal to consider “whether or when recitation of a computer” is sufficient to render a process claim patentable means that the practical impact of Bilski should be limited. Absent development of further case law which squarely addresses this point, Bilski does not appear to materially change the business method patent landscape, or alter valuations of these patents.

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IP litigation, Patents, IP business

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