Marks for Cannabis and Cannabis-derived Goods and Services after Enactment on the 2018 Farm Bill

On December 20, 2018, the 2018 Farm Bill was signed into law and hemp-derived cannabidiol (CBD) was removed from the Controlled Substance Act (CSA). To comply with the enactment of the 2018 Farm Bill, on May 2, 2019, the United States Patent and Trademark Office (USPTO) published Examination Guide 1-19 to elaborate the procedure for examining marks for cannabis and cannabis-derived goods in regard to trademark registration.

Specifically in the Examination Guide, the USPTO clarifies that trademark applicants must specify that their goods are derived from “hemp, or cannabis with no more than 0.3% concertation of a delta-9 terahydrocannabinol (THC) on a dry-weight basis,” because the 2018 Farm Bill removed hemp from the CSA’s definition of marijuana and cannabis plants and its derivatives such as CBD that contain less than 0.3% THC on a dry-weight basis are no longer considered as controlled substances under CSA.

The USPTO also states that trademark applications that involve CBD or cannabis filed before the 2018 Farm Bill (December 20, 2018) will be refused due to the unlawful use or lack of bona fide intent to use in lawful commerce under the CSA. However, trademark applications that involved CBS or cannabis filed on or after December 20, 2018 may be accepted as long as the USPTO examined the goods that are derived from hemp or Cannabis/CBD that contain less than 0.3% THC on a dry-weight basis.

However, registration of marks for foods, beverages, dietary supplements, or pet treatments containing CBD or cannabis will still be refused for trademark registration, even if the goods are derived from hemp or Cannabis/CBD less than 0.3% THC on a dry-weight basis, because the Federal Food Drug and Cosmetic Act (FDCA) stated that goods that are currently undergoing clinical trials cannot be lawfully introduced into interstate commerce.

Inter Partes Review: Challenging Amended Claims

By Michael Ginsberg

An Inter Partes Review (IPR) is a procedure for challenging the validity of a United States patent and is conducted by the Patent Trial and Appeal Board (PTAB).

Under Section 311(b) of the Patent Act, someone may only challenge a patent using an IPR only under the grounds that could be raised under 35 U.S.C. Section 102 (which generally relates to when an invention is already public) or Section 103 (which provides that a patentable invention must not have been obvious to a “person having ordinary skill in the art”).

Additionally, the challenge can be made only based on the existence of a prior art. A patent owner can amend their patent claims for reexamination if their patent is found to be ineligible under an IPR and the reexamination would once again be an IPR conducted by the PTAB.

In the case, Amazon.com Inc. v. Uniloc Luxembourg SA, Amazon challenged and filed for an IPR for claims 1-25 for one of Uniloc’s patents. Uniloc then filed a Contingent Motion to Amend, which meant that if claims 1, 22 and 25 were found to be unpatentable, Uniloc would be able to replace those claims with claims 26, 27 and 28.

In response to the Contingent Motion to Amend, Amazon filed an Opposition to the Motion to Amend on the grounds that the amended claims (claims 26, 27 and 28) were not an eligible subject matter under Section 101.

However, under Section 311(b) of the Patent Act it states that, you can petition for an IPR, “only on a ground that could be raised under Section 102 or 103”.  Knowing this Uniloc, instead of arguing how its patent was indeed an eligible subject matter under Section 101, argued that Amazon was not permitted to challenge a Section 101 issue in an IPR.

Despite Uniloc’s argument, the PTAB made a determination on both the original and amended claims. Not only did it rule the original claims 1, 22 and 25 patent ineligible but it additionally ruled the amended claims 26, 27 and 28 patent ineligible under the grounds of Section 101.

The PTAB justified its decision to rule on the substituted claims even though it was not a Section 102 or 103 issue. It pointed out how while the law in Section 311(b) prevents it from considering the patentability of a claim under other grounds, it did not extend that same restriction to the PTAB for considering the patentability of an amended claim under other grounds.

The PTAB emphasized that there is a difference between a claim and an amended claim to justify why the PTAB was able to consider different grounds when determining the patent eligibility of an amended claim. The main difference between a claim and an amended claim is that the amended claim can only be added in after “a final written decision and action of the Director” had already taken place.

In conclusion, the consequence of this case is that the PTAB can deny a substituted or amended claim based on grounds other than those found in Sections 102 and 103.  

Fort Properties, Inc. v. American Master Lease LLC

By Zi Wang

In Fort Properties, Inc. v. American Master Lease LLC, 2012 WL 603969 (Fed. Cir. 2012), the Federal Circuit affirmed the district court’s holding that a method patent for creating real estate investment instrument adapted for performing tax-deferred exchanges is invalid because it is directed at an unpatentable abstract idea, even though the claim language of the patent at issue recited a computer in certain operations.

American Master Lease LLC (“AML”) holds the ‘788 patent at issue.  The ‘788 patent discloses an investment tool designed to enable property owners to buy and sell properties without incurring tax liability pursuant to a tax law provision that exempts certain investment property exchanges when an owner of investment property exchanges one property for another of like kind and certain conditions are met.

Specifically, the claims require the aggregation of a number of properties into a “real estate portfolio.”  The property interests in this portfolio are then divided into shares, called “deedshares”, and are sold to investors much in the same way that a company sells stock.  Each deedshare can be encumbered by its own mortgage debt, which provides flexibility to real estate investors attempting to structure their debts in a way that complies with the exemption provision of tax law.

All claims in the ‘788 patent are method claims.  Claim 1 discloses:

  1. A method of creating a real estate investment instrument adapted for performing tax-deferred exchanges comprising:

aggregating real property to form a real estate portfolio;

encumbering the property in the real estate portfolio with a master agreements; and

creating a plurality of deedshares by dividing title in the real estate portfolio into a plurality of tenant-in-common deeds of at least one predetermined denomination, each of the plurality of deedshares subject to a provision in the master agreement for reaggregating the plurality of tenant-in-common deeds after a specified interval.

Two of the other independent claims, claims 22 and 32, are nearly identical to claim 1—though claim 32 contains an additional limitation requiring a computer to “generate a plurality of deedshares.”  The only other independent claim, claim 11, discloses a method of transferring ownership of deedshares in a manner consistent with the tax law provision discussed above.

Fort Properties, Inc. brought action against AML and moved for summary judgment of invalidity in the district court.  The district court invalidated all claims in the ‘788 patent for failing to claim patent-eligible subject matter under 35 U.S.C. § 101.  In reaching its decision, the district court relied on In re Bilski, 545 F.3d 943 (Fed. Cir. 2008) and applied the machine-or-transformation test.  The court held that the patent failed both prongs of the test and accordingly invalidated the whole patent.  AML appealed the decision to the Federal Circuit.

In its opinion, The Federal Circuit cited to four seminal Supreme Court cases that deal with the question of when an invention qualifies as a patent-eligible process as opposed to an abstract idea, namely, Bilski v. Kappos, 130 S.Ct. 3218 (2010); Diamond v. Diehr, 450 U.S. 175 (1985); Parker v. Flook, 437 U.S. 584 (1978); and Gottschalk v. Benson, 409 U.S. 63 (1972).  The Federal Circuit analogized the invention in the ‘788 patent to the invention in Bilski, which is an investment tool not requiring the use of a computer.

AML argued that claims 1-31 constitute a patentable process and not an abstract idea because they require a series of steps to take place in the real world that involve real property, deeds, and contracts.  More specifically, AML contended that the deeds remove the invention from the realm of the abstract because they are physical legal documents signifying real property ownership.  Fort Properties, on the other hand, argued that the claimed method of aggregating property, making it subject to an agreement, and then issuing ownership interests to multiple parties consists entirely of mental processes and abstract intellectual concepts.  Fort Properties pointed out that the Bilski invention’s intertwinement with deeds, contracts, and real property does not transform the abstract method into a patentable process.

The Federal Circuit sided with Fort Properties and drew extensive similarities between the invention at issue and the Bilski invention.  The Federal Circuit further stated that its reasoning is in accord with its own precedent in In re Comiskey, 554 F.3d 967 (Fed. Cir. 2009), and in In re Schrader, 22 F.3d 290 (Fed. Cir. 1994).

The court then turned to the question of how claim limitations involving computers apply in the § 101 analysis.  The court relied on three of its own 2011 and 2012 cases: Cybersource v. Retail Decisions, Inc., 654 F.3d 1366 (Fed. Cir. 2011); Ultramercial, LLC v. Hulu, LLC, 657 F.3d 1323 (Fed. Cir. 2011); and Dealertrack, Inc. v. Huber, 2012 WL 164439 (Fed. Cir. 2012).  The court opined that the basic character of a process claim drawn to an abstract idea is not changed by claiming only its performance by computers, or by claiming the process embodied in program instructions on a computer readable medium.  Instead, to impart patent-eligibility to an otherwise unpatentable process under the theory that the process is linked to a machine, the use of the machine must impose meaningful limits on the claim’s scope.  As a positive example, the court pointed to the claimed invention in Ultramercial, which “required intricate and complex computer programming” and “specific application to the Internet and a cybermarket environment.”  The addition of the computer to the claims was not merely insignificant post-solution activity; rather, the invention
itself involved “advances in computer technology,” and it was thus sufficient to qualify the claims for patent eligibility under § 101.

The court then held that the computer limitation in the patent at issue is akin to that in Dealertrack, and does not play a significant part in permitting the claimed method to be performed.  The computer limitation here is a broad and general limitation that does not impose meaningful limits on the claim’s scope.  AML simply added a computer limitation to claims covering an abstract concept—that is, the computer limitation is simply insignificant post-solution activity.  Therefore the computer limitation cannot impart patent-eligiblity here.

In this case the Federal Circuit once again took on the task of drawing the line between patentable process claims and patent-ineligible abstract ideas after Supreme Court’s Bilski v. Kappos decision.  Together with patents in Cybersource and Dealertrack, the patent in the present case was struck down for covering unpatentable abstract ideas, recitation to computers notwithstanding.  In the most likely scenario, method patent claims that are otherwise unpatentable under § 101 will not be upheld by the court if the recitation to a computer is simply post-solution activity.  To put it in another way, if a computer merely facilitates practice of an invention, rather than enables it, the recitation to a computer in patent claims is superfluous for § 101 purposes.  On the other hand, if an invention has a complicated-enough interface with computerization that it can be described as an advance in computer technology, then Ultramercial should control and it is possible for the patent to be upheld.

Federal Circuit Says § 101 Requires “Concrete Steps” In Software Methods

By Chris Reaves

Dealertrack, Inc. v. Huber, No. 2009-1566, Fed. Cir. Jan. 20 2012

The Federal Circuit on January 20 once again addressed the question of 35 U.S.C. § 101 eligibility for a software method.   The court found the patent at issue closer to CyberSource than Ultramercial, drawing a distinction between “a practical application with concrete steps” and a mere declaration that the method is “computer-aided.”  It also looked to the interpretation of claims, expanding the rule of Phillips v. AWH to cover exemplary lists.

Background

Plaintiff Dealertrack, Inc. owns three patents related to the same concept: the use of a computer system as a loan intermediary, converting one generalized application for a car loan into several bank-specific applications and processing said applications with their respective banks.  The original patent, U.S. Patent No. 5,878,403 (‘403), was filed in 1995.  Later, 7,181,427 (‘427), patenting the computer system, was filed as a continuation-in-part, and 6,587,841 (‘841), patenting the method, was filed as a divisional application.  All three patents issued, with the latter two claiming priority to ‘403.

Dealertrack sued the defendants, Finance Express, LLC (with its president David Huber) and RouteOne, in the Central District of California, claiming their respective loan management systems infringed on all three patents.  The defendants filed motions for summary judgment on four grounds: that ‘841 was not infringed given its proper interpretation, that certain means-plus-function claims in ‘841 were invalid as indefinite under § 112, that all applicable claims of ‘427 were abstract and ineligible for patent protection under § 101, and that ‘427 did not properly claim priority to ‘403.

The district court found for Dealertrack on indefiniteness and priority but for the defendants on non-infringement and ineligibility, and dismissed the case.  Dealertrack appealed the dismissal to the Federal Circuit and the defendants cross-appealed on the indefiniteness and priority findings.  Judges Linn and Dyk, with Senior Judge Plager, heard the appeal.

Claim Interpretation: Multiple Examples Are Not Always Exhaustive

The preamble of ‘841’s independent claim 7 reads:

“A computer based method of operating a credit application and routing system, the system including a central processor coupled to a communications medium for communicating with remote application entry and display devices, remote credit bureau terminal devices, and remote funding source terminal devices . . .”  (Emphasis added.)

“A communications medium” is also one of the elements of independent claims 12 and 14.  Exemplary mediums are listed in the description as follows:

“Although illustrated as a wide area network, it should be appreciated that the communications medium could take a variety of other forms, for example, a local area network, a satellite communications network, a commercial value added network (VAN) ordinary telephone lines, or private leased lines…  The communications medium used need only provide fast reliable data communication between its users…”

During prosecution of the parent ‘403 patent, the examiner allowed “the Internet” to be added explicitly to a corresponding exemplary list, and ‘841 incorporated ‘403 by reference.  However, in its interpretation of ‘841, the district court interpreted “communications medium” to exclude the Internet, finding its omission in ‘841, in an otherwise thorough list, to be a waiver of its inclusion regardless of ‘403.  Therefore, because both the defendants’ systems used only the Internet for communication, neither had infringed.

The Federal Circuit disagreed, finding that the district court had ascribed too much importance to the list’s contents.  “The disclosure of multiple examples,” it ruled, “does not necessarily mean that such list is exhaustive or that non-enumerated examples should be excluded.”  Rather, it found the case similar to Phillips v. AWH Corp., where a single embodiment listed in a description had not necessarily limited the meaning of the corresponding claims.  Multiple examples did not change the Phillips rule, especially as the context of the ‘841 list – leading with “for example” and closing with “The communication medium used need only provide…” – indicated that it was not meant to be exhaustive.

The district court also found waiver of the term in that the “the Internet” had also been named in ‘841 but the examiner had removed the reference post-allowance.  However, the examiner had given no reason for this removal, and there was no prosecution history suggesting that Dealertrack had deliberately surrendered the term.   The Federal Circuit therefore attached no importance to this removal.  And although the defendants argued that, in 1995, the Internet would not have been seen as “reliable” or “secure” as the description required, the court found they had not presented sufficient evidence on this point.

The court also rejected arguments by the defendants to narrow the meaning of other terms in the patent, noting that explicit embodiments of the claims fell outside the supposed interpretation. It did, however, use the rule of WMS Gaming to apply disclosed software algorithms, not a computer itself, as the structure for claim 12 and 14’s “central processing means” element.  Because claim 14 also stated that the central processing means “further provides for tracking pending credit applications,” without disclosing a tracking algorithm, the court invalidated claim 14 and its dependent claims as indefinite under § 112 ¶ 6.

§ 101: Computer-Aided Methods Require “Practical Application With Concrete Steps”

Claim 1 of ‘427 reads, in total:

1. A computer aided method of managing a credit application, the method comprising the steps of:

[A] receiving credit application data from a remote application entry and display device;

[B] selectively forwarding the credit application data to remote funding source terminal devices;

[C] forwarding funding decision data from at least one of the remote funding source terminal devices to the remote application entry and display device;

[D] wherein the selectively forwarding the credit application data step further comprises:

[D1] sending at least a portion of a credit application to more than one of said remote funding sources substantially at the same time;

[D2] sending at least a portion of a credit application to more than one of said remote funding sources sequentially until a finding [sic, funding] source returns a positive funding decision;

[D3] sending at least a portion of a credit application to a first one of said remote funding sources, and then, after a predetermined time, sending to at least one other remote funding source, until one of the finding [sic, funding] sources returns a positive funding decision or until all funding sources have been exhausted; or,

[D4] sending the credit application from a first remote funding source to a second remote finding [sic, funding] source if the first funding source declines to approve the credit application.

When the district court examined ‘427 for § 101 ineligibility, the Supreme Court had yet to rule in Bilski, and the “machine or transformation” test was still definitive.  Dealertrack had conceded lack of transformation and the district court had found that a “general purpose computer” was not a “particular machine” under the existing test.

The Federal Circuit examined the case under the new standard but came to the same conclusion.  While recognizing that, as in Research Corp., abstractness must “exhibit itself so manifestly as to override the broad statutory categories of eligible subject matter,” the court found that ‘427 crossed this line.  Namely, it claimed “the basic concept of processing information through a clearing-house…”   The court found the “computer aided” limitation in the preamble equally abstract and insufficient to save the patent “without specifying any level of involvement or detail,” and distinguished ‘427 from the patent in Ultramercial, which also described “a practical application with concrete steps requiring an extensive computer interface…”  (Perhaps foolishly, Dealertrack conceded in oral arguments that ‘427 would not be § 101 eligible had “computer aided” been omitted.)

Dealertrack argued that disclosed algorithms in the description made the patent less abstract, but the court noted that the claims themselves were not limited to any algorithm, under an interpretation to which Dealertrack itself had already conceded.  The court also found irrelevant that the method was limited to car loan applications, comparing it to that of Bilski, where a method of hedging was no less abstract for being limited to the energy market.  The court therefore invalidated the applicable ‘427 claims as ineligibly abstract.

On this point alone, Senior Judge Plager dissented.  Without commenting on the thrust of the panel’s argument, he proposed that courts should “not foray into the jurisprudential morass of § 101 unless absolutely necessary” instead looking first to whether they can invalidate under other sections of the Patent Act before the court.  But the majority, while calling Plager’s goal “laudable,” noted that the Supreme Court had called § 101 a “threshold test” in Bilski.  They further noted that no other argument for ‘427’s invalidity was presented in the initial motions for summary judgment; although Dealertrack had argued that ‘427 was clearly valid under § 103, the defendants had been happy to leave that question to the jury.

Because it invalidated ‘427 under § 101, the panel did not address whether the same patent failed to claim priority to ‘403.

Post-Case Analysis: Tell Us Why You Need A Computer

The gray area between eligible and ineligible methods narrows again, albeit slower than anyone would like.  As previously noted on this blog, Ultramercial suggested three applicable factors in the analysis.  This case emphasized two: the software must be specialized and well-described in the claims, and the claim must explain why the software is necessary to the claimed method.  Had the claims in this case restricted their scope to the algorithms in the description, they might have survived the panel’s analysis.  Unfortunately, as the defendants noted in oral arguments, Dealertrack had been arguing the opposite.  Existing patent owners might be wise to concede to a narrower interpretation of their own software patents, and future drafters should include a more elaborate disclosure of the software, algorithms, and computer configurations involved.  Most importantly, the computer should be explicitly necessary, not merely helpful, to the claimed method.

Many commenters (including both Chief Judge Randall Rader and Professor Dennis Crouch of the University of Missouri) have argued, like Plager, that § 101’s jurisprudence is unpredictable and overused, and that public policy should encourage its disuse.  A few have gone farther and proposed that § 101 should be reinterpreted by the courts or rewritten by Congress to allow truly “anything under the sun,” leaving the rest of the Act in place to catch the existing, obvious, or abstract.  To both groups, the majority’s response to Plager will be a serious disappointment, and a step back from the direction suggested in Classen and Ultramercial (albeit in apparent dicta).  If § 101 is indeed a threshold in the sense of “it must be considered,” and if its borders remain vague, defendants will have little reason not to include an ineligibility argument against method claims and hope for the best.  We can hope that the Supreme Court itself will clarify the standard in Mayo Collaborative Services v. Prometheus Labs, but with its past pattern of insisting on a case-by-case analysis, it is more likely to leave the Federal Circuit buried in § 101 cases.

Less vogue a topic but still important is the ruling on ‘841’s interpretation.  Exemplary but non-exhaustive lists of embodiments are common practice, and the court’s opinion protects the resulting patents from unintended limitations.  However, Dealertrack was in part protected by the Internet’s mention in the issuing parent patent; other patents are unlikely to have this extra safety net.  Therefore, a good patent drafter should still make it absolutely clear in context that such lists are indeed non-exhaustive, with phrases such as “for example”, “include but is not limited to”, “many other embodiments and modifications should be apparent”, and “need only [do X] to meet the needs of the invention”.

For software patent prosecutors, this case is also a good reminder of the WMG Gaming rule: means-plus-function claims cannot be satisfied with disclosure of “a computer” or similar.  Only a computer with specific algorithms or software for the job will do.  Any good draft should therefore either avoid means-plus-function language or be as exhaustive as possible in the description.

The opinion is available at: http://www.cafc.uscourts.gov/images/stories/opinions-orders/09-1566.pdf

Oral arguments may be heard at: http://oralarguments.cafc.uscourts.gov/default.aspx?fl=2009-1566.mp3

For Rader’s comments on § 101, see Classen Immunotherapies Inc. v. Biogen IDEC, 100 USPQ2d 1492, 1505-07 (Fed. Cir. 2011).  For Crouch’s, see Operating Efficiently Post-Bilski by Ordering Patent Doctrine Decision-Making, 25 Berkeley Tech. L.J. 1673 (2010).

Federal Circuit Clarified Abstractness in the Context of Software

Court Finds Software Patentable Unless Unmistakably Abstract

In Research Corp. Technologies, Inc. v. Microsoft Corp., Civ. Case. No. 10-1037 (Fed. Cir. December 8, 2010), Research Corporation Technologies, Inc. (“RCT”) owns six related patents: U.S. Patent Nos. 5,111,310 (“’310 patent”); 5,341,228 (“’228 patent”); 5,477,305 (“’305 patent”); 5,543,941 (“’941 patent”); 5,708,518 (“’518 patent”); and 5,726,772 (“’772 patent”).  The six related patents relate to digital image half toning which allows a computer to create more colors than otherwise possible with the limited number of pixel colors available in a typical printer.  In order to measure the quality of the half toning, the inventors created a method of detecting a power spectrum which measures the frequency of the dots used to create the half tone and compares this power spectrum to an ideal spectrum stored in a mask.  By comparing the stored mask and detected power spectrum, the method determines half tone quality. Continue reading Federal Circuit Clarified Abstractness in the Context of Software

Supreme Court Confirms Broad Standard for Patentability

Supreme Court Rejects Precluding Business Method from Patentability

In Bilski et al. v. Kappos, 561 U.S. ____ (2010) June 29th, 2010, appellant, Bernard L. Bilski seeks a patent on a procedure for instructing buyers and sellers on protection against price fluctuations in a certain subsection of the economy.  The application consisted of two key claims: the description of a series of steps instructing how to hedge risk; and reducing the procedure to a mathematical formula.

The application was rejected by the examiner, the Board of Patent Appeals and Interferences, and the United States Court of Appeals for the Federal Circuit.  The Court of Appeals used the “machine or transformation test” as the sole test for section 101 of the Patent Act analysis in rejecting the application.  It stated that, “a claimed process is surely patent eligible under 101 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 943, 954.

The Supreme Court said the Court of Appeals incorrectly used “machine or transformation” test as the sole test for section 101.  Relying on a series of past Court precedent, the court held that the “machine or transformative test is a useful tool, but not the sole test for deciding patent eligibility.  The Court was also concerned that a strict reliance on this test would “create uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals.” Bilski, 561 U.S.______ (2010).

The Court also looked at the language of 35 U.S.C. 273, in particular the phrase, “a method in [a] patent.”  From this language, and interpretation of case history, the court stated that there are at least some circumstances where a business method may be eligible for patenting under 101.  The Court however warned that a high standard needed to be set when dealing with such applications, in order to have the proper balance between flooding patent examiners and courts with frivolous applications, and protecting valid applications.  Unfortunately, the Court declined to delineate the balance.

After stating that Bilski’s application was not necessarily outside the principles stated above, the Court then held that the application was not patentable because all that was being claimed were two things: the concept of hedging, which is well-known, and an algorithm, which is an abstract idea.

Filing a patent application for an algorithm alone is not valid, as the Court showed in case precedent.  In Benson, 409 U.S., at 64-67, the Court held that an algorithm to convert binary-coded decimal numerals into binary was not a process, but an unpatentable abstract idea.  Building on this, in Flook, 437 U.S., there was an application for a procedure to monitor conditions during the catalytic conversion process in the petrochemical and oil-refining industries.  Note that the catalytic conversion process was well known in the industry.  The only innovation here was the mathematical algorithm describing the procedure.  The Court held because the key mathematical algorithm “was assumed to be within the prior art, the application, considered as a whole, contained no patentable invention.”  Id., at 594.

 

The Court differentiated those two rejections with the different  result held in Diehr, 450 U.S.  Here, an application was filed for a previously unknown way of curing synthetic rubber into new products using a mathematical formula to complete some of its several steps by way of a computer.  Diehr, 450 U.S. at 177.  That court found that the patent in Diehr was for an application of a law of nature or mathematical formula, not a patent for the mathematical formula itself.

“Hedging is a fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class.” D. Chorafas, Introduction to Derivative Financial Instruments 75-94 (2008).  Because hedging is essentially prior art, the only thing trying to be patented in the case at bar is the algorithm, which is just an abstract idea.

Stevens Concurrence

Justice Stevens presented the case as one key issue: “whether the machine or transformation test is the exclusive test for what constitutes a patentable “process” under 35 U.S.C. 101.”  While Stevens agrees that the machine or transformation test is not the sole test, he diverges from the majority by saying that Bilski’s application is not a “process” because it describes only a general method of engaging in business transaction, which isn’t patentable.

Stevens believes that although the majority came to the correct conclusion, their process of reasoning was incorrect.  He thinks that the majority incorrectly narrowed Bilski’s claims to hedging, and then came to the conclusion that the claims were abstract ideas.  Stevens believes that it would be more accurate to say that the hedging is a term that describes a “category of processes.”

Steven’s first argument is textual.  He first attempts to define a “process.”  He rejects the lay meaning of the word “process” in the context of patents.  Instead, Stevens starts by looking at terms adjacent to “process” in 101.  He concludes from the placement of words that a patentable “process” was not likely meant to cover any series of steps.

Next, Stevens sets up the groundwork to his conclusion by making a grand appeal to the entire history of patents.  The result of much of the history was enshrined into the Patent Act of 1952.  He notes that in pre-Colonial times that one can infer from the Statute of Monopolies that patents on business methods didn’t qualify with the very narrow exception of discoveries that were considered “state privileges.”  Then, at the time of the crafting of the Constitution, he notes that the Founders gave Congress the power to “promote the Progress of… useful arts.”  He then tries to give another textual analysis of the term “art.”  Oddly enough, while Stevens rejected using the lay meaning of the term “process,” he references Webster’s first dictionary for authority on the term “art.”  From this, he assumes that the “useful arts” at the time were the technological arts and not the business and finance fields.

Stevens then looks through cases for the next 160 years after the country’s founding, and notes that courts consistently rejected patents on methods of doing business.

Looking into the 20th century, he notes that courts began using the terms “art,” “method,” “process,” and “system” interchangeably.  By 1952, Congress changed the operative language in 101 of the Patent Act, replacing the word “art” with “process.”  However, he notes that the intent of the court had never changed; arts still excluded methods of doing business.  Then, from looking at the Committee Reports, Stevens comes to the conclusion that the Act of 1952 codified the generally understood practice that business practices were to remain not patentable.

As we looked to the end of the 20th century, Stevens notes a federal court decision implying that business methods could be patented. State Street, 149 F. 3d 1368.  Congress then passed the Act of 1999, which included 35 U.S.C. 273, which expanded defenses to patent infringement claims for “method[s] of doing or conducting business.  Thus, it appears that Congress’s intent was to reinforce the Act of 1952’s limitation of patents on business methods.

Stevens then makes more practical concerns about business methods patents.  He notes that the lack of patent protection for business methods hasn’t stifled innovation in that area; companies will always be trying to develop business methods to one-up their competition.  Furthermore, giving patent protection in that area would lead to businesses to over obsess over litigation.  After all, “if business methods could be patented, then many business decisions, no matter how small, could be potential patent violations.” Long, Information Costs in Patent and Copyright, 90 Va. L. Rev. 465, 487-488 (2004).

By the end, Stevens says that “in the absence of clear guidance from Congress, we only have limited textual, historical, and functional clues on which to rely.  Those clues all point toward the same conclusion: that petitioners’ claim is not a “process” within the meaning of 101 because methods of doing business are not, themselves, covered by the statute.”

Significance for Patent Owners and Applicants

While the issuance of the Bilski et al. v. Kappos, the resulting decision has done little to add certainty to the true definition of what constitutes a patentable process under 35 U.S.C. §101.  At the very least, the Supreme Court has confirmed that 35 U.S.C. §101 has broadly defined patentable subject matter, and is limited only when the invention is too abstract.  In applying this abstractness test in the context of a process, 35 U.S.C. §101 encompasses at least those processes which are tied to a machine or transform data.  Thus, while the Supreme Court has indicated that the test is broader than this specific test, the lack of guidance as to what constitutes an abstract versus non-abstract invention means that applicants should ensure that their claims and specifications meet the machine or transformation test by setting for specific machinery being used in the processes or how a transformation between states is being achieved.

Central District of California Extends Bilski Holding to Find Computer Aided Method Not Tied To A Particular Machine If Merely Tied to Computer

In Dealertrack, Inc. v. Huber et al., CV 06-2335 AG (C. D. Calif. July 7, 2009), the patent at issue, U.S. Patent No. 7,181,427 (the ‘427 patent), is directed toward an automated credit application system.  Dealertrack at 2.  The independent claim at issue, claim 1, recites a “computer aided method” of managing a credit application.  The method consists of steps of receiving credit application data and forwarding the application and subsequent funding decisions to remote devices. Id. at 2.  The only issue in the case was the validity of the claims under 35 U.S.C. § 101.

Since Dealertrack did not argue the “transformation” prong of the test outlined in In re Bilski, 545 F. 943 (Fed. Cir. 2008) (en banc), the court considered only the “particular machine” prong of the Bilski test – whether the claimed process was tied to a particular machine.  Dealertrack at 5.  However, the Bilski decision provided no guidance as to the nature of the “particular machine”, leaving such consideration to future cases.  Id. at 5 (citing In re Bilski, 545 F. 943, 962 (Fed. Cir. 2008)).  The court therefore turned to several recent non-precedential decisions from the Board of Patent Appeals and Interferences, which held that general purpose computers were not “particular machines”.  In Ex Parte Gutta, which was decided before Bilski, the Board held that a process claim “for use in a recommender” was not tied to a particular machine because the body of the claim recited a mathematical algorithm and the only recitation of a machine in the claim was an intended use clause in the preamble.  Ex Parte Gutta, 84 USPQ.2d 1536 (B.P.A.I. 2007).  In Ex Parte Nawathe, the Board found that a claim to a “computerized method” was not tied to a particular machine because the specification discussed only a general-purpose computer.  Ex Parte Nawathe, No. 2007-3360 (B.P.A.I.  Feb. 9, 2009).  Finally, in Ex Parte Cornea-Hasegan, the Board held that a method including steps performed by a “processor” recited merely a general purpose computer.

In light of these Board decisions, the district court found that the ‘427 patent’s claims were not tied to a particular machine.  Although the claims referred to a remote application entry and display device and remote funding source terminal devices, the specification did not indicate how these devices were to be programmed.  Furthermore, during claim construction, the district court interpreted the terms as indicating any device, including a dumb terminal.  Since the devices did not require special programming, and the specification provided no guidance as to the nature of the devices, the district court found that the method was not tied to a particular machine.  The court accordingly ruled that the claims at issue, not being tied to a particular machine or transforming an article into a different state or thing, were invalid under 35 U.S.C. § 101.

Significance for Patent Applicants and Owners

While this case is on appeal, Dealertrack gives further evidence as to the confused state of computer software based inventions due to the Federal Circuit’s en banc opinion In re Bilski, 545 F. 943 (Fed. Cir. 2008).  While the Federal Circuit expressly limited its decision to methods, the United States Patent and Trademark Office and the District Courts are taking opposite approaches as to whether In re Bilski should be extended to all forms of machines and apparatuses to effectively render software unpatentable in any form.  Until the Supreme Court renders its decision In re Bilski, applicants will be unable to determine whether their software-based inventions can be patented, and exactly how much detail needs to included in an application in order to transform the computer into the type of “particular machine” which the District Court in Dealertrack found was required for purposes of determining patent-eligible subject matter under 35 U.S.C. §101.