Industrial Engineer Engineering and Management Solutions at Work

September 2010    |    Volume: 42    |    Number: 9

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Process patent pending

U.S. Supreme Court decision gives process inventors a sigh of relief

By Basil M. Angelo

The U.S. Constitution empowers Congress to “promote the Progress of Science and the useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” To that end, the U.S. patent system grants inventors a time-limited right to exclude others from practicing their patentable invention. In return, patentees must disclose their patentable invention and best mode of operation in sufficient detail so that someone of ordinary skill in the relevant art could practice the invention. This exchange of patent rights for disclosure serves as the engine of innovation in our increasingly technology-based economy. This lets each successive generation benefit from the discoveries of their predecessors and start with that knowledge and wisdom as a point of departure.

Industrial engineers often design, implement, manage and improve processes and methods. In some instances, this work results in a new or improved process that provides a competitive advantage. Businesses have a vested interest in establishing an intellectual property strategy to protect these inventions in a manner that advances their interests. However, how best to protect a particular business’s intellectual property is not clear-cut. Businesses must decide whether to seek the protection of the patent laws or maintain the invention as a trade secret. In general, by seeking patent protection, one must disclose the invention and, if successful in obtaining the patent, will be entitled to patent protection only for the term of the patent.

On June 28, the U.S. Supreme Court decided the case of Bilski et al. v. Kappos, where the Court explored what constitutes a patent-eligible process under the Patent Act. This article explains the court’s conclusions and what it may mean for businesses. 

Confusion, consternation

By obtaining patent protection, businesses may exclude others from practicing their patented invention, seek remedies for patent infringement, and license their invention to others. Alternatively, if the invention is maintained as a trade secret, it could provide a competitive advantage to the business as it may endure in perpetuity, such as the Coca-Cola formula. Often businesses view these new or improved process inventions as having temporary value, so they seek patent protection to gain a competitive advantage in the marketplace. As a result of obtaining patent protection, businesses may exclude competitors from practicing their patented invention and, as a result, enjoy the benefit of operating in the market free from competition. Additionally, the business may enter into one or more licensing agreements that generate royalty revenue. In either case, there is substantial economic benefit to the business in protecting their intellectual property through the patent system.

In 2008, this task was complicated by the U.S. Court of Appeals for the Federal Circuit with In re Bilski. In that controversial decision, the Federal Circuit held that, to be patent eligible, a process must pass the “machine-or-transformation” test. This test required a process to be tied to a particular machine or transform an article from one state or thing to another to be patent eligible. This holding widely was regarded as unnecessarily narrowing the scope of what constitutes a patent-eligible process. It sparked uncertainty about the validity of many existing patents, including many business method patents and software patents.

As a consequence, businesses that relied on patent protection for their patented processes didn’t know whether they should continue to seek patent protection, whether they should attempt to enforce their patent rights through litigation, and whether they should attempt to license their patents to others. In some instances, the case called their entire intellectual property strategy into question. It was even worse for businesses already engaged in litigation or licensing contracts. They faced the unenviable task of making complicated and costly decisions in a climate of great uncertainty and against an emboldened adversary. Fortunately, In re Bilski was appealed to the U.S. Supreme Court.

When the Supreme Court issued its decision in Bilski et al. v. Kappos, it considered what constitutes a patent-eligible process and whether the “machine-or-transformation” test is dispositive, i.e., outcome determinative, on the issue of whether claimed subject matter in a patent application is patent eligible. At the outset, it is important to note that Section 101 of the Patent Act defines the subject matter that may be patented. Even if an invention qualifies as a “process, machine, manufacture, or composition of matter” according to Section 101, the claimed subject matter cannot be patented unless it meets the other conditions and requirements of the Patent Act. These include, but are not limited to, the novelty requirement and the non-obviousness requirement.

In recent years, case law concerning the patent eligibility of various process and method claims has muddied the waters for patentees and patent practitioners alike. This includes the Federal Circuit’s decision in In re Bilski and the subsequent interpretation of that case by the U.S. Patent and Trademark Office and its patent examiners.

The confusion has centered on what constitutes a patentable process under Section 101. While it would seem clear, this case has created uncertainty about what constitutes a patentable process and called into question the validity of already issued process patents, including many business method patents and software patents.

It is important to remember that Section 101 of the Patent Act explicitly includes “process” as a statutory category of patent-eligible subject matter. Should process claims be limited in scope? If so, why, when no such limitation exists in Section 101 of the Patent Act? If so, how? And to what extent? Should process claims be limited to the extent set out in In re Bilski? Should the “machine-or-transformation” test of In re Bilski decide the outcome on a patent’s eligibility? Should business method claims be treated any differently than any other process claim? Should software claims be permitted? Unfortunately, we didn’t get an answer to all of these questions; however, we gained additional insight to guide our efforts going forward.

Section 101 of the Patent Act states that “[w]hoever 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.” In Bilski, the Supreme Court noted that the use of expansive words in Section 101 of the Patent Act modified by the comprehensive “any” indicates that Congress plainly contemplated that the patent laws would be given wide scope. In choosing these words, Congress sought to ensure that “ingenuity should receive a liberal encouragement” in the words of Thomas Jefferson.

However, the scope of what is patent eligible is not without bounds. Precedential case law has provided three specific exceptions to patent eligibility: claims that are directed to laws of nature, physical phenomena and abstract ideas. While these exemptions were judicially created, the Supreme Court has noted that they are consistent with the notion that a patentable process must be “new and useful” as required by the Patent Act.

The case

The Bilski case concerned a patent application that included method claims directed to the management of risk in commodities trading. Applicants Bernard Bilski and Rand Warsaw filed a patent application containing 11 such claims. Bilski’s application was directed to a process that performed a function that was not tied to any particular machine. The patent examiner rejected the claims as involving nonstatutory subject matter. Specifically, the examiner argued that the claims were not implemented on a particular machine, that they merely manipulated an abstract idea and they solved a purely mathematical problem without any limitation to a practical problem. The applicants appealed to the Board of Patent Appeals and Interferences, which affirmed the examiner’s rejection on somewhat different grounds that don’t concern this article.

The applicants appealed the patent board’s decision to the Federal Circuit. The Federal Circuit affirmed the decision of the board but, more importantly, held that the “machine-or-transformation” test is the test for determining whether claimed subject matter in a patent application is patent eligible. According to In re Bilski, a process claim is patent eligible only if it is implemented with a particular machine or transforms an article from one state or thing to another. Because the Federal Circuit has exclusive jurisdiction over patent appeals from the district courts, their holding, barring a Supreme Court precedent to the contrary, is binding precedent.

The narrow scope and strict requirement of the “machine-or-transformation” test as articulated by the Federal Circuit created substantial uncertainty and unease among all stakeholders involved, including patentees and the patent bar.

This “machine-or-transformation” test has been criticized because it substantially narrows the scope of the types of processes that meet this test for patent eligibility. Many believe this contradicts the express words of Section 101 of the Patent Act.

The decision

In Bilski, the Supreme Court affirmed the decision of the Federal Circuit as to Bilski’s specific claims under the abstract ideas exception. The specifics of the rejection under the abstract ideas exception are beyond the scope of this article. More importantly, the Supreme Court held that the “machine-or-transformation” test is not the sole test as to what constitutes patent-eligible subject matter. It has been said that Bilski is largely a nondecision and that nothing has really changed. That characterization may be warranted, but the patent bar – and IEs doing work that could be patented – breathed a sigh of relief that the Supreme Court did not promulgate a new test for what constitutes patent-eligible subject mater. As such, it provides another opportunity for these issues to be resolved through the legislative process. There was also great relief in the restraint the Supreme Court demonstrated by explicitly declining to impose limitations on the Patent Act that are inconsistent with the actual words in the act.

With reference to the claims at issue in Bilski’s patent application, the Supreme Court noted that the claims can be rejected under existing precedent relating to the unpatentability of abstract ideas. As a result, “[t]he Court, therefore, need not define further what constitutes a patentable ‘process,’ beyond pointing to the definition of that term provided in §100(b) and looking to the guideposts in Benson, Flook, and Diehr.”

In Gottschalk v. Benson, the Supreme Court held that a claim directed to a mathematical formula in the abstract is not accorded the protection of the patent laws. In Parker v. Flook, the Supreme Court held that the principle articulated in Benson cannot be circumvented by attempts to limit the use of the mathematical formula to a particular technological environment. Additionally, insignificant post-solution activity will not transform an unpatentable principle into a patentable process. In Diamond v. Diehr, the Supreme Court held that the claim satisfies Section 101 of the Patent Act if it contains a mathematical formula that implements or applies that formula in a structure or process that, when considered as a whole, performs a function that the patent laws were designed to protect.

Ramifications

In light of the Supreme Court’s June 28 decision, the “machine-or-transformation” test is not the sole test for determining patent eligibility, but is “a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under § 101.”

In Bilski, the Supreme Court declined to impose limitations to Section 101 of the Patent Act that are inconsistent with the express text of the act. So, maybe, when Section 101 of the Patent Act states “process,” it actually means process.

The judicially created exceptions to patent eligibility for claims directed to laws of nature, physical phenomena and abstract ideas still apply. And the guidance provided by Benson, Flook and Diehr with respect to the claiming of mathematical formulae still apply. Specifically, a claim directed to a mathematical formula in the abstract is not patent eligible, and that cannot be circumvented by limiting the use of the formula to a particular technological environment. However, a mathematical formula that implements or applies that formula in a structure or process may be patent eligible.

With regard to business method patents, the Supreme Court noted that the Patent Act includes an express defense relating to business method patents, and the inclusion of that defense must be in contemplation of the existence of business method patents. The Supreme Court noted that the prior-use defense set forth in Section 273(b)(1) of the Patent Act “explicitly contemplates the existence of at least some business method patents … [B]y allowing this defense the statute itself acknowledges that there may be business method patents.” As such, Section 101 of the Patent Act does not categorically exclude business method claims. However, a business method claim is not patent eligible if it meets one of the above noted exceptions, i.e., the abstract ideas exception that was used to affirm the rejection in Bilski.

Although the Supreme Court expressly refused to rule on the patentability of software, the decision appears to support the argument that a software process or method is no different than any other process or method. At a minimum, the decision appears to suggest no categorical exclusion of software processes or methods. However, this remains a controversial area that will surely be a topic of future discussion. At present, software claims likely will continue to be claimed as computer-readable medium that contain software instructions that, when executed by a processor, perform a process or method. In essence, the claim is directed to an apparatus, the computer-readable medium, that contains the code that performs the process or method. Stay tuned.

Conclusions

What constitutes patent-eligible subject matter still is not resolved with certainty. Section 101 of the Patent Act sets out four statutory categories of patent-eligible subject matter. The judicially created exceptions still apply. The “machine-or-transformation” test is not the sole test for determining patent eligibility. Business method claims and software patent claims are not categorically excluded. It is likely that the metes and bounds of what constitutes patent-eligible subject matter will continue to evolve.

Basil M. Angelo is a patent attorney at Osha Liang LLP in Houston. Angelo’s practice focuses on patent prosecution and litigation in the areas of semiconductors, computing systems and software. He is a licensed professional engineer and a senior member of IIE. He also holds a bachelor’s degree in electrical engineering, a master’s degree in industrial engineering, and is a Ph.D. student in industrial engineering. Prior to becoming an attorney, he worked as an electrical engineer for Transmeta Corp., Compaq Computer Corp. and Apple Computer Corp.

SIDEBAR: Salvation for Google
Generating scores isn’t a physical transformation so many analysts figured Google’s famed PageRank was in danger because of the U.S. Court of Appeals for the Federal Circuit’s In re Bilski decision in 2008.

“The Patent and Trademark Office has now made clear that its newly developed position on patentable subject matter will invalidate many and perhaps most software patents, including pioneering patent claims to such innovators as Google Inc.,” said professor John F. Duffy of the George Washington University Law School on Patentlyo.com.

That danger to many processes and software patents evaporated with the U.S. Supreme Court’s June 28 decision in Bilski et al. v. Kappos.

The patented PageRank helped Google surpass more ineffective search engines when it arrived on the Internet, according to Webpronews.com. Google quickly became the de facto search choice for millions of people.

PageRank assigns a numerical weighting to each element of a hyperlinked set of documents to “measure” its relative importance within the set. The algorithm may be applied to any collection of entities with reciprocal quotations and references, according to Dracon.biz.

Although PageRank is a trademark of Google Inc., the patent is held by Stanford University. For exclusive rights to the patent, Google gave Stanford 1.8 million shares of Google. Stanford sold the shares in 2005 for $336 million.

SIDEBAR: Better flat panels
For a good example of a patented manufacturing process, take a look at the 2002 patent for an Organic Vapor Phase Deposition (OVPD) process that provides advantages for manufacturing Organic Light Emitting Diode (OLED) flat panel displays.

Universal Display Corp.’s research partner, Princeton University, was issued the patent, titled Low Pressure Vapor Phase Deposition of Organic Thin Films, U.S. patent No. 6,337,102, according to Entrepreneur.com.

OVPD uses a carrier gas stream in a hot-walled reactor at low pressure to deposit thin layers of organic electronic materials precisely onto displays. The process produces thin films that have superior surface properties compared to traditional OLED processing.

OVPD technology offers increased control over the deposit process, higher potential throughput, and lower manufacturing costs.