Management report Patentable subject matter in the US: past, present and future years, the United States Patent and The landmark Bilski decision has Trademark Office (USPTO) has been flooded left commentators divided as to the with patent applications from technology fate of business method and start-ups rushing to patent their core business models, from traditional brick- software patents in the United and-mortar entities recognising new patent States: some believe they will be asset opportunities to financial services harder to obtain and enforce, while firms seeking to protect profitable business others view the ruling as schemes, to independent inventors and confirmation of their viability patent holding companies seeking lucrative licensing opportunities. Many of these entities conversely faced increased exposure By Christopher Hughes and Daniel to patent infringement allegations and have Melman, Cadwalader, Wickersham & used these patents in a defensive mode. Taft LLP, New York The stunning rise in the number of business method patents in the United Over the past decade, the United States has States and the concomitant increase in seen a dramatic increase in the number of patent litigation also led to a vigorous early filings for business method patents relating debate over the ability of the USPTO, with to e-commerce, insurance, financial services its limited resources (eg, adequate sources and the like. They, like software patents in of prior art to search and knowledgeable general, have become important and valuable examiners), to examine the growing volume IP assets. This increase in business method of business method patent applications. In patents in particular may be attributable to addition, courts had not provided a clear the confluence of technological advances in standard for determining which types of communications and the timing of an discovery may or may not be patented; nor important court decision. had Congress clearly articulated its views as First, the rise of the Internet as a viable to the boundaries of patentable business – indeed, ubiquitous – portal for method and software inventions. Many conducting business, and the availability of patent practitioners and business executives increasingly more powerful and affordable had criticised the USPTO and the courts for computer technology, have generated new failing adequately to police business method and creative opportunities to facilitate patents and for unduly expanding the scope business activities with great economic of patent-eligible subject matter. benefits; many say this has ushered a new information and electronic age economy. Statutory and case law evolution Second, while methods of doing business The relevant statutory framework in the historically were not considered patentable, United States under which patent eligibility in 1998 the United States Court of Appeals is determined is set out in the Patent Act. for the Federal Circuit – which has exclusive Specifically, “whoever invents or discovers first-instance appellate jurisdiction over any new and useful process, machine, patent cases from the lower federal trial manufacture, or any new and useful courts – declared that business methods improvement thereof, may obtain a patent could indeed be patented. In the intervening therefor, subject to the conditions and www.iam-magazine.com Intellectual Asset Management May/June 2009 97 Co-published editorial requirements of this title”. [Title 35 USC § monitoring of process variables or the 101]. Thus, while a patentable invention means of setting off or adjusting an alarm. must have utility and be new and non- Rather, the patented method was simply a obvious under US law, a threshold barrier formula or algorithm for computing an exists which permits only the patenting of updated alarm limit. The court noted that particular subject matter, namely: (1) although an inventive application of a processes; (2) machines; (3) manufactures; mathematical algorithm or principle may be and (4) compositions of matter. With regard patented, patentability depends on the to process patent eligibility – which “inventive concept in its application”. generally applies to business method and In Diamond v Diehr [450 US 175 (1981)], software patents – the Patent Act gives a the Supreme Court considered the patent rather general definition of “process” as a eligibility of a process for curing synthetic “process, art, or method, and includes a new rubber products in which temperature use of a known process, machine, readings were taken and a computer using a manufacture, composition of matter, or well-known mathematical algorithm material”. [Title 35 USC § 100(b)]. Although calculated the cure time. The court the language of the statute appears to define concluded that although several steps in the a broad scope of patent-eligible subject process involved the use of mathematical matter, a number of judicially established algorithms, the method as a whole was limits, such as a prohibition against patentable because it involved the patenting laws of nature, physical transformation of an object. Notably, the phenomena and abstract ideas, have court stated that “[a] claim drawn to subject circumscribed its bounds. [Diamond v matter otherwise statutory does not become Chakrabarty, 447 US 303 (1980)]. nonstatutory simply because it uses a At the dawn of the information age, the mathematical formula, computer program, US Supreme Court decided three cases or digital computer”. Instead, “when a claim addressing the patent eligibility of containing a mathematical formula computer-related processes involving implements or applies that formula in a mathematical algorithms. First, in Gottschalk structure or process which, when v Benson [409 US 63 (1972)], the Supreme considered as a whole, is performing a Court considered a process for converting function which the patent laws were binary-coded decimal numerals into binary designed to protect (e.g., transforming or numbers (which could be carried out on a reducing an article to a different state or general purpose computer). The court thing), then the claim satisfies the concluded that such a process could not be requirements of [the Patent Act]”. In an patented because it constituted an abstract attempt to provide guidance in this area, idea, noting that the conversion process and distill its prior decisions, the Diehr could be performed mentally using a court announced that the “[t]ransformation mathematical table. In the court’s view, and reduction of an article to a different allowing such a patent would effectively state or thing is the clue to the patentability foreclose all uses of the mathematical of a process claim that does not include formula or algorithm at issue. The court particular machines”. explained that “[p]henomena of nature, In one other Supreme Court case of note though just discovered, mental processes, [Diamond v Chakrabarty, 447 US 303 (1980)], and abstract intellectual concepts are not although not directly addressing the patentable, as they are the basic tools of boundaries of process patents, the court scientific and technological work”. [Id at 67]. stated that “Congress intended statutory In the next case, Parker v Flook [437 US subject matter to include anything under the 584 (1978)], the Supreme Court was asked to sun that is made by man”. Following this determine whether a method of computing Supreme Court statement, and considering certain alarm limits in connection with a the broad statutory language of the Patent catalytic chemical conversion process could Act, US courts slowly expanded the scope of be patented. The only difference between patent-eligible process subject matter. the patented method and prior known In the seminal case of State Street Bank processes was the use of a mathematical & Trust Co v Signature Financial Group, Inc formula to calculate the alarm limits. The [149 F 3d 1368 (Fed Cir 1998], the Federal court decided that the method was not Circuit analysed the patentability of a data patentable because it did not include the use processing system for implementing an of any specific machine, did not explain how investment structure. The patent involved a to select appropriate margins of safety and computer system that received various contained no explanation relating to the inputs of financial information and then chemical processes being used, the performed certain calculations for managing 98 Intellectual Asset Management May/June 2009 www.iam-magazine.com Management report a financial portfolio. The Federal Circuit Federal Circuit, the machine-or- decided that the claimed system was transformation test ensures that a method patentable and, using broad language to patent is tied to a particular application of a explain the permissible scope of patentable fundamental principle or idea rather than subject matter, stated that “the mere fact the principle or idea itself. that a claimed invention involves inputting The Federal Circuit characterised the numbers, calculating numbers, outputting patent at issue in Bilski as a “non- numbers, and storing numbers, in and of transformative process that encompasses a itself, would not render it [unpatentable], purely mental process of performing unless, of course, its operation does not requisite mathematical calculations without produce a useful, concrete and tangible the aid of a computer or any other device, result”. Interestingly, although the patent mentally identifying those transactions that claim at issue explicitly recited