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RECONCILING ALICE V. CLS BANK WITH SUPREME COURT’S § 101
JURISPRUDENCE: ARE WE ON THE RIGHT PATH?
1. Introduction
In Alice Corporation Pty. Ltd. v. CLS Bank International 1, the United States
Supreme Court (hereafter, “the Supreme Court”) affirmed with the holding of the United
States Federal Circuit Courts of Appeal (hereafter, “the Federal Circuit”) that a method
and a system for providing intermediary service are not patent eligible. 2 The case
ignites massive interest in the legal community and in the business community as well.
In this note, we will first examine the debate about business method patents, and then
examine the Federal Circuit and Supreme Court jurisprudence on patentable subject
matter. Towards the end of the note, we will provide recommendations for analytical
framework for patentable subject matter, as well as administrative measures addressed
to the debate about business method patents.
2. Why business method should be patentable? Why not?
Critics of business method patent advocate that business method should never
be patentable in the first place. The critics rely on several rationales.
First, critics argue that granting business method patent runs counter to the
utilitarian theory behind the creation of intellectual property, i.e. to encourage people to
create something useful for the society. Similarly, the US patent system is created “to
promote the progress of science and useful arts.” 3 The patent system does so in two
ways. By awarding an inventor a time-limited monopoly and right to exclude others from
“free-riding” on the inventor’s effort, the inventor can be offered time to perfect and to
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commercialize his or her invention, to make profit out of the invention. Therefore, the
inventor can be motivated to invest time and money into the inventive process. Besides,
by requiring the inventor to disclose the invention to the public (while at the same time
granting the monopoly), the public can be educated and spurred to find a better solution
for the problem the invention seeks to solve.
But critics argue that neither the “free-riding” protection nor the disclosure
rationale works for business method patents. For example, Professor Dreyfuss of NYU
argued that the disclosure rationale is typically not needed, given that business method
is typically practiced to serve the customers and has to be disclosed to the public to
become effective (e.g. Amazon’s one-click encoding). 4 Professor Dreyfuss further
argued that there is very little incentive to protect a business method from free-riding,
given that a successful (and therefore is also useful) business method typically can be
assured adequate return through mechanisms such as lock in, network effects, and
customer loyalty, 5 while providing monopoly through business method patent runs the
risk of protecting businesses from competition and preserving inefficiencies in the
marketplace. 6 This is especially true as the success of a business should depend on
execution of the business, such that the society can depend on market competition to
determine the best use for a particular resource. 7 Applying Professor Dreyfuss’ theory,
business method patent directly distorts the fundamental mechanism our economy
operates, and the distortion to free market is far greater more so than granting patents
on a technical, non-business-method-related innovation. In the latter case, we can still
count on market mechanism to adjust to the monopoly granted for a product by the
patent system – for example, spurred by market needs for a cheaper solution than the
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one offered by the patent, people can try to design around the patent, or to find another
solution to the problem; but in the former case, such a market mechanism is simply
distorted by the monopoly as a result of the granting of the business method patent,
regardless of the merits of the product the business is trying to sell.
Second, critics also argue that business method patent increases cost of doing
business to the extent that it far outweighs any benefit such patents can bring to the
society. As a preliminary matter, Professor Hall of UC Berkeley, citing empirical data,
questioned the effectiveness of patent system in spurring innovation except for a few
specific industries such as pharmaceutical and biotechnology, where patent claims are
typically based on molecular formulas and easy to enforce. 8 Professor Hall further
argued that business method patents can exert prohibitive transaction cost to business.9
Professor Hall observed that the banking and financial services industry depend heavily
on secure communication and transactions exchange among banks and brokerage
houses, and such communication depends on standards; but if such standards (or more
generally, a particular way of performing a transaction) becomes patented, business
entities that need to be operating within such standards will be forced to license (either
by paying a fee, or acquiring other patents for cross-licensing), which will drive up the
cost of operation of the business. 10 Professor Dreyfuss shares similar concern as
Professor Hall, but less so for specification application of knowledge (whether or not
business-related) than for much broader and fundamental “big ideas” that are on the top
of “knowledge pyramid.” 11 Nonetheless, both Professor Dreyfuss and Professor Hall
present one of the strongest argument against patenting business method claim – the
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pre-emption of fundamental business principle which everyone relies on to conduct
business.
Third, critics also express concern about the quality of business method patents
when, expectedly, more business method patents are produced as result of allowing
business methods to be patentable. For example, Professor Hall expresses concern
about patents that create uncertainty about the breadth of the patent claims, and about
whether those patents can be invalidated. 12 Professor Hall argues that such uncertainty
may cause business to underinvest in the technology, and may lead to more strategy
use of existing patents, which can lead to more costly litigations.13 Besides, Professor
Dreyfuss also argues that the validity of business method patents, especially those
patents which include subject matters that are well-known but rarely documented and
more often reside in the practices and policies of the business entities that use the
method.14 Based on this observation, Professor Dreyfuss argues that such patents are
difficult to be examined effectively, which leads to inevitable issuance of invalid
patents.15
On the other hand, advocates of business method patent argue that business
method and technologies have been so intertwined that, at the very least, business
method should not be categorically excluded from patentability altogether. For example,
Professor Duffy cited the explosive development of financial engineering, in terms of the
“quant”-ification of Wall Street’s workforce and academia’s rising interest in research
and developing academic programs for financial engineering, to show that the rise of
business method patents is catalyzed mainly by the development of economics,
business, finance, and similar fields into much more technological disciplines. 16
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Based on Professor Duffy’s observation about the explosive growth of financial
engineering, it can be argued that at the very least, fairness principle demands inclusion
of business method into patentable subject matter. Patent system should be neutral
towards “anything under the sun made by human,” 17 and should not discriminate or be
in favor of a particular field of technology. As Professor Merges and Professor Ginsberg
put it succinctly – why should a programmer working for a steel manufacturing company
be a potential patentee, while a programmer working on Wall Street is not? 18 The
patenting of business methods (at least those that are technology-based) should be as
legitimate as the patenting of other technologies, especially given the explosive growth
of the financial engineering sector. Also, patent law should reflect and to be inclusive to
the latest technology development, not to be confined within a perspective of industrial
revolution era by, for example, allowing only technologies that produce tangible
products as patent eligible.
Besides, unlike what Professor Dreyfuss suggests, there are many business
methods that need patent protection to encourage disclosure, and the inventors of these
business methods cannot simply rely on business success to protect their invention. For
example, while Amazon may not need a business method patent to protect its “oneclick” transaction method, because of customer loyalty and the fact that the output of
such a method provides a very visual (and tangible) effect to customer experience (i.e.
convenience in transaction), many inventors simply do not have the market power of
Amazon, or that the business method they develop are for processing of data or
information, such that the method is not even perceptible to the general public. For
example, a startup company which is completely unknown to customers (hence there is
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no customer loyalty to speak of) develops a method of providing secure transaction,
which includes dividing customer information among the parties involved in a
transaction and a middle party, and that all the information exchanged is encrypted,
such that no party can have all the information of the customer, but only the information
needed to complete its part of transaction. Obviously, unlike Amazon’s “one-click”
transaction, such a secure transaction method probably is invisible to the general public,
and it is likely that the inventor will not be motivated to disclose this method without
patent protection. To make matters worse, given that the user may not even associate
the secure transaction method with a particular company, yet such secure transaction
method is so crucial to our society, competitors can just “free-ride” the invention and
implement exactly the same method (if the competitor finds a way to know about the
method). The result is that the inventor will prefer to keep the secure transaction method
a trade-secret, and the public lose the opportunity to learn about the secure transaction
method, and the opportunity to further improve it.
From the discussion above, it can be seen that business method should not be
categorically excluded from patenting. Rather, to address the uncertainty and economic
cost brought about by bad business patents (especially those that seek to patent wellknown business principles), and the preemption of fundamental business principles, the
more urgent question should be: how to create a sensible legal framework to allow the
patenting of business method? But to create such a legal framework, one may need to
ask: how do we define business method patent?
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3. What is business method patent?
Unfortunately, despite the furor around the patent eligiblity of business method,
and that a layman can easily identify what a business method patent is (e.g. the patent
for Amazon’s famous “one-click” transaction), there does not exist a legal definition of
“business method patent.” Such a legal definition is needed, because it determines,
from a legal and objective standpoint, whether an invention with some business
application falls within the realm of patentable subject matter. We do not wish to leave it
up to the subjective feeling of the Court – such that it becomes “we know it is business
method when we see it” type of judgment.
According to Wikipedia, “business method patents” refer to “a class of patents
which disclose and claim new methods of doing business. This includes new types of ecommerce, insurance, banking, tax compliance etc.” 19 On the other hand, the United
States Patent Office (“USPTO”) provides a relatively narrow definition of business
method patent when creating a US patent class 705. USPTO defines class 705 to
encompass “machines and their corresponding methods for performing data processing
or calculation operations, where the machine or method is utilized in the 1) practice,
administration, or management of an enterprise, or 2) processing of financial data, or 3)
determination of the charge for goods or services.“ 20 The “narrowness” of the USPTO’s
definition comes from the requirement of “machine and their corresponding methods.” In
essence, such definition requires the patent claim to specify a machine (e.g. a
computer) or its corresponding method (e.g. a software program) to carry out at least
part of the business method, not just something that can be carried out as a mental
step. The USPTO’s appraoch is generally in line with that of the European Patent Office
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(“EPO”). The EPO, while excluding “schemes, rules, and methods for performing mental
acts, playing games or doing business, and programs for computers,” 21 nevertheless
treats an apparatus adapted to support an economic activity, or a method that recites
processing of physical data, or affecting the way computer operates, as patentable
subject matter. 22
While both the USPTO and EPO include limitations which further delineate the
boundary of “business method patent” by, for example, requiring the claims to be at
least tied with machine implementation, neither office has provide the answer for the allimportant question – that is, when does a business method qualify to be an “abstract
idea”? The answer to this question determines, to a large extent (but not to a full extent,
as we will see later), whether a patent claim for a particular business method covers a
patentable subject matter, or is within one of the judicially created exceptions (the other
two being laws of nature and physical phenomena) which can render the business
method patent claim not patent eligible.
With the debate about whether it is desirable to allow business method to be
patent eligible as a context, the rest of this note will analyze the development of
patentable subject matter jurisprudence at the United States Supreme Court (“the US
Supreme Court) and at the United States Federal Circuit Courts of Appeal (“the Federal
Circuit”), to seek the answer to three question. First, what makes a business method
claim include patentable subject matter, in light of Alice and the preceding case law?
Second, is the Alice decision a sensible result from the policy standpoint? And third, do
we have better alternatives?
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4. Historical Development of United States Supreme Court Patentable Subject
Matter Jurisprudence up to Mayo v. Prometheus
Title 35 of the United States Code, Section 101, provides: “whoever 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.” 23 But there are three judicially created
exceptions: laws of nature, physical phenomenon, and abstract ideas. The policy
reason behind creating these exceptions is to avoid preemption of fundamental
principles of a particular field as a result of awarding patent for those fundamental
principles, which prevents further development in that field of study. This runs counter to
the very purpose of patent law – that is, giving time-limited monopoly in exchange for
disclosure of an idea, in order to encourage innovation.
As we can see below, risk of preemption of a very broad and fundamental
concept is a recurring theme in all the cases concerning patentable subject matter.
Besides, as an extension to the risk of preemption, the risk of allowing an inventor to
claim more than what he or she discloses in the written description of the patent – to the
extent that what the inventor claims amounts to a claiming of a fundamental principle
rather than the application of it – also motivates the Court to strike down patent claims
that are too broad, although not under the guise of the aforementioned judicially created
exceptions.
i.
O’Reilly v. Morse
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One of the most famous and earliest Supreme Court cases that deal with overly
broad claim is O’Reilly v. Morse 24, in which Samuel Morse, the inventor of Morse code,
seeks to patent the idea of using electromagnetism for telegraphy. 25 Claim 8 of Morse’s
patent application, which is rejected by the Court as “too broad and covers to[o] much
ground,” 26 is as follows:
Eighth. I do not propose to limit myself to the specific
machinery, or parts of machinery, described in the foregoing
specifications and claims; the essence of my invention
being the use of the motive power of the electric or
galvanic current, which I call electro-magnetism,
however developed, for making or printing intelligible
characters, letters, or signs, at any distances, being a new
application of that power, of which I claim to be the first
inventor or discovered. 27
(cite p. 86) (emphasis added). The Court rejected the claim for being too broad and not
supported by the written description of the invention in Morse’s patent application, by
stating:
Indeed, if the eighth claim of the patentee can be
maintained, there was no necessity for any specification,
further than to say that he had discovered that, by using the
motive power of electro-magnetism, he could print intelligible
characters at any distance. We presume it will be admitted
on all hands, that no patent could have issued on such a
specification. Yet this claim can derive no aid from the
specification filed. 28
The Court also examined the case of Neilson v. Harford from the English Court, to
distinguish from this case. Neilson’s invention is addressed to improving application of
air to produce heat in fires, forges, and furnaces, which involves passing a blast or
current of air from a blowing apparatus, through a receptacle, into a fire, and the
receptacle is kept artificially heated to a considerable temperature. 29 Although Neilson
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described in general terms how the receptacle might be constructed and heated,
Neilson also claimed that neither the form of the receptacle nor the manner of heating it
is material. 30 Id. Neilson’s patent was found valid by the English Court because Neilson
claims a specific mode of applying the principle that “hot air promotes ignition of fuel” -by interposing a heated receptacle between the blowing apparatus and the fire – and
not the principle itself. 31 Id. The Court distinguished the situation of Neilson from Morse,
as Morse was claiming the discovery that the electric or galvanic current will always
print at a distance, no matter what may be the form of the machinery or mechanical
contrivances through which it passes, and the Court does not think Morse has
discovered such a principle. 32 The Court found that Morse only discovered “a new
combination of known powers, of which electromagnetism is one” to print intelligible
marks or signs at a distance. 33 In contrast, Neilson claimed interposing a heated
receptacle between the fire and the blowing apparatus, and the interposition is where
the novelty Neilson invented, regardless of the form of the receptacle. 34 The Court also
affirmed that the discovery of a principle in natural philosophy or physical science, is not
patentable, 35 although this has little relevance to the holding of the case, as the case
was mostly decided on the ground that Morse’s patent fails to satisfy the written
description requirement.
Although O’Reilly is widely cited as one of the seminal Supreme Court cases on
the judicially created exception to patentable subject matters 36, the Supreme Court’s
holding in O’Reilly is, indeed, based on the written description requirement of US Patent
Law, as codified in Title 35 of the United States Code, Section 112(a): “The specification
[of a patent] shall contain a written description of the invention, and of the manner and
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process of making and using it, in such full, clear, concise, and exact terms as to enable
any person skilled in the art to which it pertains, or with which it is most nearly
connected, to make and use the same,” 37 such that the patentee can demonstrate that
he or she is in possession of the invention that is claimed, and the patentee cannot
claim more than what he or she discloses in the patent. O’Reilly also tells us that if an
inventor disclosed an application of laws of nature, or physical phenomenon, the
inventor cannot claim to have invented every other application of the law or the
phenomenon – unless the inventor discloses them all in the specification of the patent.
As we can see, the written description requirement of the US patent law can be a very
effective tool in preventing the preemption of law of nature, physical phenomenon, and
even abstract idea as well, as patentee cannot claim to have invented every single
application of the law, phenomenon or idea, unless such a broad claim is supported by
the specification of the patent – without the need to specifically define what abstract
idea is, or how much transformation of such abstract idea is needed to come up with
patentable subject matter.
ii.
Patentable Subject Matter Trilogy
About 100 years after the O’Reilly decision, the Supreme Court decided three
cases that are addressed to patentable subject matter, collectively known as
“Patentable Subject Matter Trilogy.”
The first case is Gottschalk v. Benson. 38 In this case, the inventor (Benson)
seeks to patent a method of converting binary-coded decimal (BCD) numerals into pure
binary numerals. 39 BCD is a class of binary encodings of decimal numbers where each
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decimal digital is represented by a fixed number of bits. 40 For example, for a decimal
number 78, its BCD representation is 0111 1000 (0111 for 7, 1000 for 8), and its pure
binary representation (i.e. the binary equivalent of the decimal number 78) is 01001110.
Benson’s method is to provide a way of directly converting the BCD representation (e.g.
0111 1000) to its pure binary equivalent (e.g. 0100 1110). Benson’s claimed method is
as follows:
The method of converting signals from binary coded decimal
form into binary which comprises the steps of
(1) storing the binary coded decimal signals in a reentrant
shift register,
(2) shifting the signals to the right by at least three places,
until there is a binary ‘1’ in the second position of said
register,
(3) masking out said binary ‘1’ in said second position of said
register,
(4) adding a binary ‘1’ to the first position of said register,
(5) shifting the signals to the left by two positions,
{ "pageset": "S64f6
(6) adding a ‘1’ to said first position, and
(7) shifting the signals to the right by at least three positions
in preparation for a succeeding binary ‘1’ in the second
position of said register. 41
The Court regarded the claimed method, which has no substantial practical application
except in connection with a digital computer, is not patentable, otherwise the patent
would wholly preempt the mathematical formula [of converting BCD to binary numerals,
as outlined in Benson’s patent] and in practical effect would be a patent on the algorithm
itself. 42
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The preemption concern of the Court can be unfounded. Contrary to what the
Court alleged, Benson is not claiming a mathematical formula (e.g. a mathematical
formula that shows the mathematical relationship between the binary number and its
BCD equivalent), but an algorithm -- a specific way of converting BCD to binary – very
much like the claimed invention in the English case Neilson v. Harford, which claims a
specific apparatus/method (i.e. interposing a heated receptacle between the blowing
apparatus and the fire) of improving application of air to produce heat in fires, forges,
and furnaces. There are other methods of converting BCD to binary, 43 so there is no
risk of preempting the entire field of BCD conversion.
Besides, the Court appears to have mixed up between a mathematical formula
(i.e. an equation which expresses a relationship between two physical quantities) and
an algorithm (i.e. a process of doing things). Neither BCD nor the conversion of BCD to
binary is a mathematical formula. Rather, they are the application of, for example, the
mathematical formula which expresses a relationship a decimal number and its binary
equivalent. In fact, the BCD format in this case is just one arbitrary way of representing
decimal numbers in binary form, and there are other ways of making such
representation. Therefore, allowing Benson to patent this method will not risk
preempting every application of the mathematical formula which relates between
decimal number and its binary equivalent, if that is the Court’s concern.
On the other hand, the Court’s holding created a lot of uncertainty in patentability
for the then nascent software industry. The uncertainty is further exacerbated when the
Court declared that “transformation of an article to a different state or thing is the clue to
the patentability of a process claim that does not include particular machine,” 44 and that
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the Court appeared to base its holding on the fact “the mathematical formula involved
here has no substantial ‘practical application’ except in connection with a digital
computer,” 45 yet the Court failed to delineate how much of transformation is sufficient
for an application of mathematical formula to become patentable subject matter, and
what constitutes “practical application.” Apparently recognizing the uncertainty created
by this holding, the Court then went on to clarify that “we do not hold that no process
patent could ever qualify if it did not meet the requirements of our prior precedents [(e.g.
that a process patent must either be tied to a particular machine or apparatus or must
operate to change articles or materials to a ‘different state of thing’, later short-handed
as ‘machine-or-transformation’ test)].” 46 But the result just brings forth even more
uncertainty.
The next case that follows Benson is Parker v. Flook. 47 In this case, Flook (the
inventor) seeks to patent a method for updating alarm limits, which refers to a threshold
of detecting abnormal condition during catalytic process. 48 The claimed method is
reproduced below:
1. A method for updating the value of at least one alarm limit
on at least one process variable involved in a process
comprising the catalytic chemical conversion of
hydrocarbons wherein said alarm limit has a current value of
Bo + K
wherein Bo is the current alarm base and K is a
predetermined alarm offset which comprises:
{ "pageset": "Sc1e5
(1) Determining the present value of said
process variable, said present value being defined as PVL;
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(2) Determining a new alarm base B1, using the following
equation:
B1 = Bo(1.0 – F) + PVL(F)
where F is a predetermined number greater than zero and
less than 1.0;
(3) Determining an updated alarm limit which is defined as
B1 + K; and thereafter
(4) Adjusting said alarm limit to said updated alarm limit
value. 49
Flook’s method consists of three steps: a first step that measures a process value (e.g.
temperature), a second step that calculates an updated alarm limit using an equation
(the Court called it an algorithm, but the claim recites an equation which expresses a
relationship between alarm limit and the process value, 50 and a third step to adjust the
actual alarm limit to the updated alarm limit. 51 The Court rejected the claimed method
as not patent eligible, because there is no claim of patentable invention. 52 The Court
pointed out that the catalytic conversion, the practice of monitoring the chemical
process variable, the use of the alarm limits to trigger alarms, and recomputing /
readjusting the alarm limit values, are all well known. 53 Given that the application of the
well-known catalytic process, as recited in the Flook’s method, is not “inventive,” the
method is not patent eligible. 54 This holding is widely regarded as the beginning of
“inventive concept” inquiry. As we will see, later Supreme Court case law on patentable
subject matter (including for business method) develops upon such “inventive concept.”
Although not explicitly stated, the Court’s holding in Flook also can be interpreted
as signaling that limiting the use of the mathematical equation to a particular
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technological environment, by itself, cannot transform the unpatentable mathematical
equation into patentable subject matter, as it held that “implement[ing] a principle in
some specification fashion” will not “automatically fall[] within the patentable subject
matter.” 55 This signals the shift of the Court’s preemption concern from Benson – rather
than concerning about preemption of a mathematical algorithm, now the Court is
concerned about preemption of an application of the equation to a particular technology.
Although the Court might have reached the right outcome in Flook, the newlycreated “inventive concept” requirement may not be desirable. First, there already exists
other well-established patentability requirement, such as novelty and obviousness 56,
and the requirement of “inventive concept” raises a concern that these two requirements
may overlap, yet are governed by different standards. As an example, there are wellestablished standards to inquire whether it is obvious to combine two known arts to
render a claim obvious. 57 But when the Court set forth the requirement of “inventive
concept” in judging an application of a known formula, do they look at, from an
obviousness standpoint, whether it is obvious to combine the application (and whether it
is a prior art) with the formula? And should the Court apply the obviousness standard in
determining patent eligibility at all? These are difficult policy questions (i.e. there is no
right or wrong answer), and are probably best answered by the Legislature, not by the
Court.
If the Court’s concern is about preemption of the use of the formula for
calculating alarm limit in a catalytic process, a better approach would be to look for
claim elements that are necessary (but not more) to use the equation. For example,
referring back to Flook’s method claim, most of the steps are directed to providing an
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input to the equation, and determining an output using the equation. Allowing Flook’s
method to be patented can in fact preempt the use of the formula. Under an inquiry of
“necessity,” all the claim elements that are needed to use the equation will be “lumped
together” with the equation as prior art, and then the rest of the claim elements can be
analyzed with the well-established obviousness inquiry (or the entirety of the claim
analyzed with the novelty inquiry). An inquiry about whether a step is necessary in order
to use the formula is probably easier and more objective than an inquiry about
“inventive concept,” which may have involved subjective judgment (and as we will see in
later Supreme Court cases, more involved analysis), and may deprive an invention of
the opportunity to be proper examined under the much more well-established body of
laws governing novelty and obviousness inquiry – if the invention is judged to be not
even patent eligible.
On the other hand, although the Court continued to treat Mathematical algorithm
and mathematical formula as the same thing, 58 it is not clear how the inventive concept
inquiry set forth in Flook can be applied to algorithms that are not based in a single
mathematic formula – e.g. a method of conducting a business transaction, a method of
manipulating and transforming intangible data from one form to the other, etc. In those
situations, unlike Flook where we can readily identify a mathematical formula from a
claim, it may be hard to identify a standalone formula – or what the Court will label later
as “abstract idea” – from the claim, and then identify the inventive concept which is in
addition to the abstract idea in the claim. As we will see in later Supreme Court and
Federal Circuit cases, the identification of inventive concept (and the claimed abstract
idea) becomes a major issue in the analysis of business method patents, especially
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when the “business method” described in the patent is deeply intertwined with
technologies.
The last case of the Patentable Subject Matter Trilogy is Diamond v. Diehr. 59 In
this case, the inventor seeks to patent a process for molding precision synthetic rubber
products into cured precision products. 60 The Court held that the process is patent
eligible, mostly because it “transforms or reduces an article to a different state or
thing.”61 The Court also clarified that a claim containing a mathematical formula is not
dispositive, as long as it applies the formula in a structure or a process in performing a
function which patent laws seek to protect (e.g. transformation). 62
Again, while the Court might have arrived at the right decision, the Court still has
left many questions unanswered. Of course, if there is a transformation similar to Diehr
(i.e. transforming raw rubber to cured rubber), it becomes an easy case. But then what
is an article, and what is “a different state or thing” in the twenty-first century? Does
calculation of offer price for silver, based on the bidding price of gold, qualify as
“transformation”? Also, if there is no transformation of an article to a different state or
thing, do we then treat such a process similar to the mathematical formula in Flook, in
which case we will be inquiring for “inventive concept”? Unfortunately, the Supreme
Court was unable to answer these questions in the following recent cases.
iii.
Bilski v. Kappos
In Bilski v. Kappos, 63 the inventor seeks to patent a series of steps instructing
how to hedge risk. 64 The claimed method recites the following steps:
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(a) initiating a series of transactions between said
commodity provider and consumers of said commodity
wherein said consumers purchase said commodity
{ "pageset": "Sc22a
at a fixed rate based upon
historical averages, said fixed rate corresponding to a risk
position of said consumers;
(b) identifying market participants for said commodity having
a counter-risk position to said consumers; and
(c) initiating a series of transactions between said commodity
provider and said market participants at a second fixed rate
such that said series of market participant transactions
balances the risk position of said series of consumer
transactions. 65
The Court rejected Bilski’s claimed method as not patent eligible. But before the Court
explained its holding, the Court made two important clarifications. First, as held in
Gottschalk, that “machine-or-transformation” test is not the exclusive test of what
constitutes a patent-eligible process, as it is not supported by the relevant statute under
US patent law, and is also not suitable for the computer age as it creates uncertainty
about patentability of software. 66 Second, method of conducting business is not
categorically excluded from patent-eligible process, as there is a specific statute under
US patent law which allows an alleged infringer of a patent to assert a defense of prior
use if the asserted patent is directed to “a method of doing or conducting business.” 67
However, the Court was also very careful about its opinion about the patentability of
business method, as the Court stressed that while the US patent law “appears to leave
open the possibility of some business method patents, it does not suggest broad
patentability of such claimed inventions.” 68
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And then the Court went on to explain its basis of rejecting the claimed method,
because it is directed to the concept of hedging. 69 The Court noted that “hedging is a
fundamental economic practice long prevalent in our system of commerce and taught in
any introductory finance class.” 70 The Court then held that the concept of hedging as
unpatentable abstract idea, just like the algorithms at issue in Benson and Flook, since
allowing the claimed method to be patented will preempt use of hedging in all fields.
71
But the Court again dodged the question of answering, in definite terms, what
constitutes a patentable process, and conversely, how to determine that a given
process describes an abstract idea. For example, is hedging considered as an abstract
idea because it is “a fundamental economic practice long prevalent in our system of
commerce and taught in any introductory finance class”? The Court did not make such
an explicit connection. What about “a method and system for balancing the supply of
desirable users with the demand by other users to date them in an online dating
system”? 72 What about “a responsive manufacturing and inventory control system?”
73
There is no question that the concept of matching service and inventory control are also
fundamental practice long prevalent in our society, so are they abstract ideas? And
assuming, arguendo, that the phrases “matching service” and “inventory control” refer to
abstract ideas, there must exist an abstraction (i.e. additional details of implementation,
or “inventive concept” of Flook) where allowing the patenting of a claim addressed to
“matching service” or “inventory control” no longer brings forth the risk of preempting the
use of these “abstract ideas.” But to answer this question, we need a rule to determine
the boundary of abstract idea (other than that it is neither law of nature or physical
phenomenon, the other two judicially-created exceptions), to determine what constitutes
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“the abstract idea of matching service” or “the abstract idea of inventory control,” and
based on that, to inquire about the inventive concept as set forth in Flook. The difficulty
of such determination is further exacerbated when a claimed process recites steps that
are performed by machines, or incorporating other limitations, which can make it difficult
to distill and to identify the underlying concept. The difficulty of such determination does
not exist in Flook, as the claim in Flook clearly recites a formula, so the boundary of the
abstract idea as described by the formula is clear. Unfortunately, the Court failed to
provide us with much guidance in this aspect.
Seemingly recognizing the narrow nature of its holding, the Court even invited
the Federal Circuit to develop “other limiting criteria that further the purposes of the
Patent Act and are not inconsistent with its text.” 74 As we will see, the Federal Circuit
accepted that invitation and developed a set of more concrete guidelines to determine
what constitutes abstract ideas, but the guidelines are not satisfactory and create deep
division within the Federal Circuit.
iv.
Mayo Collaborative Services v. Prometheus Labs
While the Court failed to delineate the criteria of determining what an abstract
idea is, it attempted to explain how much of inventive concept is sufficient to turn an
invention built upon a law of nature into patentable subject matter, in Mayo
Collaborative Servs v. Prometheus Labs. 75 In that case, the patent is addressed to
medical diagnostic test method for autoimmune disease. 76 The claimed method recites:
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A method of optimizing therapeutic efficacy for treatment of
an immune-mediated gastrointestinal disorder, comprising:
(a) administering a drug providing 6–thioguanine to a subject
having said immune-mediated gastrointestinal disorder; and
(b) determining the level of 6–thioguanine in said subject
having said immune-mediated gastrointestinal disorder,
wherein the level of 6–thioguanine less than about 230 pmol
per 8x10 red blood cells indicates a need to increase the
amount of said drug subsequently administered to said
subject and
wherein the level of 6–thioguanine greater than about 400
pmol per 8x10 red blood cells indicates a need to decrease
the amount of said drug subsequently administered to said
subject. 77
The Court rejected the claimed method as not patent eligible because the operation of
the method depends upon unpatenable laws of nature, i.e. relationships between
concentrations of certain metabolites in the blood and the likelihood that a dosage of a
thiopurine drug will prove ineffective or cause harm. 78 The Court then examined the
rest of the claims, including the administering step, the determining step, and the
“wherein” clauses, and conclude that these claim elements “add nothing to the laws of
nature” other than “what is well-understood, routine, conventional activity, previously
engaged in by those in the field.” 79 The Court compared the claimed method with the
alarm-resetting method in Flook, holding that both methods recite post-solution activity
that is purely convention or obvious, lacking inventive concept when putting aside the
formula (and in this case, the laws of nature), and cannot transform an unpatentable
principle into a patentable process. 80 The Court also reiterated the rationale against
awarding patents for discovery of new laws of nature (and for process that amounts no
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more than “applying the natural law”), to prevent preemption of “basic tools of scientific
and technological work.” 81
The Court also addressed arguments against using an inquiry of inventive
concept to screen for patent eligibility. For example, the USPTO argued that other
statutory provisions addressed to novelty, obviousness, and written description
requirement, can perform similar screening function as inquiry of inventive concept. 82
The Court disagreed. To one extreme, the current statutory provisions addressed to
novelty and obviousness do not prevent the patenting insignificant post-solution of a
novel discovery of law, as the novel discovery is not treated as known prior art under
the current statutory provisions. 83 To the other extreme, ignoring all laws of nature
when evaluating a patent application would make all inventions unpatenable because all
inventions can be reduced to underlying principles of nature which, once known, make
their implementation obvious. 84
While the Court described an apparently clear principle of what constitutes
sufficient “inventive concept” to transform an unpatentable law of nature to something
patentable – that is, such concept cannot be “what is well-understood, routine,
conventional activity, previously engaged in by those in the field,” and that the Court
clearly intends to apply “inventive concept” to abstract idea as well,
85
the Court failed to
explain how to determine an activity is well-understood, routine, or conventional. For
example, what is the date for making such determination? If the activity is not
conventional at the time of invention, but becomes conventional later, is it conventional?
Also, what is the threshold and evidentiary standard for proving an activity is
conventional? Moreover, the Court also again failed to delineate what constitutes an
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abstract idea – although understandably there is no such need in Mayo, as the invention
in Mayo is addressed to application of laws of nature.
Besides, the Court’s arguments against relying on statutory provisions addressed
to novelty and obviousness in place of inventive concept, though sensible for law of
nature, are not as strong for abstract ideas. If we define abstract ideas as mechanisms
that are made by human and do not include discovery or description of laws of natural
or physical phenomenon (including, e.g. mathematical equations that describe physical
quantities), and if such abstract ideas are also “well-understood, routine, conventional
activity, previously engaged in by those in the field,” these ideas are definitely prior arts
under the plain meaning of relevant statute provisions under the US Patent Law, 86 and
we should be able to rely on these statute provisions, rather than trying to identify the
boundary of abstract idea, and then to identify the “inventive concept” based on that
boundary.
In the following, we will examine some of the Federal Circuit decisions
concerning about business method patents, following the Supreme Court decisions of
Bilski and Mayo, and ultimately, Supreme Court’s decision in Alice v. CLS Bank, to see
whether we are going down the right path on the patentability of business method and,
in the grand scheme of things, patentable subject matter.
5. Federal Circuit Business Method Patentability Jurisprudence After Bilski and
Mayo
i.
Research Corp. Technologies, Inc. v. Microsoft Corporation
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The first Federal Circuit decision after Supreme Court’s Bilski decision is
Research Corp. Technologies, Inc. v. Microsoft Corp. 87 In this case, the Court held that
a process for halftoning digital images is patent eligible. 88 Halftoning is a technique for
electronic display, which allows computer to display an approximation of an image by
using fewer pixel colors. Acknowledging Bilski, in which the Supreme Court invited the
Federal Circuit to develop further limiting criteria to define what constitutes unpatentable
abstract idea, the Court set out a new test: unpatentable abstract idea should “exhibit
itself so manifestly as to override the broad statutory categories of eligible subject
matter and the statutory context that directs primary attention on the patentability criteria
of the rest of the Patent Act.” 89 The Court also noted that “inventions with specific
applications or improvements to technology in the marketplace” are not likely to be
unpatentable abstract idea. 90 Based on this test, the Court held that the claimed
process for halftoning digital image is patent eligible, because the invention presents
functional and palpable applications in the field of computer technology.
91
The Court
further noted that the written description requirement, as discussed in O’Reilly, can act
as a second layer of filter behind the Court’s new test of “manifestly abstractness,” to
render a claimed process unpatentable if the invention is “so conceptual that the written
description does not enable a person of ordinary skill in the art to replicate the
process.”92
ii.
CyberSource Corp. v. Retail Decisions, Inc.
The second Federal Circuit case on patentable subject matter, following
Research Corp., is CyberSource Corporation v. Retail Decisions, Inc. 93 In this case, the
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Federal Circuit held that a method addressed to verifying the validity of a credit card
transaction over the Internet is not patent eligible. 94 The method claim is as follows:
A method for verifying the validity of a credit card transaction
over the Internet comprising the steps of:
a) obtaining information about other transactions that have
utilized an Internet address that is identified with the credit
card transaction;
b) constructing a map of credit card numbers based upon
the other transactions and;
c) utilizing the map of credit card numbers to determine if the
credit card transaction is valid. 95
The Court rejected the claim on the ground that it is drawn to an unpatentable “mental
process,” which the Court considered as a “subcategory of unpatentable abstract
ideas.” 96 The Court, citing case law, defined such mental process as “methods which
can be performed mentally . . . [and are] the basic tools of scientific and technological
work.” 97 Applying this principle, the Court held that each step of the claimed method
can be performed entirely in the human. The Court is especially uncomfortable with the
broad scope of step (c) of the method claim, which the Court held to “encompass
literally any method of detecting fraud based on the map of credit card number.” 98
Lastly, the Court also addressed a second claim which recites the same method,
but recite that the method is implemented as computer instructions stored in a
“computer readable medium” (e.g. computer memory). 99 The Court held that the
second claim is also not patent eligible, for the same reason as the method claim. 100
The Court held that simply limiting the method to computer instructions does not impose
meaningful limits on the claim’s scope. 101 To qualify the second claim as a patentable
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machine, the machine must play a significant part in permitting the claimed method to
be performed. 102
iii.
Dealertrack, Inc. v. Huber
The next Federal Circuit case on patentable subject matter, following
CyberSource is Dealertrack, Inc. v. Huber. 103 In this case, the Federal Circuit held that
a computer-aided method and system for processing credit application over electronic
networks is not patent eligible. 104 The method claim is as follows:
A computer aided method of managing a credit application,
the method comprising the steps of:
receiving credit application data from a remote application
entry and display device;
selectively forwarding the credit application data to remote
funding source terminal devices;
forwarding funding decision data from at least one of the
remote funding source terminal devices to the remote
application entry and display device;
wherein the selectively forwarding the credit application data
step further comprises:
sending at least a portion of a credit application to more than
one of said remote funding sources substantially at the same
time;
sending at least a portion of a credit application to more than
one of said remote funding sources sequentially until a
funding source returns a positive funding decision;
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,
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sending the credit application from a first remote funding
source to a second remote [funding] source if the first
funding source declines to approve the credit application. 105
The claimed method seeks to automate the process of loan application and processing,
by receiving applications from applicants, checking the applications for conformance to
bank rules (e.g. checking credit report), sending the pre-approved applications to the
bank, receiving response (“funding decision”) from the banks and forwarding the
response back to customers. The Court held that the claimed method is not patent
eligible, because it is directed the “the basic concept of processing information through
a clearinghouse” – which the court regarded as abstract concept.106 The Court also held
that the claim limitation “computer aided” does not transform the abstract idea into
patentable subject matter (e.g. a machine) since, similar to the “computer readable
medium” in CyberSource, the “computer aided” limitation does not play a significant part
in permitting the claimed method to be performed. 107
iv.
CLS Bank Intern. v. Alice Corp. Pty. Ltd.
Finally, on May 10, 2013, the Federal Circuit addressed the patent eligibility
again in CLS Bank International v. Alice Corporation Pty. Ltd.108 In this case, the Court
held that a claim addressed to a method of employing an intermediary to facilitate
simultaneous exchange of obligations in order to minimize risk is not patent eligible. 109
The method claim is follows:
A method of exchanging obligations as between parties,
each party holding a credit record and a debit record with an
exchange institution, the credit records and debit records for
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exchange of predetermined obligations, the method
comprising the steps of:
(a) creating a shadow credit record and a shadow debit
record for each stakeholder party to be held independently
by a supervisory institution from the exchange institutions;
(b) obtaining from each exchange institution a start-of-day
balance for each shadow credit record and shadow debit
record;
(c) for every transaction resulting in an exchange
obligation, the supervisory institution adjusting each
respective party's shadow credit record or shadow debit
record, allowing only these transactions that do not result in
the value of the shadow debit record being less than the
value of the shadow credit record at any time, each said
adjustment taking place in chronological order; and
(d) at the end-of-day, the supervisory institution
instructing ones of the exchange institutions to
exchange credits or debits to the credit record and debit
record of the respective parties in accordance with the
adjustments of the said permitted transactions, the credits
and debits being irrevocable, time invariant obligations
placed on the exchange institutions. 110
The Court held that the method is directed to using third party intermediary as a form of
escrow, which the Court regards as a disembodied concept, a basic building block of
human ingenuity and untethered from any real-world application. 111 The Court also held
that the claim does not add “significant more” to the abstract idea. 112 While the Court
acknowledged that the creation of the shadow records and the transactions recited in
the claim require computer implementation,113 the Court held that the claim lacks any
express language to define the computer’s participation, and there is no specific or
limiting recitation of essential or improved computer technology, hence the computer
limitation amounts to no more than “insignificant post-solution activity.” 114 The Court
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also held that other claim elements, such as reciting a supervisory institution to create
and adjust shadow credit and debit records, and to provide end-of-day instructions, also
add nothing of practical significance to the underlying abstract idea. 115
Although the Court reached consensus on the patent eligibility of the method
claim, the Court was evenly divided on the patent eligibility of a claim directed to a
system that provides an intermediary to facilitate simultaneous exchange of obligations.
The system claim is as follows:
A data processing system to enable the exchange of an
obligation between parties, the system comprising:
a communications controller,
a first party device, coupled to said communications
controller,
a data storage unit having stored therein
(a) information about a first account for a first party,
independent from a second account maintained by a first
exchange institution, and
(b) information about a third account for a second party,
independent from a fourth account maintained by a second
exchange institution; and
a computer, coupled to said data storage unit and said
communications controller, that is configured to
(a) receive a transaction from said first party device via
said communications controller;
(b) electronically adjust said first account and said third
account in order to effect an exchange obligation arising
from said transaction between said first party and said
second party after ensuring that said first party and/or said
second party have adequate value in said first account
and/or said third account, respectively; and
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(c) generate an instruction to said first exchange institution
and/or said second exchange institution to adjust said
second account and/or said fourth account in accordance
with the adjustment of said first account and/or said third
account, wherein said instruction being an irrevocable, time
invariant obligation placed on said first exchange institution
and/or said second exchange institution. 116
Five members of the Federal Circuit, represented by Judge Lourie, held that the system
claim is not patent eligible, because the recited elements “computer,” “data storage
unit,” and “communications controller” are included in every general-purpose computer,
do not provide significant inventive concept to the underlying abstract idea of providing
third party intermediary required for patent eligibility.
117
Judge Lourie also note that
while the claim recites a machine, merely adding “existing computer technology” to
abstract ideas does not convert an abstract idea into a machine.
118
Five members of the Federal Circuit, including then Chief Judge Rader, Judge
Linn, Judge Moore, Judge O’Malley, and Judge Newman, disagree that the system
claim is not patent eligible, but for different reasons. Four Judges (except Judge
Newman) argued that the “inventive concept” inquiry should center upon whether the
claimed invention “inherently” requires the recited steps, 119 and an inquiry about
whether the added steps are “routine” at the time these steps are recited (i.e. at the time
of invention) should be part of obviousness inquiry, not part of patent eligibility
inquiry.120 Based on this interpretation of “inventive concept,” the five members argued
that the system claim is patent eligible, since the claim tie the abstract idea (i.e.
providing intermediary) to a practical application (i.e. computer-based financial
transaction over a network), and that there are many other ways to implement such idea
other than the way delineated in the system claim. 121 But two of the Judges (Judge
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Rader and Judge Moore) agree that the method claim is not patent eligible, since each
of the steps recited in the method claim is inherent in an escrow.
122
Judge Newman, separately, argued that both the method claim and the system
claim are patent eligible. Judge Newman proposed that as long as the subject matter is
within the statutory classes of patentable subject matter under the US patent law (i.e. a
process, a machine, a manufacture, and a composition of matter), eligibility is
established, and then relying on other statutory provisions addressed to novelty,
nonobvoiusness, enablement, specificity, etc. to establish the patentability of the subject
matter.123 Judge Newman appeared to advocate abandoning the judicial exceptions to
patentable subject matter, to avoid further legal uncertainty.
Judge Linn and Judge O’Malley also argued that both the method claim and the
system claim are patent eligible, but did not go as far as advocating abandonment of the
judicial exceptions. Instead, they argued that based on the construction of the claim
terms, and that the claims merely recite “very specific ways” of using intermediary for
financial transactions, allowing the claims to be patent eligible (although not necessarily
patentable) does not risk preempting all commercial uses of that idea.124
Up to this point, we can see that the Federal Circuit, in response to invitation
from Supreme Court in Bilski, has tried hard to add meaningful guidelines to define what
abstract idea is. In Research Corp, the Federal Circuit held that “inventions with specific
applications or improvements to technology in the marketplace” are unlikely abstract
ideas. In Cybersource, the Federal Circuit held that methods which “can be performed
mentally” – i.e. mental process -- are subcategory of unpatentable abstract idea. In both
Cybersource and Dealtracker, the Federal Cicuit also held that simply reciting that a
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process is carried out by a computer, or is stored as computer instructions, does not
transform a patent ineligible process to a patent eligible machine. Instead, the computer
must play significant role in permitting the method to be carried out – which is similar to
the “inventive concept” set forth in Supreme Court’s holdings in Flook and Mayo, that
the computer must “add significant more” to the underlying abstract idea. The Federal
Circuit appeared to further raise the threshold of what constitutes sufficient inventive
concept in CLS Bank, where even reciting specific computer components (e.g. data
storage unit, communications controller, etc.) to carry out various functionality of an
electronic financial transaction system does not add sufficient inventive concept to the
underlying abstract idea of providing intermediary service, as long as those computer
components are part of existing computer technology. Of course, this is just a plurality
opinion of the Federal Circuit, as half of the judges who rule on this case disagreed, and
were concerned that the Court was over-expanding what should have been a very
narrow abstract idea exception to patent eligibility.
The fact that the Federal Circuit was deeply divided in CLS Bank only signals
that the current state of abstract idea exception is simply not workable. By seemingly
adding a time-dependent element in the inquiry of “inventive concept” (e.g. in Mayo the
processing steps are dismissed for being “what is well-understood, routine, conventional
activity, previously engaged in by those in the field,” and in CLS Bank the computer
components recited in the system claim are recited for being part of “existing computer
technology,” such an inquiry runs the risk of conflating with other statutory provisions
addressed to novelty and nonobviousness while ignoring the rationale behind such
inquiry – that is, to prevent preemption of fundamental building blocks of human
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knowledge. Preemption of an abstract idea occurs when a person patents an
indispensable application of the abstract idea – that is, there is only one way of applying
that abstract idea, and that way has been claimed – not when the person patents an old
application of the abstract idea, and when other viable alternative applications exist.
Given that identifying the boundary of the underlying abstract idea embedded in a
patent claim is not always clear (and patent drafters will no doubt make the underlying
idea even more obscure through clever drafting, in light of the case laws), adding
another dimension to the confusion, namely the inventive concept, only serves to add
further uncertainty to whole patent eligibility inquiry.
Can the Supreme Court save us from this quandary? Unfortunately, the answer
is no.
6. Supreme Court’s decision on Alice Corp. Pty. Ltd. v. CLS Bank Intern.
After Alice Corporation, the assignee to the method and system claims at issue in
CLS Bank Intern. V. Alice Corp, appealed from the Federal Circuit’s ruling, the Supreme
Court granted certiorari. On June 19, 2014, the Supreme Court affirmed the Federal
Circuit’s ruling, holding that the method and system claims are not patent eligible. 125
The Court first held that the concept of intermediated settlement, just like hedging
in Bilski, is a “fundamental economic practice long prevalent in our system of
commerce,” therefore it is an abstract idea. 126 The Court took the “easier route” by
comparing the claimed subject matter with the claim at issue in Bilski. However, the
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Court decided that it is not necessary to “delimit the precise contours of the ‘abstract
ideas’ category in this case,” since the Court recognized that “there is no meaningful
distinction between the concept of risk hedging in Bilski and the concept of
intermediated settlement at issue.” 127 Thus, the Court dodged the all-important
question again – what is an abstract idea? What are the attributes of abstract idea other
than being a “fundamental economic practice long prevalent in our system of
commerce,” or being “building blocks of human ingenuity”?
The Court then acknowledge the applicability of Mayo (addressed to patent
eligibility of a claim applying laws of nature) to claims addressed to abstract idea, by
making the “inventive concept” inquiry. 128 The Court again confirmed that adding
“conventional steps” to abstract idea alone does not transform the abstract idea to
patentable subject matter, 129 and that it is insufficient to limit the use of the abstract
idea to a particular technological environment. 130 Based on these rules, the Court held
that each step recited in the method claim does no more than requiring a generic
computer to perform generic computer functions, and is therefore “conventional.”
131
The Court had the same conclusion about the system claim, as the Court deemed the
computer components recited in the system claim are also purely functional and
generic. 132 At the end, the Court’s decision was motivated by concern of preemption -given the ubiquity of computer, patentee can still monopolize the abstract idea by tying
an abstract concept to a generic computer. 133 In a concurring opinion, Justice
Sotomayor, joined by Justice Ginsburg and Justice Breyer, further argued that business
method should be excluded from patenting altogether. 134
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In short, the Supreme Court failed to provide additional guidance on what
constitutes unpatentable abstract idea, nor commented on various tests formulated by
the Federal Circuit, such as “mental process” set forth in CyberSource. Also, for the
“inventive concept” inquiry, the Court once again failed to provide guidance on how to
determine whether a step is conventional or well-known including, as discussed before,
the critical time and evidentiary standard for proving a step is conventional.
Moreover, as pertinent to business method, at least the Court is clear that a
“fundamental economic practice long prevalent in our system of commerce” is an
abstract idea. But the Court once again failed to provide guidance on how to make such
a determination, which creates similar difficulty as the inquiry of inventive step.
7. Recommendation – consult the statute!
In CLS Bank, Judge Rader also urged us to go back to the original meaning of
the statutory provision that governs patent eligibility.
135
As discussed before, 35 U.S.C.
§ 101 provides that “whoever 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.” 136 Judge Rader argued that inventions should be based on their contributions to
the progress of the useful art, not on the basis of undefined and unproven judicial
abstractions like “abstractness” or “preemption.” 137 Reflecting the factitious opinions by
the Federal Circuit in this case, Judge Rader wrote: “when all else fails, consult the
statute!” 138
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I cannot agree more with Judge Rader. As discussed above, the judicial
exceptions to patent eligibility, especially for abstract ideas, create much uncertainty in
their applications. There simply does not exist a reasonable and objective rule to
determine what constitutes an abstract idea and what constitutes sufficient “inventive
concept.” Also, by focusing the inquiry of inventive concept on the technology aspect of
the application of the abstract idea, as the Supreme Court held in Alice, we seem to
have ignored the fact that our patent system seeks to protect invention of a useful art,
which may or may not be tied to technology at all. In fact, an improvement to the
“fundamental economic principles” of hedging or to providing intermediaries is not an
useful art; hence, such improvement should be within the protection of our patent
system as well, rather than being singled out as business method and categorically
excluded from patenting, as Justice Sotomayor urged. An art does not need to be
related to technology in order to be useful – and that is provided that we can accurately
define what “technology” means.
In light of this, I would recommend abolishing, at the very least, the judicial
exception of “abstract idea,” while laws of nature and physical phenomenon exception
should remain – and such extension also includes all mathematical equations that
describe laws of nature and physical phenomenon. For both exceptions, the “inventive
concept” inquiry set forth in Flook and Mayo should remain. But instead of asking for
“inventive concept” that adds “significant more” to the underlying phenomenon, the
inquiry should be focused on whether the additional step is inherent in practical
application of that phenomenon, as the dissenting opinion in CLS Bank suggested, such
that allowing the additional step to be patented does not preempt all practical
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application of that phenomenon. If it is not, the invention should be patent eligible. The
inquiry of whether the additional step is “conventional” should be deferred to inquiry of
novelty and/or obviousness.
On the other hand, if an invention does not involve laws of nature and physical
phenomenon, as long as the invention recites a practical application, such an invention
should be patent eligible. What is “practical application”? The statutory provision
addressed to written description, Title 35 of United States Code, Section 112, offers the
clue: “any person skilled in the art to which it pertains, or with which it is most nearly
connected, to make and use the same.” 139 An invention that is so abstract to the extent
that it cannot be ascertained the boundary of the claimed invention, or how to use or
make it (hence its practical application is lacking or unclear), will not be patent eligible.
Notice that we are just borrowing the definitions of “practical application” from the
written description requirement – we are not advocating substituting patent eligibility
inquiry with written description requirement, which concerns about the gap in
abstraction between a claim which delineates the boundary of an invention, and the
specification which describes the core of the invention. Once an invention is found
patent eligible, an inquiry of, for example, whether it is addressed to “a fundamental
economic concept” or “conventional, well-known practice in the industry,” should be
done under the novelty and nonobviousness analytical framework. Such approach to
patent eligibility should be applied to everything made by human – including business
method.
Although business method should be treated equally under the US Patent Law,
administrative measures can be adopted to make patent examination more effective for
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business method patent applications, to improve the quality of business method patents
issued. For example, the USPTO can hire patent examiners with business management
and economics background to examine patent applications addressed to business
methods. The USPTO can also assign examiners with business and economics
background to work with examiners with technology background to examine patent
applications in which the claimed business method and technology are deeply
intertwined, so that each examiner can supplement each other. The Patent Office can
also provide more time to the examiners examining business method patent
applications to conduct prior art search. All these measures can improve the quality of
any business method patent issued.
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Footnotes
1
Alice Corporation Pty. Ltd. v. CLS Bank Intern., 134 S. Ct. 2347 (2014).
2
Alice Corporation Pty. Ltd. v. CLS Bank Intern., 134 S. Ct. 2347, 2351.
3
See United States Constitution, Article I, Section 8 (“The Congress shall have power
... To promote the Progress of Science and useful Arts, by securing for limited Times to
Authors and Inventors the exclusive Right to their respective Writings and Discoveries”).
4
See Rochelle Dreyfuss, Are Business Method Patents Bad for Business? 16 Santa
Clara High Tech. L.J. 263, 275 (2000).
5
Id.
6
Id. at 270.
7
Id. at 276.
8
See Hall, Bronwyn H., Business Method Patents, Innovation, and Policy. Department
of Economics, UC Berkeley. (May 2003).
9
Id. at 11.
10
Id. at 11-12.
11
See Dreyfuss, at 275.
12
See Hall, at 13.
13
Id.
14
See Dreyfuss, at 269.
15
Id.
16
See Duffy, John F., Why Business Method Patents? 63 Stan. L. Rev. 1247, 12631269 (2011).
17
Diamond v. Chakrabarty, 100 S.Ct. 2204, 2208 (1980).
18
See Robert Merges and Jane Ginsburg, Foundations of Intellectual Property, p. 90,
LEXISNEXIS (2012).
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19
Business method patent, http://en.wikipedia.org/wiki/Business_method_patent.
20
See U.S. Patent Classification System - Classification Definitions as of June 30,
2000, http://www.uspto.gov/web/offices/ac/ido/oeip/taf/def/705.htm.
21
The European Patent Convention, Article 52(c)(2).
22
See, for example, Arnoud Engelfriet, Software patents under the European Patent
Convention, http://www.iusmentis.com/patents/software/epc/
23
35 U.S.C. §101.
24
See O’Reilly v. Morse, 56 U.S. 62 (1853).
25
Id. at 68.
26
Id. at 62.
27
Id. at 86 (emphasis added).
28
Id. at 119.
29
Id. at 116.
30
Id.
31
Id.
32
Id. at 117.
33
Id.
34
Id.
35
Id. at 116.
36
See Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S.Ct. 1289,
1293 (2012).
37
35 U.S.C. §112(a).
38
Gottschalk v. Benson, 409 U.S. 63 (1972).
39
Id. at 64.
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40
Binary-coded decimal, http://en.wikipedia.org/wiki/Binary-coded_decimal.
41
Benson, 409 U.S. at 73.
42
Id. at 71-72.
43
See, for example, Codes Conversion, http://www.tutorialspoint.com/computer_logical
_organization/codes_conversion.htm.
44
Benson, at 70.
45
Id.
46
Id.
47
Parker v. Flook, 437 U.S. 584 (1978).
48
Id. at 585.
49
Id. at 597.
50
Id.
51
Id. at 586.
52
Id. at 595.
53
Id.
54
Id.
55
Id. at 593.
56
See 35 U.S.C. § 102 and 35 U.S.C. § 103.
57
See, for example, International Co. v. Teleflex Inc. (KSR), 550 U.S. 398 (2007).
{ "pageset": "Sc1e5
Flook, 437 U.S. 584, 586 (“The only difference
between the
conventional methods of changing alarm limits and that described in respondent's
application rests in the second step—the mathematical algorithm or formula”).
58
59
Diamond v. Diehr, 450 U.S. 175 (1981).
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60
Diehr, 450 U.S. at 178.
61
Id. at 192.
62
Id.
63
Bilski v. Kappos, 591 U.S. 593 (2010).
64
Bilski, 591 U.S. at 599.
65
Id.
66
Id. at 604.
67
Id. at 607.
68
Id. at 608.
69
Id. at 612.
70
Id.
71
Id.
72
See U.S. Patent Publication No. 2013/0110731 A1.
73
See U.S. Patent Publication No. 2003/0061123 A1.
74
Bilski, 591 U.S. at 613.
75
Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S.Ct. 1289
(2012).
76
See Mayo, 132 S.Ct. at 1294.
77
Id. at 1296.
78
Id.
79
Id. at 1298.
80
Id. at 1299.
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81
Id. at 1301.
82
Id. at 1303.
83
Id.
84
Id.
85
Id. at 1298.
See, for example, 35 U.S.C. §102(a)(1) (“A person shall be entitled to a patent
unless . . . the claimed invention was patented, described in a printed publication, or in
public use, on sale, or otherwise available to the public before the effective filing date of
the claimed invention.”).
86
87
Research Corp. Technologies, Inc. v. Microsoft Corp., 627 F.3d 859 (Fed. Cir. 2010).
88
Id. at 863.
89
Id. at 868.
90
Id. at 869.
91
Id.
92
Id.
93
CyberSource Corp. v. Retail Decisions, Inc., 654 F.3d 1366 (Fed. Cir. 2011).
94
Id. at 1370.
95
Id.
96
Id. at 1371.
97
Id.
98
Id. at 1373.
99
Id. at 1375.
100
Id.
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101
Id.
102
Id.
103
104
Dealertrack, Inc. v. Huber, 674 F.3d 1315 (Fed. Cir. 2012).
Id. at 1335.
105
Id. at 1331.
106
Id. at 1333.
107
Id.
108
CLS Bank Intern. v. Alice Corp. Pty. Ltd., 717 F.3d 1269 (Fed. Cir. 2013).
109
Id. at 1284.
110
Id. at 1285 (emphases added).
111
Id. at 1286.
112
Id.
113
Id. at 1285.
114
Id. at 1286.
115
Id.
116
Id. at 1306-1307 (emphases added).
117
Id. at 1291.
118
Id. at 1292.
119
Id. at 1303.
120
Id.
121
Id.
122
Id. at 1311.
123
Id. at 1326.
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124
Id. at 1332.
125
Alice Corporation Pty. Ltd. v. CLS Bank Intern., 134 S. Ct. 2347, 2351.
126
Id. at 2356.
127
Id. at 2357.
128
Id.
129
Id. at 2358.
130
Id.
131
Id. at 2359.
132
Id. at 2360.
133
Id. at 2358.
134
Id. at 2360.
135
CLS Bank Intern. v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1334.
136
35 U.S.C. §101.
137
CLS Bank Intern., F.3d at 1334.
138
Id.
139
35 U.S.C. §112(a).
47