In re Bilski

Brief Fact Summary.

Bernard L. Bilski (Plaintiff) and Rand A. Warsaw (Plaintiff) submitted a patent application containing eleven claims related to hedging risk in consumer commodities trading.

Synopsis of Rule of Law.

The machine-or-transformation test is the appropriate test to determine whether a claim is drawn to a patent-eligible process according to § 101.

Facts.

Plaintiffs submitted a patent application containing eleven claims related to a method for managing consumption risk of a consumer commodity.  Plaintiffs admitted that the commodity may not be a physical commodity but could be options for future purchases.  The examiner determined the method was manipulating an abstract idea, did not involve specific equipment, and therefore was not directed to the “technological arts.”  The examiner rejected all eleven claims of the application.  The Plaintiffs appealed to the Board, which held that the examiner had applied the wrong test when using the “technological arts” test and should not have required specific equipment because “transformation” of physical subject matter was eligible for patent and may not require specific equipment.  The Board sustained the rejection, but, on the grounds the claims did not involve a transformation, attempted to patent an abstract idea, and did not produce a “useful, concrete and tangible result.”  Plaintiffs appealed the Board’s final determination.

Issue.

Is the machine-or-transformation test the appropriate test to determine whether a claim is drawn to a process eligible for patent according to § 101?

Held.

(Michel, C.J.)  Yes.  The machine-or-transformation test is the appropriate test to determine whether a claim is drawn to a process eligible for patent according to § 101.  A claim’s initial inquiry is whether the claim is drawn to a subject matter eligible for patent under § 101.  The statute includes four categories of eligible patent subject matter, which are processes, machines, manufactures, and compositions of matter.  Plaintiff’s claims admittedly fail to meet three of the four, so the Court must consider whether the claims fall under “processes.”  The Supreme Court has defined “process” in § 101 to exclude basic principles that should remain free knowledge to everyone.  In Diamond v. Diehr, 450 U.S. 175 (1981), the Supreme Court made a distinction between basic principles and a particular application of a basic principle.  Diehr basically requires an inquiry into whether the claim excludes most applications of the basic principle or whether the claim applies the basic principle in a specific way.  Diehr involved applying a particular algorithm to a process for curing rubber.  The algorithm could still be used in any application other than the specific steps outlined in the claim to cure rubber, and so it was a process eligible for patent.  There was a contrasting Supreme Court Case in Gottschalk v. Benson, 409 U.S. 63 (1972), where the claim was for a mathematical formula to convert BCD numbers to pure binary numbers using a digital computer.  If approved, no one else could use the conversion algorithm because it had no other practical application.  The claim was rejected.  The issue before the Court then is whether Plaintiff’s claim involves a basic principal, and if so, whether patenting the claim substantially prevents use of that basic principal for any other application.  The Supreme Court provides the definitive test to determine if the claim prevents other applications of the basic principle.  The claim is eligible for patent under § 101 if the claim is tied to a particular machine or equipment or transforms a particular article into a different state or thing.  The case law supports the machine-or-transformation test and the Supreme Court reaffirmed it in Diehr.  A claim does not become eligible for patent just by limiting it to a particular field or including an “insignificant post-solution activity.”  Also, although 101 refers to “new and useful” processes, that phrase is not a requirement independent of § 102 (novelty and § 103 (non-obviousness).  Novelty and non-obviousness do not come under consideration in a § 101 analysis.  Similarly, a non-patent-eligible step in the claim does not make the entire claim ineligible.  Other case law articulations of § 101 tests are overruled.  The Freeman-Walter-Abele test, which includes determining whether the claim uses an algorithm and then evaluating the application of that algorithm, is inadequate because it evaluates individual steps rather than the claim as a whole.  The “useful, concrete, and tangible result” test is invalid as insufficient and not intended to replace the machine-or-transformation test.  Finally, the “technological arts” test fails because the terms “technological arts” and “technology” are always changing.  The correct test determines whether a transformation occurs or whether a machine or equipment is involved in more than an insignificant extrasolution manner.  The transformation should be the transformation of an article into a different state or thing, even if the transformation involves raw data.  The data gathering step within in an algorithm does not, however, transform a non-patent-eligible claim into a patent-eligible claim.  Here, the Plaintiff’s process does not transform an article into a different state or thing.  The “article” might only be an option to buy in the future.  The claim admittedly fails the machine test also, and therefore is not drawn to patent-eligible subject matter.  The examiner was wrong in applying the “technological arts” test, but the application does not meet the machine-or-transformation test either.  The process includes a purely mental process of mathematics, which would prevent all applications of any mental process to hedge risk.  Plaintiff’s claims are not drawn to patent-eligible subject matter.  Affirmed.

Dissent.

(Newman, J.)  The Court today made a mistake in redefining “process” to exclude electronic and photonic technologies.  The Court ignores its prior decisions and strikes down the “useful, concrete, and tangible result” as well as failing to recognize that the patent application must meet all elements of the statute including novelty, non-obviousness, and utility.  The public has relied on the prior Court holdings, particularly in the area of “intangibles.”  The Court applies new standards, such as transformation as “central to the purpose” but does not specify what types of transformations qualify.  The property rights of the inventors who received patents under the prior tests and definitions are now at risk.  The Court has ignored the actual test of the statute, its legislative history, application, and Court interpretation.
(Mayer, J.)  The Court should overrule its prior decisions that provide patent protection to business methods.  Congress did not intend to permit patents of business methods; patenting has occurred through a misinterpretation of the statute’s legislative history, and patents are meant to protect technological advances rather than methods for running a business.  Business method patents do not promote the useful arts and are typically of poor quality.  Business methods belong in the public domain.  Plaintiff’s claims include methods of running a business to hedge risk, are broadly drafted, and prohibit the free-flow of ideas to hedge risk.  The machine-or-transformation test will do little to limit the patents on business methods.  Plaintiff’s claims arguably involve a physical transformation as market participants go from a state of not being involved in a transaction to a state of being involved.  The transformation should be directed to an advance in science or technology.
(Rader, J.)  The Court could simply have stated Plaintiff’s claim involves an abstract idea and is therefore not eligible for patent.  In its unending opinion, however, it disrupts well-settled principles of law.  The Court ignores the broad “process” definition in favor of defining “process” in a limited fashion which undermines Congressional intention.  Even if the claim slips in under a broader reading of § 101, it must still meet the requirements of the remainder of the chapter.  The Court has no authority to impose “transformation” when the statute does not use that term.

Discussion.

Multiple corporations filed impartial briefs in the Bilski case to discourage the continued granting of business method patents, which appeared to be the focus of the claims set out in the Plaintiff application.  The concern is that continued granting of mental/business methods could lead to the patenting of truly mental processes, including jury selection.  The other side argued that patents should be freely granted as the digital age progresses because inventors then have an incentive to develop new ways to apply digital information.  Bilski has been appealed to the U.S. Supreme Court.