Tuesday, June 29, 2010

Bilski (part 2) - Machine or transformation test is an important and useful clue

Yesterday, the Supreme Court issued its long-awaited decision in Bilski v. Kappos. I briefly posted on this yesterday here. The Court rejected the Federal Circuit's Machine or Transformation test as the sole mechanism for determining whether a process is patent-eligible:
This Court’s precedents establish that the machine-or-transformation test is a useful and important clue, aninvestigative tool, for determining whether some claimed inventions are processes under §101. The machine-or-transformation test is not the sole test for decidingwhether an invention is a patent-eligible “process.”
So what does that mean, and how did we get here? Keep reading.

Bilski's invention

Bernard Bilski and Rand Warsaw invented an "Energy Risk Management Method." This was a method to hedge against the risk of price changes in buying and selling commodities in the energy market. Claim 1 included the following steps:
(a) initiating a series of transactions between said commodity provider and consumers of said commoditywherein said consumers purchase said commodity at afixed rate based upon historical averages, said fixedrate corresponding to a risk position of said consumers;
(b) identifying market participants for said com-modity 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 par-ticipant transactions balances the risk position of said series of consumer transactions.
This patent application sought to protect a method of doing business. The Patent Office rejected it, saying it was not a patent-eligible invention.

Patent-eligibility vs. Patentability

There are 2 main questions to ask when considering a patent on an invention: (1) is the type of invention eligible for patent protection; and (2) is the invention an invention at all? This second part, whether or not the invention is an invention at all, addresses whether the invention is new, useful and non-obvious. If someone else invented what you've claimed to invent, well then you haven't invented something that's new, useful or nonobvious. But before you get to that question, we must address the first consideration -- is the invention the type of thing that deserves patent protection.

Patent-eligiblity -What is patentable subject matter?

The U.S. statute that defines patent-eligible subject matter states:
Whoever invents or discovers any new and useful process, machine, manufacture, or composition ofmatter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.
Thus, there are 4 patent-eligible inventions: processes, machines, manufacturers, and compositions of matter.

Over the years, the Supreme Court has carved out three specific exceptions to this patent-eligibility requirement. Laws of nature, abstract ideas, and physical phenomenon are not eligible for patent protection. Galileo could not patent gravity. Pythagoras could not patent his theoreom. Nobody gets to own the Northern Lights. But everything else under the sun made by man? Well, that's a different beast.

Machine or Transformation Test

The Federal Circuit had used a test for deciding whether or not a particular process was patent-eligibilty. The test analyzed whether the claimed process (1) was tied to a particular machine or apparatus, or (2) transformed a particular article into a different state or thing. This so-called machine-or-transformation test was the basis for rejecting Bilski's claimed invention, and was considered the "sole test" for determining patent-eligibilty for a process.

As you can see above, the Supreme Court rejected this approach, holding that the machine-or-transformation test is a useful tool for considering patent-eligibity, but it is not the sole test. This was a statutory construction case. The patent laws say they protect processes, and they even define what a process is. Congress did not put the machine-or-transformation test into the statute, and so that test can not be the only test for determining patent-eligibility.

Software inventions, business methods, diagnostic medicine techniques, ...

This case drew attention from innovators on all sides of the spectrum. Many argued that all business method patents are bad and we shouldn't have any of them. Others argued that software patents are also bad because they're simply business method patents and we shouldn't have them. The medical diagnostic community was also concerned as their methods of diagnosing could also fall into a business method analysis resulting in a loss of patent rights.

The Supreme Court addressed these concerns essentially head on, and explained that it wasn't drawing any bright-rules excluding anything from patent protection that Congress didn't put into the patent laws. The Court explained that the machine-or-transformation test was probably excellent for the Industrial Age, but the Information Age presents new types of inventions worthy of our patent laws:
The machine-or-transformation test may well provide a sufficient basis for evaluating processes similar to those inthe Industrial Age—for example, inventions grounded in aphysical or other tangible form. But there are reasons to doubt whether the test should be the sole criterion for determining the patentability of inventions in the Information Age.
But we should not forget what Thomas Jefferson felt at the beginning -- "ingenuity should receive a liberal encouragement." New technologies call for new tests. The Court did not hold that any of the above technologies are or are not patent-eligible. Of course, that's too broad a statement or question. The Court left that issue to another day:
This Age puts the possibility of innovation in the hands of more people and raisesnew difficulties for the patent law. With ever more people trying to innovate and thus seeking patent protections fortheir inventions, the patent law faces a great challenge instriking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of generalprinciples. Nothing in this opinion should be read to takea position on where that balance ought to be struck.
Bilski still loses

After explaining that machine-or-transformation is not the only test, the Court affirmed the rejections of Bilski's patent application because it was an attempt to claim an abstract idea. As discussed above, abstract ideas are not patent eligible, and thus no patent for Bilski.

The Concurring Opinions

Each Justice agreed with the result of the decision -- Bilski was not entitled to a patent on his method of hedging risk. Justice Scalia did not join with the Court's discussion of software and diagnostic patent-eligibility or the discussion relating to the Industrial Age vs. Information Age. Two other Justices authored opinions concurring in the result.

Justice Stevens, joined by Justices Ginsburg, Breyer and Sotomayor

This opinion advocates restoring patent law to its historical and constitutional moorings and excluding business methods from patent protection. Justice Stevens attacks the Court's opinion ("The opinion is less than pellucid in more than one respect, and, if misunderstood, could result in confusion or upset settled areas of the law."), and at times calls it absurd.

Under the Court's view, processes (like any other invention) must satisfy the two questions I discuss above: (1) is the process eligible for patent protection; and (2) is the process an invention (i.e. is it new, useful and nonobvious). Justice Stevens believes this approach renders the patent-eligibility question "comical."
A process for training a dog, a series of dance steps, a method of shooting a basketball, maybe even words, stories, or songs if framed as the steps of typing letters or uttering sounds—all would be patent-eligible. I am confident that the term “process” in §101 isnot nearly so capacious.
Justice Stevens does go on to note (in a footnote) that the patentability questions (is the method of walking a dog new, useful, and nonobvious) would still preclude these "comical" ideas from patent protection. He does not explain, however, why letting the patentability question protect against these "absurd" inventions is not sufficient.

Justice Stevens then traces our patent laws back to the English patent practice prior to our nation's founding. He tries to explain that business methods were never part of the picture, even though he does identify at least one "business method" patent issued in 1778 on a "Plan for assurances on lives of persons from 10 to 80 years of Age." Justice Stevens writes this off as little more than the whim or error of a single patent clerk.

So, we were one vote away from adding business methods as a fourth judicial exception to patent-eligibility.

Justice Breyer, joined by Justice Scalia

"I agree with Justice Stevens that a 'general method of engaging in business transactions' is not a patentable 'process' within the meaning of 35 U.S.C. §101." By joining this opinion, has Justice Scalia cast the 5th vote and excepted business methods from patent protection? I don't know the answer to that, and I trust we'll see plenty of litigation directed to that point.

Justice Breyer's opinion is that the Court has not changed anything, and the machine-or-transformation test was never the "sole" test used.
In sum, it is my view that, in reemphasizing that the“machine-or-transformation” test is not necessarily the sole test of patentability, the Court intends neither to de-emphasize the test’s usefulness nor to suggest that many patentable processes lie beyond its reach.

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