In response to the U.S. Supreme Court’s decision in Bilski v. Kappos (see our post here), the USPTO issued a memorandum to provide interim guidance to the Patent Examining Corps (see our post here).  Some commentators (here) have criticized the new policy because the interim guidelines state if there is no “clear indication” that the invention is something other than an abstract idea, the examiners should reject the application. At this point, applicants have the burden to explain why the invention is not an abstract idea.  This approach to examination appears to be contrary to Oetiker, where the Federal Circuit held that “the examiner bears the initial burden, on review of the prior art or on any other ground, of presenting a prima facie case of unpatentability.”  In re Oetiker, 977 F.2d 1443, 1445 (Fed. Cir. 1992) (see MPEP 2106(IV)(D)).

Today, at the National Association of Patent Practitioners (NAPP) 2010 Annual Meeting in Alexandria, Virginia, Robert L. Stoll, Commissioner for Patents at the USPTO, told the audience that updated, more detailed interim guidance was in the review and approval process and that he hoped to have it available for use within the next few weeks.  He also emphasized that it was never the intent of the current interim guidance to shift the burden of proving patentability to the applicant and that examiners still have the burden of presenting a prima facie case of unpatentability.

Going forward, Stoll said that the USPTO would be soliciting public comments and closely monitoring court decisions in an attempt to create and maintain up-to-date examination guidance regarding patentable subject matter.

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Following the Supreme Court’s decision in Bilski v. Kappos (see our post here), the USPTO issued a memorandum to provide interim guidance to the Patent Examining Corps.  For now, the USPTO will continue to use the Federal Circuit’s machine-or-transformation test as the benchmark for patentability determinations under Section 101.

The pertinent part of the memo reads:

Examiners should continue to examine patent applications for compliance with section 101 using the existing guidance concerning the machine-or-transformation test as a tool for determining whether the claimed invention is a process under section 101. If a claimed method meets the machine-or-transformation test, the method is likely patent-eligible under section 101 unless there is a clear indication that the method is directed to an abstract idea. If a claimed method does not meet the machine-or- transformation test, the examiner should reject the claim under section 101 unless there is a clear indication that the method is not directed to an abstract idea. If a claim is rejected under section 101 on the basis that it is drawn to an abstract idea, the applicant then has the opportunity to explain why the claimed method is not drawn to an abstract idea.

The USPTO is reviewing the decision in Bilski and will be developing further guidance on patent subject matter eligibility under 35 U.S.C. § 10 1.

To read the Bilski memo to the Patent Examining Corps, click here.

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The U.S. Supreme Court, on June 28, 2010, decided the long-awaited Bilski case, affirming the Federal Circuit’s judgment.  The Court ruled that business methods are eligible subject matter but declined to accept the Federal Circuit’s machine-or-transformation test as the exclusive test for the Section 101 determination.  Most of the Court’s opinion is supported by 5 votes, and other parts are supported by only 4 votes.  All nine justices agreed that Bilski’s risk management method claims related to hedging against weather-related losses in the energy industry were too abstract, and thus not patentable subject matter.  Four justices, led by retiring Justice John Paul Stevens, said that methods of doing business should never be patentable.  They expressed “serious doubt” that business innovators need patents to succeed.

The Court held that the machine-or-transformation offers “a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101. The machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible process.”

This decision is a win for financial institutions.  It is also a win for e-commerce and software companies, especially start-ups, who often rely heavily on business method and software patents to attract investors.

The following language is supported by a majority of the Court:

“Today, the Court once again declines to impose limitations on the Patent Act that are inconsistent with the Act’s text. The patent application here can be rejected under our precedents on the unpatentability of abstract ideas. The Court, therefore, need not define further what constitutes a patentable “process,” beyond pointing to the definition of that term provided in §100(b) and looking to the guideposts in Benson, Flook, and Diehr.

“And nothing in today’s opinion should be read as endorsing interpretations of §101 that the Court of Appeals for the Federal Circuit has used in the past.  See, e.g., State Street, 149 F. 3d, at 1373; AT&T Corp., 172 F. 3d, at 1357. It may be that the Court of Appeals thought it needed to make the machine-or-transformation test exclusive precisely because its case law had not adequately identified less extreme means of restricting business method patents, including (but not limited to) application of our opinions in Benson, Flook, and Diehr. In disapproving an exclusive machine-or-transformation test, we by no means foreclose the Federal Circuit’s development of other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text.”

What’s next?  The Supreme Court left unanswered exactly what would be needed for a business method to be considered patentable subject matter. Also left open are the questions of patentable subject matter for software patents and medical diagnostic methods.  Thus, while business method patents are still alive – or have at least survived – the district courts and Federal Circuit will be using the next several years to develop “other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text.”

To read the full Bilski v. Kappos opinion, click here.

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In a notice dated January 26, 2010, the United States Patent and Trademark Office (USPTO) provided guidance for patent applicants who use claims directed to computer readable media  (also called machine readable media and similar variations).  A problem has developed in the way the USPTO and the courts have interpreted such claims, i.e., they may include non-statutory, transitory propagating signals.

According to the USPTO, the broadest reasonable interpretation of a claim drawn to a computer readable medium typically covers forms of non-transitory tangible media and transitory propagating signals per se in view of the ordinary and customary meaning of computer readable media, particularly when the specification is silent.  See MPEP 2111.01.  When the broadest reasonable interpretation of a claim covers a signal per se, the claim must be rejected under 35 U.S.C. 101 as covering non-statutory subject matter.  See In re Nuijten, 500 F.3d 1346, 1356-57 (Fed. Cir. 2007) (transitory embodiments are not directed to statutory subject matter) and Interim Examination Instructions for Evaluating Subject Matter Eligibility Under 35 U.S.C. 101, Aug. 24, 2009; p. 2.

The notice states that the USPTO recognizes that applicants may have claims directed to computer readable media that cover signals per se, which the USPTO must reject under 35 U.S.C. 101 as covering both non-statutory subject matter and statutory subject matter.  In an effort to assist the patent community in overcoming a rejection or potential rejection under 35 U.S.C. 101 in this situation, the USPTO suggests the following approach:  A claim drawn to such a computer readable medium that covers both transitory and non-transitory embodiments may be amended to narrow the claim to cover only statutory embodiments to avoid a rejection under 35 U.S.C. 101 by adding the limitation “non-transitory” to the claim.  Cf. Animals - Patentability, Off. Gaz. Pat. Office 24 (April 21, 1987) (suggesting that applicants add the limitation “non-human” to a claim covering a multi-cellular organism to avoid a rejection under 35 U.S.C. 101).

According to the notice, such an amendment would typically not raise the issue of new matter, even when the specification is silent, because the broadest reasonable interpretation relies on the ordinary and customary meaning that includes signals per se.  The limited situations in which such an amendment could raise issues of new matter occur, for example, when the specification does not support a non-transitory embodiment because a signal per se is the only viable embodiment such that the amended claim is impermissibly broadened beyond the supporting disclosure.  See, e.g., Gentry Gallery, Inc. v. Berkline Corp., 134 F.3d 1473 (Fed. Cir. 1998).

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Patent practitioners discussed the viability of business method/software patent protection during a recent BNA audioconference looking at recent decisions by the U.S. Court of Appeals for the Federal Circuit.  But, they also provided clues on best strategies for litigating patents that have already been granted.

The June 3rd conference, sponsored by BNA’s Legal & Business EDge division, featured attorneys from IP law firm Finnegan.  Robert E. Yoches, Jeffrey A. Berkowitz, Kara F. Stoll, and Erika Harmon Arner, from the firm’s offices in Washington, D.C., and Reston, Va., first described the impact of three Federal Circuit decisions on business method and software patenting generally:

In re Bilski set rules for patent-eligible methods under the “machine-or-transformation” test.  545 F.3d 943, 88 USPQ2d 1385 (Fed. Cir.  2008) (en banc).

In re Comiskey initially held that the “routine addition of modern electronics to an otherwise unpatentable invention typically creates a prima facie case of obviousness,” but, post-Bilski, a revised opinion deleted that limitation.  554 F.3d 967, 89 USPQ2d 1655 (Fed. Cir.  2009).

MuniAuction Inc. v. Thomson Corp. addressed software in the Internet context, and said that it would have been obvious to modify prior art, non-Internet software to incorporate conventional Web browser functionality for the online auction business method patent at issue.  532 F3d 1318, 87 USPQ2d 1350 (Fed. Cir. 2008).

The conference then turned to strategies for moving forward with already-issued software patents, with Yoches offering the following strategies for patent owners:

Seek a reissuance of the patent.  If the patent was issued more than two years ago, you may still be able to add narrowing claims.  If you are one of the “stark minority of people” who was granted a software patent in the last two years, he said, broader claims might even be possible.  He pointed out the risk, in that the “hostility” of the USPTO might result in losing the patent entirely, but said that “you may face that risk in court anyway.”

Preempt MuniAuction issues by reexamination.  Yoches recommended “amend claims and emphasize other differences from prior art.”  He noted that reexamination can take years and warned listeners to “guard against inequitable conduct changes based on knowledge gained after the original patent issued.”

Yoches also had advice for accused infringers:

At least file a summary judgment motion on 35 U.S.C. 101 patentability.  Section 103 obviousness may be a legal issue as well “if there is no dispute about the differences between the invention and the prior art.”

A request for inter partes reexamination may delay a trial, and the PTO’s hostility may work in your favor, he said, but the risk is that the patent’s validity will be enhanced if claims do issue, and reexamination also gives the patent owner an opportunity to draft narrow claims that cover the precise accused device.

Post-judgment, a favorable reexamination result and a Rule 60 motion could be effective, he said, citing a case where the Federal Circuit deferred to a reexamination of a patent at issue and vacated a jury award for infringement.  Translogic Technology Inc. v. Hitachi Ltd., 250 Fed. Appx. 988 (Fed. Cir. 2007).

Yoches also acknowledged, however, that current advice could become obsolete when the U.S. Supreme Court issues a ruling on business method/software patentability issues in its pending review of Bilski.  The Finnegan firm authored the certiorari petition on behalf of the unsuccessful business method patent applicants in that case.

To an audience member’s question for advice if you are in the midst of litigation now, he said, “I’d suggest a stay.  The Supreme Court is going to be addressing this directly within a year.”  Especially if your case is before the Federal Circuit now, he said, “you have every reason to ask for a stay.”

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I attended a recent BNA audioconference on patent prosecution and post-grant considerations in view of Bilski.  The conference offered the insights of practitioners Kenneth N. Nigon of RatnerPrestia, Valley Forge, Pa., and Stephen C. Durant of Duane Morris, San Francisco, on drafting claims and seeking to reissue patents put in doubt by the Federal Circuit’s Bilski decision.  What follows is a summary of the conference. 

Bilski Machine-or-Transformation Test

As determined by the Federal Circuit in In re Bilski, 545 F.3d 943, 88 USPQ2d 1385 (Fed. Cir. 2008) (en banc) (77 PTCJ 4, 11/7/08), “A claimed process is surely patent-eligible under § 101 if:  (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.”

To the “machine prong” of this test, Nigon concluded that a “particular machine” may be:

• a known apparatus;

• a special purpose computer;

• a general purpose computer programmed with particular software; or

• a computer-readable storage medium.

To qualify under the “transformation prong” of the Bilski test, Nigon said, the thing being transformed must be either tangible or data representing something tangible, what he called “meta-tangible.”  He added that the identified machine or transformation must be central to the invention and have specific utility and not just extra-solution activity.

Pre-Bilski Precedents Still Relevant

Before looking at each prong of the test in more detail, the presenters identified pertinent Federal Circuit precedents that relate to patent-eligible subject matter for processes and were not specifically invalidated by Bilski:

• The court found patentable a method claim that included both a computer and a digital plotting apparatus in In re Bernhart, 417 F.2d 1395, 163 USPQ 611 (C.C.P.A. 1969).  So, Nigon asked, “If a claimed process includes references to machines such that the process cannot be performed mentally, is that sufficient to satisfy the ‘particular machines’ branch of the test?”

• The allowed patent in In re Lowry, 32 F.3d 1579, 32 USPQ2d 1031 (Fed. Cir. 1994) read on data structures for an object-oriented database that the court found to be “physical entities that provide increased efficiency in computer operations,” which Nigon assumed to be still patentable as “transforming the memory of a particular machine.”

• The claims in In re Warmerdam, 33 F.3d 1354, 31 USPQ2d 1754 (Fed. Cir. 1994) (48 PTCJ 409, 8/18/94) would still be held to be non-patentable, he said, as the court found that all of the method claims recited only mathematical algorithms, with no machine recited and no tangible or meta-tangible data transformed.

• A diagnostic test-based claim in In re Grams, 888 F.2d 835, 12 USPQ2d 1824 (Fed. Cir. 1989) (39 PTCJ 23, 11/9/89) was not patent-eligible subject matter when the court determined that the only physical step in the method, “performing a plurality of clinical diagnostic tests,” was mere data gathering—i.e., extra-solution activity—for the algorithm defined in the remaining steps.

BPAI on Particular Machines

Durant then reviewed a number of post-Bilski decisions by the Board of Patent Appeals and Interferences with reference to the machine prong of the test.  He identified cases that appeared in conflict with the precedents cited above or with each other.

Though each claim step recited a different function performed “by a processor,” the board rejected under Section 101 claims in Ex parte Cornea-Hasegan, No. 2008-4742, 89 USPQ2d 1557 (B.P.A.I. Jan. 13, 2009) (77 PTCJ 291, 1/23/09).  Durant asked how that can be reconciled with Bernhart‘s acceptable claim of “printing using a plotter.”

In contrast, in Ex parte Kasper II, No. 2008-2297 (B.P.A.I. Feb. 2, 2009), he noted, the BPAI found statutory a method directed to processes that interact with a “local unit” to receive data through a “data link layer.”

He also compared e-commerce claims in Ex parte Borenstein, No. 2008-3475 (B.P.A.I. March 30, 2009) with Ex parte Harris, No. 2007-0325 (B.P.A.I. Jan. 13, 2009).  The former recited “path information” inherently implying that catalog information must be stored on a computer or database, and so was found to be patent-eligible.  The latter’s references to bidding “over a network to a server which collects said bids” was seen by the board as reciting “mere field-of-use limitations,” Durant noted.

Claiming Machine Ties

Nigon said that the disparity between the board’s decisions can be traced in part to the different panels of judges, but the “undercurrent is the use of the word ‘particular’ ” in the opinions.

He suggested that claim drafting that identifies functional steps “performed by something” are more likely to meet with BPAI approval.

To make the point, he built on the following example of a software method claim:  An encryption method comprising: (1) performing a first mathematical calculation on a data object to generate a first result; (2) performing a second mathematical calculation on the first result and an encryption key value to generate a second result; and (3) providing the second result as the output signal of the encryption method.  That claim would fail both prongs of the Bilski test, he said.  Add the phrase “on the computer” after each mention of the word “performing” in steps (1) and (2) and you have made it a little bit better for passing the machine prong, Nigon said.  But some panels would say that is a field of use limitation and still preempts the abstract idea of encryption.

Now consider identifying “a first computer process” as the operator in the first step and “a second computer process” in the second step, Nigon said.  Because you now have specific computer steps, you probably have properly limited the invention to meet the particular machine prong of the Bilski test, he said.

Of course, Nigon noted the trade-off in making that limitation, such that someone who could do the encryption in a single process would not be infringing.  He therefore suggested that a good approach would be to claim the computer in an independent claim and provide the additional processing limitations in a dependent claim.

Nigon had the same basic advice for business method patents, and also noted that flow charts may not be enough, unless a specific algorithm is claimed and the hardware is disclosed.  “A particular algorithm when combined with a general purpose computer is a new computer,” he said.

An alternative or addition would be to have a functional block diagram, Nigon said, describing the hardware system, in terms of the functions of the method performed.  If the business method uses databases, a search process and/or a user interface, those functions require machines in any case, he said.

BPAI on Transforming Articles

Durant identified a number of BPAI cases that failed to identify a Bilski-qualifying transformation.  For example:

• Ex parte Barnes, No. 2007-4114 (B.P.A.I. Jan. 22, 2009) claimed the determination of “a planarity value” in seismic data.

• The “namespace” transformed in the steps claimed in Ex parte Zybura, No. 2008-2195 (B.P.A.I. Feb. 3, 2009) was determined not to be a physical object.

• The applicant in Ex parte Atkin, No. 2008-4352 (B.P.A.I. Jan. 30, 2009) attempted to claim a method to convert a unidirectional domain name to a bidirectional domain name, which the board found to be mere “data manipulation.”

Advice on Adding Transformation to Claims

Durant then considered how he might change the claim in Barnes, for example, which reads “A fault identification method that comprises: obtaining seismic data; and for each of multiple positions of an analysis window in the seismic data, determining a planarity value for discontinuities in the analysis window.”  He recalled how the Bilski opinion cited with approval a claim approved in In re Abele, 684 F.2d 902, 214 USPQ 682 (C.C.P.A. 1982), that recited x-ray attenuation data that “clearly represented physical and tangible objects, namely the structure of bones, organs, and other body tissues.”

Applying that lesson to Barnes, Durant asked: “Could this claim have been rewritten so that seismic data represents a physical object, and the planar data is produced by transforming that seismic data?”

He said there should be an emphasis in the specification that seismic data is physical, and an emphasis in the claim that the seismic data is transformed and represented differently in planar data.

In a second example related to diagnostic methods, Nigon looked at a claim rejected in Prometheus Laboratories Inc. v. Mayo Collaborative Services, No. 04cv1200, 86 USPQ2d 1705 (S.D. Cal. 2008) (75 PTCJ 642, 4/18/08), which he paraphrased as: “a diagnostic method comprising:  administering a drug at a dosage; measuring a level of a metabolite of the drug in blood; if the measured level is less than a first threshold, indicating a need to decrease the dosage; and if the measured level is greater than a second threshold, indicating a need to increase dosage.”

Nigon suggested that comparison is not processing and measuring is mere data gathering, so the only use of the method preempts a fundamental principle.  In looking for ways to make the claim patent-eligible, he asked whether normalizing the measured metabolite level to compensate for other drugs would be an appropriate limitation.

Reissue of Existing Patents

For both Bilski prongs, in any case, Nigon told the conference listeners to put in a range of claims because it will take at least a couple of years for the PTO to take up the application, and post-Bilski jurisprudence might be more definite by the time it is examined.

Then, for important patents issued before Bilski, with claims that may not meet either prong of the new machine-or-transformation, Nigon recommended the owners consider reissue, rather than waiting for the patent to be litigated.

Check the specification for a basis to add a general purpose computer to claims, at least, he said.  If you have a flow chart or algorithm in the specification, you may also be able to add a basic block of a computer.  Then, he said, add a range of claims that satisfy the Bilski test.

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