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WHAT IS PATENT ELIGIBLE?. In re Bilski and its Impacts on the Patent Landscape. In re Bilski. Part 1. Background Part 2. The Bilski Decision Part 3. Impact on Business Methods and Software Patents Part 4. Impact on Diagnostic Methods Part 5. Strategies. In re Bilski.

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WHAT IS PATENT ELIGIBLE?


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    1. WHAT IS PATENT ELIGIBLE? In re Bilski and its Impacts on the Patent Landscape

    2. In re Bilski • Part 1. Background • Part 2. The Bilski Decision • Part 3. Impact on Business Methods and Software Patents • Part 4. Impact on Diagnostic Methods • Part 5. Strategies Nutter McClennen & Fish LLP • www.nutter.com

    3. In re Bilski Part 1, Background

    4. A Little History • Patent Act of 1793 • a patent may be granted to any person or persons who “shall allege that he or they have invented any new and useful art, machine, manufacture or composition or matter, or any new and useful improvement on any art, machine, manufacture or composition of matter. . . . (1 Stat. 318, 319 § 1 (1793)). • Criteria remained essentially unchanged until 1952, when Congress amended § 101 as follows: Nutter McClennen & Fish LLP • www.nutter.com

    5. 1952 Patent Act – “Process” • 35 U.S.C. § 101 • 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. • 35 U.S.C. § 100(b) • The term “process” means process, art, or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material. Nutter McClennen & Fish LLP • www.nutter.com

    6. Enter the Computer:Gottschalk v. Benson, 409 U.S. 63 (1972) • Patent claims a method for converting binary-coded decimal (BCD) numerals into pure binary numerals. • Claims were not limited to any particular art or technology, to any particular apparatus or machinery, or to any particular end use. • Claims purported to cover any use of the claimed method in a general purpose digital computer of any type. Nutter McClennen & Fish LLP • www.nutter.com

    7. Pre-195Benson (cont.) “It is conceded that one may not patent an idea. But, in practical effect, that would be the result if the formula for converting BCD numerals to pure binary numerals were patented in this case. The mathematical formula involved here has no substantial practical application except in connection with a digital computer, which means that, if the judgment below is affirmed, the patent would wholly preempt the mathematical formula and, in practical effect, would be a patent of the algorithm itself.” Gottschalk v. Benson, 409 U.S. 63, 71-72 (1972) Nutter McClennen & Fish LLP • www.nutter.com

    8. Benson (cont.) “It is argued 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 or thing." We do not hold that no process patent could ever qualify if it did not meet the requirements of our prior precedents. . . . It is said we freeze process patents to old technologies, leaving no room for the revelations of the new, onrushing technology. Such is not our purpose. . . .” Gottschalk v. Benson, 409 U.S. 63, 71 (1972) Nutter McClennen & Fish LLP • www.nutter.com

    9. Pre-195Diamond v. Diehr, 450 U.S. 175, (1981) A method of operating a rubber-molding press for precision molded compounds with the aid of a digital computer, comprising: . . . ; repetitively comparing in the computer, at frequent intervals during each cure, the Arrhenius equation for reaction time during the cure, which is ‘ln v = CZ +x’, repetitively comparing in the computer at frequent intervals during the cure each said calculation of the total required cure time calculated with the Arrhenius equation and said elapsed time, and opening the press automatically when a said comparison indicates completion of curing. Nutter McClennen & Fish LLP • www.nutter.com

    10. Pre-195Diehr (cont.) • Claim is patentable: “Arrhenius equation is not patentable in isolation, but when a process for curing rubber is devised which incorporates in it a more efficient solution of the equation, that process is at the very least not barred at the threshold by § 101.” Diamond v. Diehr, 450 U.S. 175, 188 (1981) Nutter McClennen & Fish LLP • www.nutter.com

    11. Pre-195State Street • State Street Bank v. Signature Financial Group, Inc., 149 F.3d 1368 (1998) • Provides a system (“Hub and Spoke”) which facilitates a structure whereby mutual funds (spokes) pool their assets in an investment portfolio (Hub) organized as a partnership Nutter McClennen & Fish LLP • www.nutter.com

    12. “Useful, Concrete, and Tangible” “Today, we hold that the transformation of data, representing discrete dollar amounts, by a machine through a series of mathematical calculations into a final share price, constitutes a practical application of a mathematical algorithm, formula, or calculation, because it produces "a useful, concrete and tangible result"--a final share price momentarily fixed for recording and reporting purposes and even accepted and relied upon by regulatory authorities and in subsequent trades.” State Street, 149 F.3d 1368, 1373 (1998) Nutter McClennen & Fish LLP • www.nutter.com

    13. Pre-195State Street to Bilski • According to Justice Newman’s dissent in Bilski, almost 40,000 Business Method patent applications filed since State Street decision. • As noted in Justice Mayer’s dissent in Bilski, issued patents include: Nutter McClennen & Fish LLP • www.nutter.com

    14. Pre-195State Street to Bilski • U.S. Patent 6,119,099 (method of enticing customers to order additional food at a fast food restaurant) • U.S. Patent No. 6,329,919 (system for toilet reservations) • U.S. Patent No. 7,261,652 (method of putting a golf ball) • U.S. Patent No. 6,368,227 (method of swinging on a swing) • U.S. Patent No. 5,443,036 (method of inducing cats to exercise) • U.S. Patent No. 6,049,811 (method of obtaining a patent) Nutter McClennen & Fish LLP • www.nutter.com

    15. In re Bilski Part 2, The CAFC Decision

    16. In re Bilski • Claim 1: A method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of: (a) initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said consumer; (b) identifying market participants for said commodity having a counter-risk position to said consumers; (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. Nutter McClennen & Fish LLP • www.nutter.com

    17. Examiner’s Rejections • The Examiner rejected claims 1-11 under 35 U.S.C. 101 • The Examiner’s rational: • “[r]egarding … claims 1-11, the invention is not implemented on a specific apparatus and merely manipulates an abstract idea and solves a purely mathematical problem without any limitation to a practical application, therefore, the invention is not directed to technological arts.” Nutter McClennen & Fish LLP • www.nutter.com

    18. Board’s Decision • The Board held the Examiner erred to the extent that he relied on a “technological arts” test because the case law did not support such a test • The Board also held that the requirement of a specific apparatus was also erroneous as a claim that does not recite a specific apparatus may still be patent-eligible if it transforms physical subject matter from one state to another (e.g., “’mixing’ two elements or compounds to produce a chemical substance or mixture is clearly a statutory transformation …”) Nutter McClennen & Fish LLP • www.nutter.com

    19. Board’s Decision (cont.) • The Board, however, concluded that Applicants’ claims did not involve any patent-eligible transformation as they were merely directed to “non-physical financial risks and legal liabilities of the commodity provider, the consumer, and the market participants.” • The Board also held that Applicants’ claims “preempt[] any and every possible way of performing the steps of the [claimed process], by human or by any kind of machine or by any combination thereof…,” and hence an abstract idea ineligible for patenting Nutter McClennen & Fish LLP • www.nutter.com

    20. Board’s Decision (Cont.) • The Board also held that the claimed process did not produce “useful, concrete, tangible result,” and for this reason also was not directed to patent-eligible subject matter. Nutter McClennen & Fish LLP • www.nutter.com

    21. CAFC • The Supreme Court has held that the meaning of “process” as used in Section 101 in narrower that its ordinary meaning. • The Supreme Court has held that a claim is not a patent-eligible “process” if it claims “laws of nature, natural phenomena, [or] abstract ideas.” • “The true issue before us is then whether Applicants are seeking to claim a fundamental principle (such as an abstract idea) or mental process” Nutter McClennen & Fish LLP • www.nutter.com

    22. CAFC (cont.) • “Diehr can be understood to suggest that whether a claim is drawn only to a fundamental principle is essentially an inquiry into scope of that exclusion; i.e., whether the effect of allowing the claim would be to allow the patentee to pre-empt substantially all uses of that fundamental principle.” Nutter McClennen & Fish LLP • www.nutter.com

    23. CAFC (cont.) • How does one determine whether a claimed process would pre-empt all uses of a fundamental process? • Machine-or-Transformation test: • (1) is the claimed process tied to a particular machine or apparatus? • (2) does it transform a particular article into a different state or thing? Nutter McClennen & Fish LLP • www.nutter.com

    24. CAFC (cont.) • “We hold that the Applicants’ process as claimed does not transform any article to a different state or thing.” • “Purported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances.” Nutter McClennen & Fish LLP • www.nutter.com

    25. CAFC (cont.) • The claim “is not limited to transactions involving actual commodities, and the application discloses that the recited transaction may simply involve options, i.e., rights to purchase or sell the commodity at a particular price within a particular timeframe” Nutter McClennen & Fish LLP • www.nutter.com

    26. CAFC (cont.) • “… it is inappropriate to determine the patent-eligibility of claim as a whole based on whether selected limitations constitute patent-eligible subject matter.” • “… the use of a specific machine or transformation of an article must impose meaningful limits on the claim’s scope to impart patent-eligibility” • “… the involvement of the machine or transformation in the claimed process must not merely be insignificant extra-solution activity.” • “We leave to the future cases the elaboration of the precise contours of machine implementation, as well as the answers to particular questions, such as whether or when recitation of a computer suffices to tie a process claim to a particular machine.” Nutter McClennen & Fish LLP • www.nutter.com

    27. CAFC (cont.) • In Benson, the claimed process, though tied to a machine, was found not to be patent eligible • In Benson, “… the limitations tying the process to a computer were not actually limiting because the fundamental principle at issue, a particular algorithm, had no utility other than operating on a digital computer.” Nutter McClennen & Fish LLP • www.nutter.com

    28. CAFC (cont.) • “It is virtually self-evident that a process for a chemical or physical transformation of physical objects or substances is patent-eligible subject matter.” • “The raw materials of many information-age processes, however, are electronic signals and electronically-manipulated data.” Nutter McClennen & Fish LLP • www.nutter.com

    29. CAFC (cont.) • A broad independent claim reciting a process of graphically displaying variances of data from average values was held patent ineligible. In re Abele, 684 F.2d 902 (CCPA 1982) • “The claim did not specify any particular type or nature of data…”, and “… nor did it specify how or from where the data was obtained or what the data represented.” Nutter McClennen & Fish LLP • www.nutter.com

    30. CAFC (cont.) • One of Abele’s dependent claim reciting “said data is X-ray attenuation data produced in a two dimensional field by a computed tomography scanner” was deemed patent eligible • “This data clearly represented physical and tangible objects …” • “… transformation of that raw data into a particular visual depiction of a physical object on a display was sufficient …” for patent eligibilty Nutter McClennen & Fish LLP • www.nutter.com

    31. CAFC (cont.) • Certain active steps, such as gathering data and/or recording output data, may be construed as insignificant “extra-solution activity” and hence insufficient to render an otherwise patent-eligible claim into a patent-eligible one • “This court and our predecessor court have frequently stated that adding a data-gathering step to an algorithm is insufficient to convert that algorithm into a patent-eligible process.” • “A requirement simply that data inputs be gathered – without specifying how – is a meaningless limit on a claim to an algorithm because every algorithm inherently requires the gathering of data inputs.” Nutter McClennen & Fish LLP • www.nutter.com

    32. CAFC (cont.) • Method of conducting an auction of multiple items in which the winning bids were selected in a manner that maximized the total price of all items. In re Schrader, 22 F.3d 290 (Fed. Cir. 1994) • Claims were patent-ineligible as being merely directed to a mathematical optimization algorithm. • No specific machine or apparatus was recited. • The claimed method did require a step of recording bids on each item, though no particular manner of recording was specified. • The step of recording the bids constituted “extra-solution activity.” Nutter McClennen & Fish LLP • www.nutter.com

    33. CAFC (cont.) • “Nevertheless, we agree that future developments in technology and the sciences may present difficult challenges to the machine-or-transformation test …” • “Thus, we recognize that the Supreme Court may ultimately decide to alter or perhaps even set aside this test to accommodate emerging technologies.” • “And we certainly do not rule out the possibility that this court may in the future refine or augment the test or how it is applied.” Nutter McClennen & Fish LLP • www.nutter.com

    34. In re Bilski Part 3, Impact on Business Methods and Software Patents

    35. Future of Business Methods • End of Business Method patents? • Transformation of Legal Relationships and Business Obligations • Abstract; Not Tangible • Is there a Machine? Nutter McClennen & Fish LLP • www.nutter.com

    36. Cybersource Corporation v. Retail Decisions, 2009 U.S. Dist. LEXIS 26056 3. A method for verifying the validity of a credit card transaction over the Internet comprising the steps of: a) obtaining other transactions utilizing 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. Nutter McClennen & Fish LLP • www.nutter.com

    37. Cybersource Corporation (cont.) • No Transformation; court finds that “manipulation” of data is not transformation • “’Transformation’ suggests a fundamental change, whereas ‘manipulation’ does not. . . . Simply collecting data into a vague sort of ‘map’ does not amount to a transformation.” • Even if manipulation could be considered transformation, there is no transformation of an article “i.e., any physical object or substance, or any electronic signal representative of any physical object or substance.” • No machine; internet is not a particular machine Nutter McClennen & Fish LLP • www.nutter.com

    38. Cybersource Corporation (cont.) • As for the future of Business Method patents: • “In analyzing Bilski, one is led to ponder whether the end has arrived for business method patents, whose numbers swelled following the decision in State Street. . . . Although the majority declined say so explicitly, Bilski’s holding suggests a perilous future for most business method patents.” • “. . . The closing bell may be ringing for business method patents, and their patentees may find they have become bagholders.” Nutter McClennen & Fish LLP • www.nutter.com

    39. In re Ferguson (Fed. Cir.) March 6, 2009 • A method of marketing a product, comprising: developing a shared marketing force, said shared marketing force including at least marketing channels, which enable marketing a number of related products; using said shared marketing force to market a plurality of different products that are made by a plurality of different autonomous producing company, so that different autonomous companies, having different ownerships, respectively produce said related products; obtaining a share of total profits from each of said plurality of different autonomous producing companies in return for said using; and obtaining an exclusive right to market each of said plurality of products in return for said using. Nutter McClennen & Fish LLP • www.nutter.com

    40. Software Patents • Is a Computer a “Machine”? • If so, how detailed do you need to be? • Is there a “Transformation” of an “Tangible Article”? Nutter McClennen & Fish LLP • www.nutter.com

    41. Every Penny Counts v. BOA (May 2009) • A system, comprising: a network; entry means coupled to said network for entering into the network an amount being paid in a transaction by a payor; . . . said computing means in said network being responsive to said data and said identification entering means for determining an excess payment to the basis of the determinant established by the payor, and said computing means in said network being responsive to the excess payment for apportioning at least a part of the excess payment among said accounts on the basis of the excess determined and established by the payor and on the basis of commands established by the payor and controlled by other than the payee. Nutter McClennen & Fish LLP • www.nutter.com

    42. Ex parte Nawathe, February 9, 2009 • Ex parte Nawathe (February 9, 2009) • Representative claim: • A computerized method comprising:inputting multiple extensible Markup Language (XML) documents;creating a data representation of said multiple XML documents; andreducing redundancy across said multiple XML documents via a fixed set of tables. • Rejection Affirmed Nutter McClennen & Fish LLP • www.nutter.com

    43. Ex parte Nawathe (cont.) • No machine; just a general purpose computer • No transformation because documents are not articles Nutter McClennen & Fish LLP • www.nutter.com

    44. Ex parte Halligan, April 8, 2009 • A programmed computer method based upon the six factors of a trade secret from the First Restatement of Torts for providing documentation, analysis, auditing, accounting, protection, and other management relating to an existence, . . . of a plurality of trade secrets of an organization, said method implemented by the programmed computer to effect the following steps: Nutter McClennen & Fish LLP • www.nutter.com

    45. Ex parte Halligan, (cont) • Fails both prongs • Merely a general purpose computer • No transformation because numerical value assigned by computer is abstract – not a “tangible article” Nutter McClennen & Fish LLP • www.nutter.com

    46. In re Shahabi, April 20, 2009 • 1. A method, comprising: • processing at least one query using a wavelet transformation to produce a transformed query; and • performing a range-sum query on a database using the transformed query to produce a result. • No machine • No transformation Nutter McClennen & Fish LLP • www.nutter.com

    47. In re Richter, May 29, 2009 • 21. In a host multiprocessor system for emulating the operation of a target n-processor system (n>1) by execution of one of more threads representing the operation of the target system, a method for emulating the target system’s memory addressing using a virtual-to-real memory mapping mechanism of the host multiprocessor system’s operating system, said method comprising: • (a) reading a target system virtual memory address (ATV); • (b) mapping said ATV to a target real address (ATR); • (c) mapping said ATR to a host virtual memory address (AHV); and • (d) mapping said AHV to a host real memory address, wherein the emulation of the target system’s memory addressing is treated as an application running on the host multiprocessor system. Nutter McClennen & Fish LLP • www.nutter.com

    48. In re Richter, (cont.) • “Claim 21 recites a method performed in a host multiprocessor system that emulates a target n-processor system; therefore the process claim includes use of a specific machine. ” • “. . . We further find use of the specific machine imposes meaningful limits on the scope of the claims – the host processor emulates a target system’s memory addressing causing it to behave like the target processor.” Nutter McClennen & Fish LLP • www.nutter.com

    49. In re Bilski Part 4, Implications for Diagnostic Methods

    50. Diagnostic Methods • The application of “machine-or-transformation” test to diagnostic methods can curtail the scope of available patent protection • Diagnostic methods typically involve diagnosing disease conditions and/or optimizing therapeutic treatments based on comparative inferences and/or correlations between various biochemical compounds and/or markers • Under a narrow interpretation of the test the identification of such inferences and correlations can be deemed as discovery of natural phenomena without transforming an article from one state to another Nutter McClennen & Fish LLP • www.nutter.com