April 29, 2009

1. April 29, 2009 Looking At Bilski From Every AngleWRG Corporate IP Counsel Summit

2. Looking At Bilski From Every AngleWRG Corporate IP Counsel Summit April 29, 2009

3. Panel Moshe MalinaRobert Stewart Associate General Counsel Director and Chief Patent & Chief Patent Counsel Counsel of Americas CitigroupUBS AG Timothy J. HadlockCharles Kwalwasser Senior Counsel Intellectual Property Counsel Chevron CorporationBarclays Capital Moderator: Marc. J. Pensabene Partner Fitzpatrick, Cella, Harper & Scinto

4. 35 U.S.C. § 101 • “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof . . . ”

5. The Bilski Claim at Issue 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; 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.

6. Questions Asked by the Federal Circuit (1) Whether claim 1 of the [Bilski] patent application claims patent-eligible subject matter under 35 U.S.C. § 101? (2) What standard should govern in determining whether a process is patent-eligible subject matter under section 101? (3) Whether the claimed subject matter is not patent-eligible because it constitutes an abstract idea or mental process; when does a claim that contains both mental and physical steps create patent-eligible subject matter? (4) Whether a method or process must result in a physical transformation of an article or be tied to a machine to be patent-eligible subject matter under section 101? (5) Whether it is appropriate to reconsider State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999), in this case and, if so, whether those cases should be overruled in any respect?

7. Rejection of Prior Tests:Freeman-Walter-Abele Test • Freeman-Walter-Abele Test required 2 steps: (1) Determine whether claim directly or indirectly recites a mathematical algorithm, and (2) Determine whether the algorithm is “applied in any manner to physical elements or process steps.” • Bilski Court found test inadequate because a claim that fails this test may still be patent eligible.

8. Rejection of Prior Tests: Useful, Concrete, and Tangible Results Test • State Street held that a business method that produces a “useful, concrete and tangible result” can be patented as a “process” under Section 101. • Bilski Court noted this may be helpful in determining whether a claim is drawn to a fundamental principle, or practical application of said principle. • However, it is insufficient to determine whether it is patent-eligible under §101. • “[N]ever intended to supplant the Supreme Court’s test.”

9. Rejection of Prior Tests:Technological Arts Test • Test would allow patents only for “technological” inventions • Bilski Court rejected test, noting that the terms “technological arts” and “technology” are ambiguous and constantly changing • Supreme Court and Federal Circuit never adopted this test • Further rejected a categorical exclusion of “Business Method” patents

10. Rejection of Prior Tests:Physical Steps Test (In re Comiskey) • Test would preclude patentability of any claim reciting a mental process that lacks significant “physical steps.” • The Bilski Court noted that Comiskey did not announce any new test. • Comiskey only recognized Supreme Court precedent that mental processes, like fundamental principles/laws of nature, are excluded by section 101. • Comiskey applied the machine-or-transformation test

11. “New” Test Adopted: Machine-or-Transformation Test • The Federal Circuit adopted the “machine-or-transformation” test, citing the Supreme Court’s decisions in Benson, Flook, and Diehr: • “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.” • Held Bilski claims at issue unpatentable: • Applicant admitted claims not limited to operation on a computer • Claims encompass a purely mental process and are not transformative • Post-solution steps of consummating transactions did not create patentability

12. “New” Test Adopted: Machine-or-Transformation Test Panel Question: • Is the machine or transformation test more consistent with Supreme Court precedent than prior tests rejected in Bilski? • “Useful, concrete, and tangible result” test • Freeman-Walter-Abele test • Technological arts test • Physical steps

13. Machine-or-Transformation Test: Two Caveats • “mere field-of-use limitations are generally insufficient to render an otherwise ineligible process claim patent-eligible . . . preemption is merely an indication that a claim seeks to cover a fundamental principle itself rather than only a specific application of that principle.” • “insignificant postsolution activity will not transform an unpatentable principle into a patentable process . . . even if a claim recites a specific machine or particular transformation of a specific article, the recited machine or transformation must not constitute mere ‘insignificant postsolution activity.’” Panel Question: • What distinguishes such “field of use limitations” and “insignificant postsolution activity” from patentable subject matter?

14. Machine-or-Transformation Test: The Final Word? • The Federal Circuit left open the possibility that inventions failing the machine-or-transformation test may be patentable: • “[W]e recognize that the Supreme Court may ultimately decide to alter or perhaps even set aside this test to accommodate emerging technologies . . . [a]nd 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.” Panel Questions: • What inventions might present such a case? • What modifications, if any, might be made to the machine-or-transformation test to address such cases?

15. Newman Dissent • Argued that the majority improperly redefined the word “process” as used in the patent statute and overstepped its judicial power by legislating from the bench. • Viewed majority opinion as excluding today’s “electronic and photonic technologies” and “forms of information-based and software-implemented inventions arising from new technological capabilities.” Panel Questions: • Is Judge Newman correct – is the new test too limiting? • Or is Judge Newman overstating the restrictive nature of the new test?

16. Mayer Dissent • Would overrule State Street and find Bilski claim unpatentable solely because they are directed to a business method. • Affording patent protection to business methods “lacks constitutional and statutory support, serves to hinder rather than promote innovation and usurps that which rightfully belongs in the public domain.” • Noted business method patents would put too great a strain on PTO. Panel Questions: • Are business method patents inconsistent with the Constitution and/or patent statute? • What impact have such patents had on industry? • Having lived with State Street for 10 years, should business methods be patentable?

17. Radar Dissent • Found the majority’s holding inapplicable at a “time of subatomic particles and terabytes” and argued that it improperly relied on Supreme Court dicta taken out of context. • Argues focus should be on the fundamental rule that laws of nature, natural phenomena and abstract ideas are not patentable. • Would deny patent protection here as an attempt to protect an abstract idea. • Opines that the Court has created an unnecessary test and propagates unanswerable questions. Panel Question: • Should the Court do away with all tests and, as Judge Rader suggests, instead focus on whether the claims seek to patent an abstract idea?

18. Looking Forward Panel Questions: • How does the machine-or-transformation test effect our practice? • Prosecution • What has been the Patent Office reaction? • What can be done in drafting claims to better the chances of avoiding a Bilski rejection? • Litigation • Is the new test easier for the courts to apply? • Will the new test make it more or less likely that a patent will be found invalid in litigation?

19. Should the Supreme Court Grant Certiorari? • Petition argues that the Federal Circuit’s holding is inconsistent with the Supreme Court decisions on which it purports to rely (Benson, Flook and Diehr) • Supreme Court has expressly declined to limit patentability to machine-or-transformation subject matter – not the only test. • Supreme Court has referred to the machine-or-transformation test as a “clue” to patentability. • Petition states that Federal Circuit has essentially confined all process patents to manufacturing methods. • Improperly excludes business methods • Threatens innovation in established fields of computer software and biotechnology

20. Should the Supreme Court Grant Certiorari? Panel Questions: • Should the Supreme Court grant certiorari? • If so, how should the Court rule?

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