From the Hill

Following the Bilski Near Miss, Can Business Method Patents Survive Alice?

Hayden W. Gregory

©2014. Published in Landslide, Vol. 7, No. 1, September/October 2014, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

The June 19 decision of the U.S. Supreme Court in Alice Corporation v. CLS Bank has patent practitioners and scholars once again studying a decision of the Court on patent law to determine its scope and impact. This brings to mind the comment of Justice Scalia during the January 2013 Supreme Court oral argument in Gunn v. Minton:

My experience is that Federal judges, including this Federal judge, are not interested in getting into the weeds of patent law, and if they could rely on a decision of the Federal Circuit, they would do that just as fast as they can.

The Scalia “doctrine” seems particularly applicable to the Court’s recent history of rejecting Federal Circuit interpretations of section 101, but leaving it to the Federal Circuit to try again rather than to prescribe its own definitive rules. Where does Alice fit into the big picture as framed by Justice Scalia? Has the Court itself finally promulgated patent eligibility rules that the patent community can rely on, by means of launching its own weed control program or by reason of finding reliable Federal Circuit rules?

The Alice decision represents the fourth time in the past five years that the Supreme Court has ruled on the fundamental issue of eligibility for patenting under section 101 of title 35, United States Code. Even given the centrality of the issue to the patent laws and systems of the United States, four full scale reviews by the Supreme Court in five years is extraordinary.

The three previous decisions, Bilski v. Kappos, 561 U.S. 593, (2010); Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. ___ (2012); and Association for Molecular Pathology v. Myriad Genetics, Inc., 569 U.S. ___, (2013), each addressed the well-established doctrine that laws of nature, physical phenomena, and abstract ideas are not eligible for patenting.

In each of the three previous decisions, the Court ruled that the claims in suit were not patent eligible.1 In all three cases, the Court was unanimous in ruling that the claims were ineligible for patenting by reason of being drawn to laws of nature or abstract ideas.

In Bilski, the Court affirmed denial of patent protection for a claimed invention to allow energy suppliers and consumers to protect, or hedge, against the risk of price changes by minimizing the risks resulting from fluctuations in market demand for energy. Certiorari was granted in Bilski in an atmosphere of growing criticism of the Federal Circuit’s decisions on patent eligibility under section 101, and most especially its 1998 decision in State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F. 3d 1368, where the court ruled that any process that produces a “useful, concrete, and tangible result” is patent eligible. That decision was sharply criticized by three Justices in 2007 in their dissent from the Court’s dismissal as improvidently granted of a petition for certiorari in Laboratory Corp. of America v. Metabolite. The dissenting justices would have the Court rule on the merits and reject the claims in question, which claimed a process for diagnosing vitamin deficiencies.

The dissenting justices would hold the claims patent ineligible as an attempt to patent a natural phenomenon, the correlation between the level of the amino acid in the body fluid and the vitamin deficiency. Dissenting for himself and Justices Stevens and Souter, Justice Breyer concluded “that the process is no more than an instruction to read some numbers in light of medical knowledge,” and wrote:

Neither does the Federal Circuit’s decision in State Street Bank help respondents. That case does say that a process is patentable if it produces a “useful, concrete, and tangible result.” 149 F. 3d, at 1373. But this Court has never made such a statement and, if taken literally, the statement would cover instances where this Court has held the contrary.

The Court’s review in Bilski grew out of an apparent attempt by the Federal Circuit to walk back its expansive reading of section 101 patent eligibility because of criticism such as that expressed by the dissenting justices in Lab Corp. In the decision below, the Federal Circuit abandoned the “useful, concrete, and tangible result” test in favor of a much more restrictive test that would establish the “machine or transformation” (MOT) test as the exclusive test for patent eligibility. Under the test as applied by the Federal Circuit in Bilski, a process claim is tailored narrowly enough to encompass only a particular application of a fundamental principle rather than to preempt the principle itself if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. In rejecting that test as too narrowly drawn, the Supreme Court nonetheless held that the Federal Circuit was correct in upholding the rejection of the claims to the risk-hedging processes in Bilski, and that the claims in question were properly rejected as an attempt to patent abstract ideas in violation of principles established in Benson, Flook, and Diehr.

In rejecting the Federal Circuit’s MOT test, the Court made clear that it was not attempting to delineate the parameters of patent eligibility, and that it was leaving it to the Federal Circuit to have another go at that daunting task. The Bilski Court did, by a narrow 5-4 margin, decline to categorically disqualify business method inventions from patentability. In doing so, Justice Kennedy’s opinion for the Court wisely noted the challenge facing the judiciary in section 101 jurisprudence:

The Information Age empowers people with new capacities to perform statistical analyses and mathematical calculations with a speed and sophistication that enable the design of protocols for more efficient performance of a vast number of business tasks. If a high enough bar is not set when considering patent applications of this sort, patent examiners and courts could be flooded with claims that would put a chill on creative endeavor and dynamic change.

Justice Kennedy’s observations seem to anticipate a developing need for the Court to specifically address the role of computer implementation of claims that may run afoul of the doctrine that denies patent eligibility to laws of nature, natural phenomena, and abstract ideas. That need seems to have led four years later to the decision in Alice.

Going into the decision in Alice, Supreme Court precedent had already established that to surmount an “abstract idea” barrier to patent eligibility, it is not sufficient to merely recite a specific application and direct its application or to recite computer implementation in the claim. Coming out of Alice, those barriers remain, but they are more clearly defined and considerably elevated.

The extent to which the Court in Alice found controlling precedent in Bilski is noteworthy. Bilski, widely considered to have provided little guidance in determining patent eligibility under section 101 other than rejecting the MOT test as an exclusive test, was cited at least 20 times in Alice.

In Alice, the Court had little difficulty resolving the threshold question of whether the claims in suit were directed to an abstract idea. The court noted the close similarity of the claims in suit to the Bilski claims and concluded “. . .there is no meaningful distinction between the concept of risk hedging in Bilski and the concept of intermediated settlement at issue here.”

Having determined that the claims in Alice were directed to an abstract idea, the Court then turned to “the second step in Mayo’s framework,” whether the claims transform that abstract idea into a patent-eligible invention. Under the Mayo-based analysis, such transformation requires “more than simply stat[ing] the [abstract idea] while adding the words ‘apply it,’” and that an “inventive concept” is needed to ensure that the patent amounts to more than a patent on the natural law or abstract idea itself. Some observers felt that the reasoning leading to the decision was outside established section 101 jurisprudence, and that it would have little impact going forward. Many found the decision unsatisfactory and lacking, and that it poses questions without suggesting answers, answers to questions such as: what is the standard for determining when a claim “adds enough” to constitute an “inventive concept” and establish patent eligibility for a claim that recites an abstract idea?

Alice goes a long way in addressing some of these questions, with particular impact for computer implemented inventions and for business method patents generally, which increasingly include computer implementation.

While the claims in Alice, like those in Bilski and Mayo, were drawn to an abstract idea, they differed in that they require computer implementation. In its petition for certiorari, CLS Bank invoked a go-for-broke strategy, in that its Question Presented seems to call for recognizing computer implementation as ipso facto establishing patent eligibility:

Whether claims to computer-implemented inventions—including claims to systems andmachines, processes, and items of manufacture—are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101 as interpreted by this Court?

The Court in Alice easily disposed of such a broad assertion of patent eligibility based on computer implementation, noting that as early as 1972 in Gottschalk v. Benson, the Court held that implementation of an algorithm on a general purpose computer did not supply a necessary inventive step, and that it reached the same result in 1978 in Parker v. Flook, regarding conventional computer implementation of a mathematical formula to adjust alarm limits in a catalytic convertor. Justice Thomas’s opinion for a unanimous Court then turned to enunciating standards for computer implementation that can provide the requisite “something more” inventive feature. In undertaking this tougher assignment, the opinion set out some pretty tough requirements for a role for computer implementation in transforming an abstract idea into a patent eligible application.

As noted above, Justice Kennedy’s opinion in Bilski expressed concern that “The Information Age” brought with it advances in technology that enable “more efficient performance of a vast number of business tasks,” and that the bar for business method patents must be set sufficiently high to prevent flooding the Patent Office and courts with claims. Similarly, Justice Thomas’s opinion in Alice noted the “ubiquity” of computers in today’s world, and expressed doubt that generic computer implementation is the sort of “additional feature” required by Mayo to overcome the prohibition on patenting of abstract ideas. In short, the cases seem to say somewhat ironically that the astounding advances in computer generated information and data processing technology, and in the value of those advances, demand more restrictive, not more permissive, rules for patent eligibility.

Perhaps the most significant feature of the Alice opinion is the degree to which it moves away from patent eligibility for claims to organizing human activity and toward a European-type requirement that a business method claim offer “a technical solution to a technical problem.” Following the decision, claims to computer implementation of conventional activities such as electronic record keeping, data processing, and issuance of automated instructions—activities such as those at issue in Alice and which are typically features of business method patents—are likely to fail. The impact of this doctrine is illustrated in the Court’s favorable citation to the Solicitor General’s brief arguing that improved organization of human activities by computer implementation does not add enough—the claim must purport to improve the functioning of the computer itself, or effect an improvement in another technology.2 Under this formulation, claims such as those in issue in Diamond v. Diehr would survive, since there the computer-implemented step facilitated a process that solved a technical problem—setting the proper timing for the concerned curing process. Most business method patent claims likely will fail this requirement, since they do not claim to improve functioning of the computer itself. If such claims could be presented, it is unlikely they would be offered as business method claims. The same can be said of claims that solve other technical problems, such as those in Diehr.

Nor does claiming the computer as a machine offer much prospect for success. Although Bilski threw out the MOT test as the exclusive test for patent eligibility under section 101, it did recognize the test as a non-exclusive “important and useful clue,” and many in the patent community still believed that satisfaction of either prong is a likely ticket out of the thorny thicket of section 101. However, the unanimous Court in Alice rejected the machine claims as nothing more than method claims dressed up in systems terminology, which for the same reasons as the method claims, failed to provide any meaningful limitations on the underlying abstract ideas.

The unanimous decision in Alice offers several possible takeaways. One is that the unanimous decision in Mayo was not a one-time swerve off the course of section 101 jurisprudence, and that the “significantly more” requirement is likely here to stay. While that requirement may have an element of Justice Jackson’s “I can’t define obscenity but I know it when I see is” dictum, Alice does provide some additional focal points for scrutinizing computer-implemented claims, and business method claims in particular, with a strong suggestion that the view to be taken should be a dim one.

Endnotes

1. In Myriad, the Court ruled that claims to isolated DNA were ineligible for patenting, but that claims to synthesized cDNA were eligible.

2. Slip opinion, p. 15.

Hayden W. Gregory

Hayden W. Gregory is legislative consultant for the ABA Section of Intellectual Property Law in Washington, D.C.