Prosecuting Business Method Patents: The Bilski Conundrum

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Prosecuting Business Method Patents:The Bilski Conundrum

Lawrence T. Kass-and-

Blake Reese

2009 Business Method Partnership Meeting

July 15, 2009[PRESENTATION]

1

Introduction

• Our purpose: Promote discussion about prosecuting business method patents while status of Bilski is in limbo

– Uncertainty has never been greater

– No one has all the “answers”

– Let’s work together

– Reasonable starting point: prior Supreme Court, CCPA, and Federal Circuit guidance

– Discuss approaches as we await Supreme Court guidance

Larry Kass is a partner and Blake Reese is an associate in the intellectual property group of Milbank, Tweed, Hadley & McCloy. The views expressed in the presentation are those of the authors and may not be attributed to Milbank or its clients.

2

Road Map

• Background and historical jurisprudence• Bilski• Let’s discuss!• Our thoughts...

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Road Map


4

What is a Business Method?

• Class 705 Invention:– Data processing apparatus and methods designed

for or used in the “practice, administration, or management of an enterprise, or in the processing of financial data.”

– This class also provides for apparatus and corresponding methods for performing data processing or calculating operations in which a charge for goods or services is determined.

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Early Business Methods (pre-1900)

• Mar. 19, 1799 – U.S. patent entitled “Detecting Counterfeit Notes” to Perkins (lost in Patent Office fire of 1836)

• Apr. 28, 1815 – USP 2301X for “A Mode of Preventing Counterfeiting” to Kneass (printing method)

• Apr. 28, 1815 – USP 871 for “Bank Note” to Watson• Apr. 16, 1857 – USP 63,889 for “Hotel Register” to Hawes• Apr. 13, 1873 – USP 138,891 for “Revenue Stamps” to Hunter• Jan. 8, 1889 – USPs 395,781; 395,782; 395,783 each entitled

“Art of Compiling Statistics” to Hollerith– Early automated business data processing patents led to the

formation of IBM

• Jan. 26, 1897 – USP 575,731 for “Insurable Property Chart” to Powers et al.

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Constitutional and Statutory Framework

• Art. I § 8, cl. 8 – The Congress shall have power … [t]o promote the

progress … useful arts, by securing for limited times to … inventors the exclusive right to their respective … discoveries

• 35 U.S.C. § 101 Inventions patentable.– Whoever invents or discovers any new and useful

[1] process, [2] machine, [3] manufacture, or [4] composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title

7

Constitutional and Statutory Framework

• 35 U.S.C. § 273 – Effective Nov. 29, 1999

– Enacted as a defense to patent infringement of a “method” if the accused infringer actually reduced the subject matter to practice at least 1 year before the effective filing date of the patent at issue

– “… ‘method’ means a method of doing or conducting business”

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Early Supreme Court Guidance: Mackay

• “While a scientific truth, or the mathematical expression of it, is not a patentable invention, a novel and useful structure created with the aid of knowledge or scientific truth may be.”

– Mackay Radio & Tel. Co. v. Radio of Am., 306 U.S. 86, 94 (1939) (Stone, J.).

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Early Supreme Court Guidance: Benson

• Gottschalk v. Benson, 409 U.S. 63 (1972)– Claim 8 (at issue). The method of converting signals from binary

coded decimal form into binary which comprises the steps of

• storing the binary coded decimal signals in a reentrant shift register,

• shifting the signals to the right by at least three places, until there is a binary `1' in the second position of said register,

• masking out said binary `1' in said second position of said register,

• adding a binary `1' to the first position of said register,• shifting the signals to the left by two positions, • adding a `1' to said first position, and• shifting the signals to the right by at least three positions in

preparation for a succeeding binary `1' in the second position of said register.

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Early Supreme Court Guidance: Benson

• Gottschalk v. Benson, 409 U.S. 63 (1972)– “The claims were not limited to any particular art or technology, to

any particular apparatus or machinery, or to any particular end use.”• Note: Reentrant shift register is a basic memory circuit

– “Here the ‘process’ claim is so abstract and sweeping as to cover both known and unknown uses of the BCD to pure binary conversion.”

• Prohibition on abstract ideas that would preempt an entire field

– “Transformation and reduction of an article ‘to a different state or thing’ is the clue to the patentability of a process claim that does not include particular machines.”

• “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 that the decision precludes a patent for any program servicing a computer. We do not so hold.”

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Further Supreme Court Guidance: Flook

• Parker v. Flook, 437 U.S. 584 (1978)– Field-of-use restriction to catalytic conversion

insufficient to distinguish Benson.– “Post-solution activity” limitations insufficient to

establish patent eligibility.– “[I]f a claim is directed essentially to a method of

calculating, using a mathematical formula, even if the solution is for a specific purpose, the claimed method is nonstatutory."

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Further Supreme Court Guidance: Diehr

• Diamond v. Diehr, 450 U.S. 175 (1981)– “Although their process employs a well-known

mathematical equation, they do not seek to preempt the use of that equation, except in conjunction with all of the other steps in their claimed process.”

– “A claim drawn to subject matter otherwise statutory does not become nonstatutory simply because it uses a mathematical formula, computer program, or digital computer.”

– “An argument can be made … that this Court has only recognized a process as within the statutory definition when it either was tied to a particular apparatus or operated to change materials to a different state or thing."

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Pre- Federal Circuit CCPA Guidance

• “Freeman-Walter-Abele test”:(1) determine whether the claim recites an algorithm

within the meaning of Benson; and, if so,

(2) determine whether the algorithm is “applied in any manner to physical elements or process steps” pursuant to In re Abele.

In re Freeman, 573 F.2d 1237 (C.C.P.A. 1978);

In re Walter, 618 F.2d 758 (C.C.P.A. 1980);

In re Abele, 684 F.2d 902 (C.C.P.A. 1982).

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Federal Circuit Guidance: Alappat

• In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994)– Claim 15 (at issue). A rasterizer for converting vector list data

representing sample magnitudes of an input waveform into anti-aliased pixel illumination intensity data to be displayed on a display means comprising:

(a) means for [an arithmetic logic circuit configured for]determining the vertical distance between the endpoints of each of the vectors in the data list;

(b) means for [an arithmetic logic circuit configured for]determining the elevation of a row of pixels that is spanned by the vector;

(c) means for [a pair of barrel shifters for] normalizing the vertical distance and elevation; and

(d) means for [a read-only-memory for] outputting illumination intensity data as a predetermined function of the normalized vertical distance and elevation.

15

Federal Circuit Guidance: Alappat

• In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994)– 101 covers “any new and useful process, machine,

manufacture, or composition of matter”

– “claim 15, properly construed, claims a machine”

– “We have held that such programming creates a new machine, because a general purpose computer in effect becomes a special purpose computer once it is programmed to perform particular functions pursuant to instructions from program software.”

– “This is not a disembodied mathematical concept which may be characterized as an ‘abstract idea,’ but rather a specific machine to produce a useful, concrete, and tangible result.”

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Federal Circuit Guidance: Beauregard

• In re Beauregard, 53 F.3d 1583 (Fed. Cir. 1995)

– “The Commissioner now states ‘that computer programs embodied in a tangible medium, such as floppy diskettes, are patentable subject matter under 35 U.S.C. § 101….’”

17

Federal Circuit Guidance: State Street

• State Street Bank & Trust Co. v. Signature Fin. Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998)

– “claim 1 is directed to a machine programmed with the Hub and Spoke software and admittedly produces a ‘useful, concrete, and tangible result.”

• “This renders it statutory subject matter, even if the useful result is expressed in numbers, such as price, profit, percentage, cost, or loss.”

– “Since the 1952 Patent Act, business methods have been, and should have been, subject to the same legal requirements for patentability as applied to any other process or method.”

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Federal Circuit Guidance: AT&T Corp.

• AT&T Corp. v. Excel Comm’cns, Inc., 172 F.3d 1352 (Fed. Cir. 1999)

– “[W]e are comfortable in applying our reasoning in Alappat and State Street to the method claims at issue in this case.”

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Federal Circuit Guidance: In re Nuitjen

• In re Nuijten, 500 F.3d 1346 (Fed. Cir. 2007)– Naked “signal” claims not patentable

– Signal is not a “machine”

– “Machine” means “a concrete thing, consisting of parts, or of certain devices and combination of devices.” See Burr v. Duryee, 68 U.S. (1 Wall.) 531, 570 (1863).

• This “includes every mechanical device or combination of mechanical powers and devices to perform some function and produce a certain effect or result.” See Corning v. Burden, 56 U.S. 252, 267 (1854).

• Requires “concrete structure”

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Road Map


21

In re Bilski

• In re Bilski, 545 F.3d 943 (Fed. Cir. 2008)– Claim 1 (at issue). 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

22

In re Bilski

• In re Bilski, 545 F.3d 943 (Fed. Cir. 2008)– “A claimed process is [only ] 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.”

– “[T]he use of a specific machine or transformation of an article must impose meaningful limits on the claim's scope to impart patent-eligibility”; and “not merely be insignificant extra-solution activity.”

• “[I]ssues specific to the machine implementation part of the test are not before us today.”

• “We leave to 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.”

23

In re Bilski

• In re Bilski, 545 F.3d 943 (Fed. Cir. 2008)– “This transformation must be central to the purpose of the claimed

process.”• “a process for a chemical or physical transformation of physical

objects or substances is patent-eligible subject matter.• “So long as the claimed process is limited to a practical application of

a fundamental principle to transform specific data, and the claim is limited to a visual depiction that represents specific physical objects or substances, there is no danger that the scope of the claim wouldwholly pre-empt all uses of the principle.”

• “Purported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test”

– “they are not physical objects or substances, and they are not representative of physical objects or substances.”

– “we decline to adopt a broad exclusion over software or any othersuch category of subject matter”

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More on Bilski from the Federal Circuit

• In re Ferguson, 558 F.3d 1359 (Fed. Cir. 2009)– Claim 1 (at issue). A method of marketing a product, comprising:

developing a shared marketing force, said shared marketing forceincluding 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 ofproducts in return for said using.”

– Claim 24 (at issue). A paradigm for marketing software, comprising: a marketing company….

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• In re Ferguson, 558 F.3d 1359 (Fed. Cir. 2009)

– Method claim fails “machine-or-transformation” test• “shared market force” doesn’t satisfy definition of “machine”

from In re Nuitjen.

• methods of “organizing business or legal relationships in the structuring of a sales force (or marketing company)” do not transform “physical objects or substances” or “representati[ons] of physical objects or substances.”

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• In re Ferguson, 558 F.3d 1359 (Fed. Cir. 2009)

– Paradigm claims not statutory subject matter• not “directed to processes, as ‘no act or series of acts’ is

required”;

• not a “manufacture” because a marketing company “cannot itself be an ‘article[] resulting from the process of manufacture’”;

• not a “machine” as “you cannot touch the company”; and

• “certainly not a composition of matter.”

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Bilski on Certiorari

• Bilski v. Doll, No. 08-964 (cert granted)– “Whether the Federal Circuit erred by holding that a

‘process’ must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing (‘machine-or-transformation’test), to be eligible for patenting under 35 U.S.C. §101, despite this Court's precedent declining to limit the broad statutory grant of patent eligibility for ‘any’new and useful process beyond excluding patents for ‘laws of nature, physical phenomena, and abstract ideas.’"

28

Bilski on Certiorari

• Bilski v. Doll, No. 08-964 (cert granted)– “Whether the Federal Circuit's ‘machine-or-

transformation’ test for patent eligibility, which effectively forecloses meaningful patent protection to many business methods, contradicts the clear Congressional intent that patents protect ‘method[s] of doing or conducting business.’ 35 U.S.C. § 273.”

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Road Map


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Let’s Discuss!

How are you handling? ...

Where does this leave us? …

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Road Map


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Some Ideas on Prosecution in Bilski Limbo

• How do we shore up the following patent claim in view of the current uncertainty?

– (claim 1) A method for predicting retail sales, the method comprising:

• (a) retrieving from a plurality of sources data including historic sales, historic advertising expenditures, and current advertising expenditures;

• (b) storing the data;• (c) preparing a [novel] sales analysis based on the data;

and • (d) providing a user a model based on the [novel] sales

analysis.

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• Specification– Detail Example System 1, Example System 2, etc.– Define a term of art for architecture

• E.g., “computing system”– define in spec to cover various systems including one or more programmed computers, systems employing distributed networking, or other type of system that might be used

• Otherwise “computer” could be construed (or limited by DOE) to be a single computer throughout the claims.

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• Claims– Broadest reasonable interpretation (BRI) standard

• MPEP 2111: The USPTO “determines the scope of claims in patent applications not solely on the basis of the claim language, but upon giving claims their broadest reasonable construction ‘in light of the specification as it would be interpreted by one of ordinary skill in the art.’”

– Recite machine/transformation limitations in the body of the claim

• Machine/transformation limitations in the preamble will likely not convince the examiner that the claim is statutory (arguably preamble may have no meaning under BRI)

– Try to use machine limitations that are “concrete”• Avoid solely using terms that could be interpreted under BRI

as not requiring hardware– E.g., data structure, database, etc.

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• Don’t count on “extra solution” / “post solution”activity

– Tie novel aspects of invention (i.e., novel elements) to machine/transformation limitations

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• (claim 1) (Currently Amended) A method for predicting retail salesperformed in a computing system, the method comprising:

– (a) retrieving by the computing system from a plurality of sources data including historic sales, historic advertising expenditures, and current advertising expenditures;

– (b) storing the data in one or more data structures using the computing system;

– (c) preparing a [novel] sales analysis based on the data using the computing system;

– (d) providing by the computing system a user a model based on the [novel] sales analysis.

• Other ways to amend the claim? – E.g., to avoid potential subject matter exclusions?

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• Claim differentiation to distinguish broader (independent) claims from narrower claims by requiring additional architecture.

– (claim 2) (New). The method of claim 1, wherein the computing system includes one or more programmed computers.

– (claim 3) (New). The method of claim 1, wherein the computing system is distributed over a plurality of programmed computers.

– (claim 4) (New). The method of claim 1, wherein the one or more data structures are one or more databases.

• This adds structure without relying on post-solution activity or unduly narrowing the independent claim.

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Some Ideas on Prosecution in Bilski Limbo: Machine Claims

• (claim 5) (New). A system for predicting retail sales, the system comprising:

– (a) means for retrieving data from a plurality of sources data including historic sales, historic advertising expenditures, andcurrent advertising expenditures;

– (b) means for storing the data;– (c) means for preparing a [novel] sales analysis based on the

data; and – (d) means for providing a user a model based on the [novel]

sales analysis.

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Some Ideas on Prosecution in Bilski Limbo: Machine Claims

• (claim 6) (New). A programmed computer for predicting retail sales, the programmed computer comprising:

– a memory having at least one region for storing computer executable program code; and

– a processor for executing the program code stored in the memory, wherein the program code comprises:

• (a) code to retrieve from a plurality of sources data including historic sales, historic advertising expenditures, and current advertising expenditures;

• (b) code to store the data;• (c) code to prepare a [novel] sales analysis based on the

data; and • (d) code to provide a user a model based on the [novel]

sales analysis.

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Some Ideas on Prosecution in Bilski Limbo: Product Claims

• (claim 7) (New). A computer readable medium encoded with computer readable program code for predicting retail sales, the program code including subroutines for:

– (a) retrieving from a plurality of sources data including historic sales, historic advertising expenditures, and current advertising expenditures;

– (b) storing the data;– (c) preparing a [novel] sales analysis based on the data; and – (d) providing a user a model based on the [novel] sales

analysis.

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Some Ideas on Prosecution in Bilski Limbo: Product Claims

• (claim 8) (Canceled).• (claim 9) (New) – just like claim 7, but “using a first computer” –

“using a second computer” – etc.• (claim 10) (New). The computer readable medium of claim 9,

wherein the first, second, third, and fourth computers is one ormore programmed computers.

• (claim 11) (New). The computer readable medium of claim 10, wherein the one or more programmed computers are distributed over several physical locations.

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Proposed Claims Drafting Strategy: Surviving a Stricter Bilski v. Doll Test

• International harmony?– If the Supreme Court reads “useful arts” as

“technological arts” and goes the “technical contribution” route of the EPO/Britain, it will be important to focus on the “technical contribution” the invention brings.

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Proposed Claims Drafting Strategy: Surviving a Stricter Bilski v. Doll Test

• When reading your drafted claims try to think of whether the claimed invention as a whole:

– Increases the speed/efficiency of a thing• More likely to survive if it’s the computer science

arts rather than business-related– Consumes less resources– Stores information better, etc.

• Consider making these statements in the specification, and even in claims

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2009 Business Method Partnership Meeting: The Past, Present, and Future of Practice

Thank youLawrence T. KassMilbank, Tweed, Hadley & McCloy LLP1 Chase Manhattan PlazaNew York, NY 10005(212) 530-5178 [email protected]

Blake ReeseMilbank, Tweed, Hadley & McCloy LLP1 Chase Manhattan PlazaNew York, NY 10005(212) 530-5496 [email protected]

Larry Kass is a partner and Blake Reese is an associate in the intellectual property group of Milbank, Tweed, Hadley & McCloy. The views expressed in the presentation are those of the authors and may not be attributed to Milbank or its clients.

Documents

Prosecuting Business Method Patents: The Bilski Conundrum