Summary: US Case laws in Business method and software patents
Right from the early 70's there has been a debate on patentability starting with, Gottschalk v. Benson, Diamond v. Chakarabarty, followed by Diamond v. Diehr. A lot has changed since those early days in the aspects of computers and computing power, but one thing that has not changed in the ambiguity in the law. Is an computer invention really patentable? What makes this a very difficult question to answer is the fact that computer inventions mostly are based on computer implemented methods of mathematical expressions or algorithms. Since mathematical expressions as per the law is not patent eligible subject matter, therefore computer implemented inventions that merely use a device for computing those expressions are not patent eligible as well. What makes this more challenging is that where this addition of the computer does more than merely doing the said steps in the said manner.
In the famous decision of Diamond v. Diehr, the court ruled that the implementation of the Arrenehius principle for rubber curing is patent eligible because there were no earlier instances of using this principle for the said purpose of curing rubber. In contrast, Gottschlak v. Benson begged the question can a mathematical formula without a substantial practical application exception in connection with a digital computer be patented? Since the formula was not directed at any particular application, but the claims were generic to applying the formula implemented on a digital computer, the court ruled against Benson. Out of this was born an important test for patentability under 101; the machine or transformation test. The machine or transformation test simply states that for a subject matter to be patent eligible, (1) the claimed process should be tied to a particular machine; or (2) the process transformed an article into something else. The subsequent outcome? In order to get over this hurdle many patent applications simply tied their implementation to a machine (e.g. a digital computer) .
Fast forward few decades. Today computers are everywhere and software has become the backbone of our day to day interactions, this is especially true financial and commerce transactions. No wonder the two major decisions on computer implemented methods are based financial transactions.
The first, Bilski v. Kappos involved business method using a mathematical algorithm to hedge against price changes in the energy market. This case reevaluated the machine or transformation test. Prior to this the machine or transformation test was the key test toward patent eligibility. The US Supreme court opined that machine or transformation test is not the only criteria for patentability. Bilski appeal was rejected on the basis that is was a business method and constituted an abstract idea. However, the court did not clarify how to evaluate the abstract idea. This left the door open for interpretation.
Judge Stevens from the panel did not agree with the majority decision; "The Court does not provide a clear account of what constitutes an unpatentable abstract idea. Instead, the Court artificially limits the claims at bar to hedging, and then concludes that hedging is an abstract idea rather than a term that describes a category of processes including the claims. Therefore, the Court fails to show how its conclusion follows clearly from precedents in this area. Consequently, one might conclude that the Court’s analysis means that any process that utilizes an abstract idea is itself an unpatentable, abstract idea, but such a rule has never been suggested; if this were the rule, it would undermine a host of patentable processes"
The key question that is raised again and again is, are business methods patentable subject matter? Proponents have argued that business methods, are a means of conducting business and making these patentable will create impediments in conducting business, by subjecting them to litigation. Moreover, businesses don’t need patents as an incentive since creating new business methods and processes is easily driven by profit incentives that are offered in furthering innovation.
The next major judgement that looked at patentability of natural laws was Mayo v. Prometheus. Prometheus sold diagnostic tests incorporating these covered in their patents. The test concerned the use of thiopurine drugs to treat autoimmune diseases. The federal circuit ruled in favor of Promethus, holding that the processes were patent eligible under the “machine or transformation test” as they included steps that involve the transformation of the human body or blood taken from it. Supreme court did not agree and decided that the steps or their combination thereof do not conform to the norms dictated by law to overcome the transformation barriers as set forth by the courts.
Finally, we come to another US Supreme court case Alice v. CLS Banks, the latest of the twist and turns in the history of case laws involving patentable subject matter. Alice Corporation was granted patents on several processes and systems relating to the use of computer software to facilitate securities trading and reduce risks of parties not fulfilling contractual obligations. CLS Bank developed software for its own use in similar transactions.
The court reiterated the areas of patent ineligibility namely laws of nature, natural phenomena, and abstract ideas. To perform this type of differentiation, the Court invoked a two-step analytical framework based on Mayo. Under this framework, courts first assess whether an invention is directed to one of the judicial exceptions to patent-eligibility (stated above). Second, if the invention does fall within an exception, courts consider whether the invention involves an "inventive concept," which is an element or combination of elements "sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the ineligible concept itself." That is to say, is there enough in the invention to transform the abstract invention to patent eligible subject matter. Applying the Mayo framework to Alice's patents, the Court concluded that the claims were directed to an abstract idea. This decision was in line with the earlier decision of Bilski that were based on similar concept of financial mathematical transactions. Where this decision lacked was in the clarity to how to make this decision of "significantly more".
There have been a number of major decisions post Alice, where the two pronged rule have been applied and these provide further clarity on "significantly more". McRO v. Namco is one such interesting case that demonstrates the extent of technicality to transform an abstract concept to patentable subject matter. The claimed invention relates to generating automated lip-synchronization and associated facial expression for 3D animated characters. McRO's contribution automates this process by feeding time-aligned phonetic transcripts into a computer, and setting rules for how to apply various morph targets to manipulate the 3D character's facial expressions based on this input. This produces a more realistic speech pattern during animation, something that was not achievable without manual intervention. For this reason, the federal court agreed that MCRO's patent overcomes the Alice test.
In summary, the patentability landscape has been changing over the past few decades. From the earlier and more direct machine or transformation test of Gottschalk, to a more open ended approach as elucidated in Bilski and Alice, the thought process of the courts has been to caution the patent offices to take a more pragmatic & precise approach while determining patent eligible subject matter. There is no magic bullet or template that can be fitted to help determine patentability and we will look to further cases from the Federal circuit to provide more clairty in this matter.
In the famous decision of Diamond v. Diehr, the court ruled that the implementation of the Arrenehius principle for rubber curing is patent eligible because there were no earlier instances of using this principle for the said purpose of curing rubber. In contrast, Gottschlak v. Benson begged the question can a mathematical formula without a substantial practical application exception in connection with a digital computer be patented? Since the formula was not directed at any particular application, but the claims were generic to applying the formula implemented on a digital computer, the court ruled against Benson. Out of this was born an important test for patentability under 101; the machine or transformation test. The machine or transformation test simply states that for a subject matter to be patent eligible, (1) the claimed process should be tied to a particular machine; or (2) the process transformed an article into something else. The subsequent outcome? In order to get over this hurdle many patent applications simply tied their implementation to a machine (e.g. a digital computer) .
Fast forward few decades. Today computers are everywhere and software has become the backbone of our day to day interactions, this is especially true financial and commerce transactions. No wonder the two major decisions on computer implemented methods are based financial transactions.
The first, Bilski v. Kappos involved business method using a mathematical algorithm to hedge against price changes in the energy market. This case reevaluated the machine or transformation test. Prior to this the machine or transformation test was the key test toward patent eligibility. The US Supreme court opined that machine or transformation test is not the only criteria for patentability. Bilski appeal was rejected on the basis that is was a business method and constituted an abstract idea. However, the court did not clarify how to evaluate the abstract idea. This left the door open for interpretation.
Judge Stevens from the panel did not agree with the majority decision; "The Court does not provide a clear account of what constitutes an unpatentable abstract idea. Instead, the Court artificially limits the claims at bar to hedging, and then concludes that hedging is an abstract idea rather than a term that describes a category of processes including the claims. Therefore, the Court fails to show how its conclusion follows clearly from precedents in this area. Consequently, one might conclude that the Court’s analysis means that any process that utilizes an abstract idea is itself an unpatentable, abstract idea, but such a rule has never been suggested; if this were the rule, it would undermine a host of patentable processes"
The key question that is raised again and again is, are business methods patentable subject matter? Proponents have argued that business methods, are a means of conducting business and making these patentable will create impediments in conducting business, by subjecting them to litigation. Moreover, businesses don’t need patents as an incentive since creating new business methods and processes is easily driven by profit incentives that are offered in furthering innovation.
The next major judgement that looked at patentability of natural laws was Mayo v. Prometheus. Prometheus sold diagnostic tests incorporating these covered in their patents. The test concerned the use of thiopurine drugs to treat autoimmune diseases. The federal circuit ruled in favor of Promethus, holding that the processes were patent eligible under the “machine or transformation test” as they included steps that involve the transformation of the human body or blood taken from it. Supreme court did not agree and decided that the steps or their combination thereof do not conform to the norms dictated by law to overcome the transformation barriers as set forth by the courts.
Finally, we come to another US Supreme court case Alice v. CLS Banks, the latest of the twist and turns in the history of case laws involving patentable subject matter. Alice Corporation was granted patents on several processes and systems relating to the use of computer software to facilitate securities trading and reduce risks of parties not fulfilling contractual obligations. CLS Bank developed software for its own use in similar transactions.
The court reiterated the areas of patent ineligibility namely laws of nature, natural phenomena, and abstract ideas. To perform this type of differentiation, the Court invoked a two-step analytical framework based on Mayo. Under this framework, courts first assess whether an invention is directed to one of the judicial exceptions to patent-eligibility (stated above). Second, if the invention does fall within an exception, courts consider whether the invention involves an "inventive concept," which is an element or combination of elements "sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the ineligible concept itself." That is to say, is there enough in the invention to transform the abstract invention to patent eligible subject matter. Applying the Mayo framework to Alice's patents, the Court concluded that the claims were directed to an abstract idea. This decision was in line with the earlier decision of Bilski that were based on similar concept of financial mathematical transactions. Where this decision lacked was in the clarity to how to make this decision of "significantly more".
There have been a number of major decisions post Alice, where the two pronged rule have been applied and these provide further clarity on "significantly more". McRO v. Namco is one such interesting case that demonstrates the extent of technicality to transform an abstract concept to patentable subject matter. The claimed invention relates to generating automated lip-synchronization and associated facial expression for 3D animated characters. McRO's contribution automates this process by feeding time-aligned phonetic transcripts into a computer, and setting rules for how to apply various morph targets to manipulate the 3D character's facial expressions based on this input. This produces a more realistic speech pattern during animation, something that was not achievable without manual intervention. For this reason, the federal court agreed that MCRO's patent overcomes the Alice test.
In summary, the patentability landscape has been changing over the past few decades. From the earlier and more direct machine or transformation test of Gottschalk, to a more open ended approach as elucidated in Bilski and Alice, the thought process of the courts has been to caution the patent offices to take a more pragmatic & precise approach while determining patent eligible subject matter. There is no magic bullet or template that can be fitted to help determine patentability and we will look to further cases from the Federal circuit to provide more clairty in this matter.
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