Intellectual Property Directions

Like a vampire rising again from the grave, “business method” patents don’t want to go away without a fight.  It was just a year ago that the Court of Appeals [CAFC] ruled that Bilski’s “business method” for hedging commodities was not patentable subject matter. As much as I wished that the matter was dead, there are too many business method zombies, sucking the blood out of the patent system with their “inventions”, to let it go.

Last week the Supreme Court heard arguments in the matter of “Bilski” and it seemed to observers of the Court that Bilski may finally be dead but that the contorted CAFC reasoning may be thrown out as well. As I wrote last November (IP Directions 11/2/08), the very basis of the US patent system is the Constitutional phrase: “Congress shall have power … to promote the progress of science and useful arts…” Frankly, I doubt the founders would consider hedging risk in commodity trading part of science and the useful arts.

But the CAFC didn’t want to use such a subjective criterion in their decisions, so what is the test of process patentability? According to the Bilski decision, there is a two-part “machine-or-transformation test” for eligibility of process claims. First, eligibility may be demonstrated if a claim “is tied to a particular machine or apparatus.” Second, and alternatively, eligibility may be shown if a claim “transforms a particular article into a different state or thing.” Also note that the “tie” to a machine or apparatus must be a meaningful limitation in the claim.

I would have preferred to see methods of performing business/financial operations per se be declared unpatentable as not being part of science or the “useful arts” and damn the subjectivity torpedoes. As with “obviousness”, the courts will never produce a objective definition of an inherently subjective issue, so why try. If a patent applicant feels the patent office has inappropriately reject his or her application over a subjective issue, well, that’s why we pay the justices the big bucks - to apply their “wisdom”.

How about you - any blood-sucking business methods in your patent plans?

While there are many problems with our current patent system, one area that I would like changed is what types of processes qualify as patentable subject matter. As we know, the patentability of software and business methods is fraught with controversy these days. I’d like to throw what I call end-user methods into the mix as well.

My inclination is to look at the purported purpose of the patent system – to reward inventors who help improve society by sharing their inventions – and see which types of processes/methods achieve that purpose. Although it’s not important in this “if I were King” exercise, I like to think this approach harkens back to the Constitutional underpinnings of our patent system, where it is written that Congress can reward inventors for the purpose of “promot[ing] the progress of science and the useful arts”.

Note that the Constitution doesn’t say anything about promoting better business decisions or controlling the actions of individuals who can, with their own heads and hands, engage in an activity.
So how do software, business methods, and end-user methods fit in?

Software: When held up to the template of “Science and the useful arts” clearly some software qualifies and some does not, just as some hardware is patentable and some is not. Thus, I put software into the patentable subject matter category and leave to the examination process what happens to individual applications.

Business Methods: To me, the idea of a “business method” patent is an abhorrence. Transacting business better, faster, cheaper, or whatever is not beneficial to society; it only helps the businessperson make more money. One-click checkout, calculating hedge fund portfolio mixes, etc. are not science nor are they part of the “useful arts” (again, keeping in mind that I am king).  Note that the question isn’t “is this a process”, “is it implemented on a machine”, or “does it transform something”? No, the question is what is the purpose of the process/method; if the purpose is to transact business then it’s not patentable in my book.

End-User Methods: As I’ve discussed in an earlier blog, end-user methods are, generally, processes that don’t “make” anything and that are often performed by the person gaining the benefit of the performance (viz., the end user).  Many of the most laughable patents of recent years are for end-user methods: the method of exercising a cat with a laser pointer and the method of swinging on a swing come to mind.

While those examples are laughable, other end-user method patents cover more serious processes, such as medical procedures. Often these latter patents are a back door way for companies to secure markets for a medical device that otherwise did not qualify for a patent.

There is one more set of “method” claims that I would severely limit. These are methods of doing X, where X is really just using an apparatus, often already claimed in the patent. These method claims are, like the medical procedure patents mentioned above, nothing more than an attempt to provide patent protection for an apparatus that might not be otherwise protected.

Key tip-off words in these claims are “providing” (a such and such piece of equipment), “collecting/recording” (data or information), and “processing” (the data). Steps such as these in a method claim are simply ways to pad out what is really intended: “a method of doing X comprising the step of operating the apparatus described in the patent”. Since that one-step method claim would never be allowed, patent attorneys game the system by breaking the operation of the apparatus down into insignificant steps. They might as well include plugging it in.

That’s what I would do if I were King. How about you?

With last week’s announcement of the CAFC’s decision in in re Belski you might asked an Emily Litella question, “Who is Ray Bilski and why is the court deciding what’s in him?”. Emily, upon learning that it’s a court case “in re” Bilski would have said “Never mind”, but for us it’s worth thinking about.

Bilski was at the wrong place at the wrong time with the wrong “invention”. On April 10, 1997 (yes, 11.5 years ago) Bernard Bilski and Rand Warsaw filed a patent application for method of hedging risk in commodities trading - that is, a business method. Claim 1 read:

 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

The PTO rejected this application as not being directed to patentable subject matter.  The CAFC concurred with this decision. So, after previously opening the door to a flood of business method patents with the so called State Street decision, the CAFC has tried to jam the door at least partially closed.

I’ve never been a fan of “methods” claims in general and of business methods claims in particular. Bilski, it seems, is the poster child for everything wrong with these patent applications.

First, the very basis of the US patent system is the Constitutional phrase: “Congress shall have power … to promote the progress of science and useful arts…” Frankly, I doubt the founders would consider hedging risk in commodity trading part of science and the useful arts.

Second, the patent law drafted on the basis of this power lists the patentable invention subject matter to be a ”useful process, machine, manufacture, or composition of matter.” Now I may be old fashioned, but I think a patentable process has to be more than just an activity that can be described by a series of steps; everything we do can be broken down into a series of steps - A method of blogging comprising the steps of a) logging on to a blog site, b) placing fingers on a computer keyboard, c) initiating a series of keystrokes wherein the keystrokes form known words, wherein further the words are sequenced and punctuated in accordance to the know rules of a pre-selected language. You get the idea!

So what is the test of process patentability? According to the Bilski decision, there is a two-part “machine-or-transformation test” for eligibility of process claims. First, eligibility may be demonstrated if a claim “is tied to a particular machine or apparatus.” Second, and alternatively, eligibility may be shown if a claim “transforms a particular article into a different state or thing.” Also note that the “tie” to a machine or apparatus must be a meaningful limitation in the claim.

I would have preferred to see methods of performing business/financial operations per se be declared unpatentable as not being part of science or the “useful arts”, as was urged by some.

The bottom line for most of my clients is “very little impact”, since I focus on hardware/device IP, but if you are in the financial or software industries, a consultation with your IP attorney may be in order.

If you are like me and maybe 28, 999,999 other US sports fans, you probably were watching the men’s marathon the other night from Beijing. Through the miracle of HDTV you could see the look of exhaustion on the faces of all but the very top finishers. Like most of the runners, patents get exhausted too.

Just as a runner’s legs get exhausted when their owner tries to push them too far, so too a patent is exhausted when the owner tries to claim rights beyond the first sale of the patented invention. In a June 2008 decision, the Supreme Court extended this concept even further, explicitly extending it to methods claims as well as apparatus claims.

The basic concept of patent exhaustion is straight forward; if you, the patent owner, authorize the sale of a product incorporating your patented invention, you no longer have control of the further use or sale of that product. While there are complicating details, the logic of the doctrine is clear; once you’ve gain the benefit of your patent “monopoly” by selling the patented product you’re not allowed to double-dip by, for example, collecting another royalty when your customer resells your product as part of his product.

The particular case involved LG Electronics patents that had been licensed to Intel, who in turn made chipsets that were sold to Quanta Computer. LG had stipulated in its license to Intel that the chipsets were NOT to be combined with non-Intel parts and required Intel to inform chipset buyers of that requirement, which they did. However, LG did not require Intel to explicitly license each purchase with that restriction.

When Quanta combined the Intel chipsets with non-Intel parts, LG sued Quanta. The case progressed through both district court and the CAFC, ending up in the Supreme Court. That Court decided that, by virtue of its license to Intel, LG had authorized the sale of the chipsets to Quanta and that the principle of patent exhaustion applied to both the apparatus and the methods claims in LG’s patents. That the lower courts had felt the principle did NOT apply to the methods claims is hard to understand; however, the Supreme Court has now said explicitly that it does apply.

So if your goal is to have your patent go the extra mile for you, you will have to write explicit licenses to cover your expectations covering the secondary sales and uses of your patent, both apparatus claims and method claims.