Intellectual Property Directions

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.

If the USPTO allowed a patent for a method of swinging on a swing, which they did, then it’s surely time to do something about method patents - or at least methods that I’ve called end-user processes. Patents covering end-user processes are pernicious in several ways:

• firstly, by their nature there is very little documented prior art for a patent examiner to demonstrate obviousness, undermining the doctrine that issued patents have a presumption of validity;
• secondly, they erode the inherent society/inventor balance when their principle use is to secure coverage for an apparatus that has otherwise failed to obtain (or retain) patent protection;
• thirdly, they potentially make every citizen an infringer just for engaging in what is normal or everyday activity; and
• lastly, by raising concerns of induced or contributory infringement in other manufacturers, they contravene the Constitutional underpinnings of our patent law by repressing instead of promoting the “progress of science and the useful arts”.

It is this last issue that concerns me most. One of the characteristics of an end-user process is that it is performed by an individual using no patented/proprietary apparatus. The process is typically not performed by the patent owner or his competitors. And the patent owner never intends to sue the performing individuals. Instead, the patent owner hopes to protect his market for his unpatentable apparatus by scaring off competitors with the threat of an induced or contributory infringement suit.

The recent “KSR ruling”, which makes an obviousness objection harder to overcome (the method of swinging on a swing would not be allowed today), will certainly make it more difficult to obtain these patents but as we know the winds of court opinions can switch over time. It would be better to make explicit changes in the patent laws to eliminate or at least eviscerate these claims.

While some might try to tinker with the definition of a patentable process (e.g., NOT an end-user process), I would rather eliminate the benefit expected from filing these patents. I would make the statutory definition of contributory/induced infringement include, directly or indirectly, a patented apparatus.

With this definition you could teach people the method of swinging on a swing without being lible for inducing infringement. With this definition you could freely sell your non-infringing apparatus without worrying if it also had non-infringing uses.

Importantly, the only possible infringers under this definition are the individuals actually practicing the method. If the goal of the patent owner was to protect a market for an unpatentable apparatus, he will not sue his potential customers. If the goal of the patent owner was to protect the market for the actual method (i.e., a dentist who has developed a new method of implanting teeth wants to be the only dentist able to perform this method), he will sue (or license) the infringers.

Yes, “methods” are patentable subject matter. And yes, there are many processes that clearly deserve patent protection. But I sure wish the CAFC or Supreme Court would drive a stake through the heart of one class of methods patents and put a stop to the madness. These methods claims cover what I call end-user processes. In many cases this type of patent claim is used as a back door way to get market protection for an apparatus that could not be patented on its own; as such it is a subversion of the goals and intentions of our patent system.

I discussed an example of an end-user process patent in the post Is suing your customers a good idea? The patent in question had only one independent claim which described a medical procedure that could be performed with the assignee’s unpatentable apparatus - or anyone else’s equivalent apparatus. The medical procedure is surely a process or a method of doing something, but is it really in society’s interest to issue patents on a series of steps or activities performed by individuals without any patentable apparatus? Certainly there is a qualitative difference between inventing a better, faster, or cheaper manufacturing process whereby your company can produce a more competitive widget and “inventing” an activity that requires nothing more than human skills (including, perhaps, the skill of manipulating existing equipment) that you or your company does not actually practice and that is practiced by people who might never be your customers.

Our patent system is supposed to be a deal between society and the inventor. We (society) grant a limited time monopoly to the inventor in exchange for the inventor teaching us the non-obvious details of his or her novel invention. Implicit in this deal is an assumption that “non-obvious” and “novel” are somehow universally understood and demonstrable. The problem with end-user processes is that the tests of obviousness and novelty break down.

We test for obviousness and novelty by looking at what has gone before and what other workers in area would typically do. But unlike a process used in manufacture, end-user processes are usually performed by individuals, not organizations, so the motivation to record how activities are performed is low. Do you think your plumber records any “tricks of the trade” he uses for potential patenting? No, a master plumber passes these techniques to apprentices by demonstration. The patent examiner has no insight into this “database”. Only in court can experts testify about what is or is not common practice and by then the anti-competitive damage has already been inflicted on society.

Who files patent applications for end-user processes? All of us! Unfortunately it has become more or less standard practice to file methods claims along with one’s apparatus claims with the clear hope of getting de facto protection for the apparatus even if the apparatus claims are rejected during examination, disallowed later at trial or designed around by our competitors.

The de facto protection occurs when potential manufacturers of competing but non-infringing hardware decide not to enter the market out of fears be being liable for contributory or induced infringement of the methods claims. While the benefit to the inventor of this situation is clear, do we as a society really feel this is a good idea? Do we really want to give an inventor a patent monopoly on an unpatentable apparatus? And what can we do about it?