Introduction
United States of America Supreme Court case where it was held that machine-or-transformation test is not the sole test for determining the patent eligibility of a process, but rather "a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes.
Facts
The petitioners filed a patent application claiming methods
regarding how commodities buyers and sellers can protect, or hedge, against the
risk of price changes. The application contained two key claims — one described
a series of steps instructing how to hedge risk, and the other put those steps
into a mathematical formula. The remaining claims related to the application of
these methods to the energy market and the use of familiar statistical
approaches to obtain the inputs for the claimed mathematical formula.
•
It enabled both energy suppliers and consumers to
minimize the risk of fluctuations in demand during a given period and includes
ways to compensate for the risk of abnormal weather conditions.
•
The consumers could be protected from yearly
fluctuations in weather, while the suppliers were protected from the opposite
effect of such fluctuations.
•
The risk assumed in the transactions with the market
participants at the second fixed rate balanced the risk of the consumer
transactions at the first rate.
Proceedings
in the Patent Office, Board of Patent Appeals and
Interferences and US Court of Appeals for the Federal Circuit
•
The patent examiner rejected the application under 35 USC 101 that the invention was
not implemented on a specific apparatus, merely manipulated an
abstract idea, and solved a purely mathematical problem.
•
Board of Patent Appeals and Interferences rejected the
appeal because the claimed method did not involve a physical
transformation to produce a useful, concrete, and tangible result.
•
US Court of Appeals for the Federal Circuit upheld the
Board’s decision and said that the sole and proper test for patentability is
the “machine or transformation test”. The Federal Circuit expressly
rejected prior tests for patent eligibility, including the “useful, concrete
and tangible result” test previously articulated in State Street Bank &
Trust Co v. Signature Financial Group, Inc.[1] It held that a claimed process is patent
eligible if:
(1) it is tied to a particular machine or apparatus,
or
(2) it transforms a particular article into a
different state or thing.
•
Therefore, the Federal Circuit Court
concluded that this “machine-or-transformation test” is the sole test for
determining patent eligibility of a “process” under §101, the court applied the
test and held that the application was not patent eligible.
Issues before the Supreme Court
•
Whether the petitioners’ claimed invention was categorically
excluded from 35 U.S.C. Section 101 because it failed the
machine-or-transformation test;
•
Whether the claimed invention was categorically excluded from
Section 101 because it was a method of conducting business; and
•
Whether the claimed invention was an unpatentable abstract
idea.
Judgement of the Supreme Court
The Machine-or-Transformation Test
As
to the first issue, the Court held that the machine-or-transformation test does
not impose a categorical limitation on “process” patents under Section 101
because the test “is not the sole test for deciding whether an invention
is a patent-eligible ‘process.’ In his majority opinion, Justice Kennedy
explained that, subject only to the well-established exceptions for laws of
nature, physical phenomena and abstract ideas, the term “process” must be given
its ordinary meaning in accordance with statutory interpretation principles.
Prior Supreme Court precedent was not intended to have the
machine-or-transformation test limit the definition of “process” or otherwise
serve as the exclusive test for patent eligibility.
The
Court, however, emphasized that the machine-or-transformation test remained a
critical tool in helping to determine patent eligibility. The Court also made
clear that it was not endorsing a return to State
Street’s “useful, concrete and tangible result” test or other patent
eligibility tests used by the Federal Circuit in the past:
In
a portion of his opinion in which Justice Scalia did not join, Justice Kennedy,
questioned whether the machine-or-transformation test should be the sole
criterion for determining the patentability of inventions in the Information
Age and suggested that it may not make sense to require courts to confine
themselves to asking the questions posed by that test. Notably though, Justice
Kennedy did not suggest that the machine-or-transformation test should not be
used at all in cases involving emerging technology.
In
his concurring opinion, Justice Stevens agreed with the Court that the
machine-or-transformation test was not the sole test governing Section 101, but
that it was reliable in most cases and was a critical clue in determining
patent eligibility. He also warned that even if the machine-or-transformation
test may not define the scope of a patentable process, it would be a grave
mistake to assume that anything with a ‘useful, concrete and tangible result,
may be patented.’
Exclusion of Business Methods under 35
U.S.C. Section 101
The
Court next addressed the issue of whether the term “process” categorically
excluded business methods. Whereas the Justices were unanimous in their views
about the use of the machine-or-transformation test in determining patent
eligibility, the Court was sharply divided on whether business methods could be
patent-eligible processes.
Writing
for a 5-4 majority, Justice Kennedy concluded that section 101 precluded the
broad contention that the term ‘process’ categorically excluded business
methods. The Court found that the term ‘method’ could include at least some
methods of doing business and was unaware of any argument that the ordinary
meaning of “method” excluded business methods. The Court also held that federal law
explicitly contemplated the existence of at least some business method patents
because 35 U.S.C. Section 273, which provides a prior-use defence against
alleged infringement of method claims, defines “method” as “a method of doing
or conducting business.”
In
his concurring opinion, Justice Stevens took the opposite view concerning the
patentability of business methods. Based on an extensive analysis of the
history of patent law, Justice Stevens believed that there was strong support
for the conclusion that a method of doing business is not a “process” under
Section 101. Justice Stevens also criticized the Court’s reliance on Section
273, explaining that the 1999 legislation enacting Section 273 did not purport
to amend the limitations in Section 101 on eligible subject matter and merely limited
one potential effect of the Federal Circuit’s State Street decision: that
businesses might suddenly find themselves liable for innocently using methods
they assumed could not be patented
Patent-Eligible Process or Abstract Idea
Despite
the Court’s rejection of the two categorical limitations on “process” patents
discussed above, the Court held that the petitioners’ patent application was
not patentable because it claimed an abstract idea. In reaching this conclusion, the
Court relied on three prior decisions — Gottschalk
v. Benson[2],
Parker v. Flook[3],
and Diamond v. Diehr[4].
The
Court in this case likened the petitioners’ two key
claims to those in Benson and Flook
and held that the concept of hedging, described in claim 1 and reduced to a
mathematical formula in claim 4, is an unpatentable abstract idea. The Court
also rejected the petitioners’ remaining claims as unpatentable because they
attempted to patent the use of the abstract idea of hedging risk in the energy
market and then instruct the use of well-known random analysis techniques to
help establish some of the inputs into the equation.
In
his concurring opinion, Justice Stevens agreed that the petitioners sought to
patent an abstract idea, but criticized the Court for failing to state clearly
how its conclusion followed from the case law.
Analysis:
Impact of the Bilski v Kappos judgement
The Supreme
Court affirmed that Bilski’s risk-management method was not the type of
innovation that may be patented. However, rather than using the Federal
Circuit's "machine-or-transformation test", the court simply relied
on prior precedent to find the claimed method unpatentably abstract.
• The ruling of the Court that the claim is for an overly
abstract idea and thus not patentable indicates that software patents can
be validly claimed to be abstract ideas not falling under the scope of
patentable subject matter.
• The Supreme Court was completely silent on the
issue of patentability of software in its decision. This means that the
“machine or transformation test”, whose applicability was ruled out in this
particular case, may still be applicable for software patents.
• Business methods were not ruled out from the ambit
of the word “process”, but banned ‘abstract’ notions from being patented.
•
Although Bilski's claims were held unpatentably
abstract, the Supreme Court re-affirmed that the door to patent eligibility
should remain broad and open.
•
Business Methods: Section 101 does not
categorically exclude business methods from patentability. Rather, the
court noted that the prior-use defense found in Section 273(b)(1) of the Patent
Act explicitly contemplates the existence of at least some business method
patents
•
Abstract
Idea: The one thing that all nine justices agreed upon is that Bilski's method
of hedging risk was not patentable because it is an abstract idea "just
like the algorithms at issue in Benson and Flook.[5]"
Issues
raised in Bilski v Kappos examined in the Indian context
Patentability
of Software Inventions
Patent laws of several countries favour patent
protection for software innovation. However, many other countries, which
include India and European nations, have more stringent laws concerning patent
protection to software innovation.
Indian Patent Act offers patent protection to
product or process (if they satisfy various requirements of patentability) as
long as they do not fall under non-patentable subject matter. Section 3 and 4
of the Indian Patent Act specify a list of subject matter that is not
patentable. Section 3(k) of the Indian Patent Act, which is provided below, is
of specific importance to software innovation.
“What are not invention – The following are not
inventions within the meaning of this Act, – a mathematical or business method
or a computer program per se or
algorithms;”
Section 3(k) is often
referred to state that none of the software
innovations are patentable in India. However, the reality is far from such
perceptions.
To begin with, the patent office, in its “Manual Of Patent Office Practice And Procedure” (MPPP)[6] offers some clarity, if not to a great extent, on what kind of software innovations will be considered as “computer program per se” and held non patentable, and what kind of software innovations do not fall under section 3(k).
One of the keys for successfully having a patent
granted for software innovation lies in the ability to present the innovation
in such a way that the innovation, which we are aiming to protect, includes
subject matter which is not a computer programme. Further, subject matter that
is “not just a computer program” should be intelligently made an
essential part of the invention, without compromising on the scope of
protection. The above opinion is reinstated by the fact that
the Indian Patent Office has been granting patents to, what is normally
perceived as “software innovations”.
Therefore, a patent can
be acquired for a software invention in India provided that the software
invention is patentable in conjunction with hardware. Finally, the
latest guidelines reiterate the statutory provision with respect to software patent
in India. For a developing country like India, denying patents for only novel
software without a hardware goes a long way in encouraging and enabling
innovation in the software industry. At the same time allowing patenting of
novel software in conjunction with hardware gives ample incentive for the
inventors.
Patentability
of Business Methods
A business method is classified as a
process, because it is not a physical object. Business Method Patents were not
considered as a subject matter for
protection under Patent Law. Earlier Business Method was considered as an
abstract idea. But by a decision by a Federal Court[7] even Business Method have been granted
patent protection.
The major reasons for negating the inventions relating to business methods
filed in India was lack of industrial applicability, which is one of the major
conditions to qualify as an invention. Whether the same is non-patentable being
a business method may be considered only if the subject is first found to be an
invention.
In India, business method patents were available to be granted. But the
amendment of 2002 changed all that. The Patents (Amendment) Act, 2002, with
effect from May 20, 2003 specifically declared ‘a mathematical or business
method or a computer programme per se or algorithms, are not subject matter of
an ‘invention’ within the meaning of the patent statute’.
Though the intention
to exclude business methods was clear, ambiguity arose with regard to the
following two situations – what did ‘computer program per se’ mean, and whether
a business method executed through a computer program and having technical
application could be patented. In order to clear the ambiguity, an Ordinance was
introduced in 2004 to amend Section 3(k) to read as follows:
“3. What are not inventions—
(k) a computer
programme per se other than its technical application to industry or a
combination with hardware;
(ka) a
mathematical method or a business method or algorithms;”
Though the business
method exception remained unaltered, this amendment narrowed the exclusion of
patents for computer programs and almost explicitly allowed computer programs
having ‘technical effect’ to be considered patentable subject matter This
Ordinance, however, was short-lived and in 2005 an amending Act restored
Section 3(k) to its 2002 form.
The 2005 amendment
deleted the words “other than its technical application to industry or a combination
with hardware” from Section 3(k) showing that the legislature did not intend to
make computer programs with technical application to industry or combination
with hardware patentable subject matter.[8] It can
also be concluded that the legislature intended to treat computer programs just
like any other category in Section 3(k) i.e. algorithms, business methods or
mathematical methods.
There could be two
possible ways of dealing with such situation in which a computer programme is
used to execute a business method. One approach could be that of assessing the
result of the computer program. Thus, even if the program is essentially a
business method but has some technical effect, the claim will stand because it
is not a ‘computer program per se’. The focus is, therefore, on the effect
of the patent and not on its subject matter.
This approach shows
that the mere presence of a business method, which is a subject matter
expressly excluded, does not invalidate the patent application as the invention
will be evaluated as a whole. This results in an indirect inclusion of excluded
subject matter thereby making such subject matter patentable.
Yahoo sought to
patent an invention titled “A method of operating a computer network search
apparatus”. The Controller and later the Intellectual Property Appellate
Tribunal (‘IPAB’) concluded that the invention is only a business strategy and hence
is not patentable.[9]
The IPAB also
contrasted the express exclusion of such methods in the Indian law with the
ambiguous provisions of the US, U.K. and European enactments on the point. Thus
showing that Indian law, in contrast to these enactments, specifically excludes
business methods, there is no need for applying the interpretation offered by
courts of other jurisdictions in relation to matters regarding business methods
It was observed that
patents are usually granted as an incentive to the inventor, but business
methods do not need such incentives because creation of better business
methods is inherent in the art of doing business itself. Moreover, the IPAB
highlighted that incentives are not required in this field because the method in
itself ensures more profits.
Given the Yahoo
decision, the Electronics Navigation Research Institute case, the new
guidelines of the Patent Office and the express exclusion under Section 3(k),
it becomes clear that Indian law does not allow business methods to be granted
patent protection.
[1] 149 F.3d 1368
[2] 409 U.
S. 63 (1972),
[3] 437 U.
S. 584 (1978),
[4] 450 U.
S. 175 (1981
[5] Supra
note 3
[6] http://www.ipindia.nic.in/writereaddata/Portal/IPOGuidelinesManuals/1_28_1_manual-of-patent-office-practice_and-procedure.pdf last
accessed on September 16, 2017
[7] State Street Bank v. Signature Financial Group, Inc.
149 F.3d 1368 (Fed. Cir. 1998)
[8] See ALF,
ALF Position Paper Draft Patent Manual, available at http://www.cis india.org/ advocacy/openness/software-patents/ALF/PositionPaperDraftPatentManual.pdf
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