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June 28, 2010

Vapors

Today, 9-0, the Supreme Court ruled Bilski's claimed risk hedging an abstract idea, thereby contravening § 101 as patentable subject matter. Four Supreme Court justices would have ruled that business methods are categorically not patentable. So, 5-4, § 101 "precludes a reading of the term 'process' that would categorically exclude business methods." And, oh, by the way, to hell with State Street.

Bilski et al v. Kappos (SCt 08-964)

Anyone with a lick of sense knew that Bilski wasn't going to get his patent claims granted. The only question was how the Supreme Court would frame denial. The most legally conservative approach was that Bilski claimed an abstract idea. To that all agreed. A more curmudgeonly approach favored by four Justices was that business methods were intrinsically unpatentable.

Justice Kennedy penned the 9-0 decision. Justice Kennedy was joined by Justices Roberts, Thomas and Alito in full. In dissents disguised as concurrence, Justices Stevens, Ginsburg, Breyer, and Sotomayor would have categorically rejected business methods as patentable subject matter. Justice Scalia sat on the fence in contented silence, agreeing with the majority conclusion, but not endorsing the edgy reasoning behind it.

From the syllabus, the 45 smash hit of an otherwise long-playing record -

(a) Section 101 specifies four independent categories of inventions or discoveries that are patent eligible: "process[es]," "machin[es],""manufactur[es]," and "composition[s] of matter." "In choosing such expansive terms, . . . Congress plainly contemplated that the patent laws would be given wide scope," Diamond v. Chakrabarty, 447 U. S. 303, 308, in order to ensure that " 'ingenuity should receive a liberal encouragement,' " id., at 308-309. This Court's precedents provide three specific exceptions to §101's broad principles: "laws of nature, physical phenomena, and abstract ideas." Id., at 309. While not required by the statutory text, these exceptions are consistent with the notion that a patentable process must be "new and useful." And, in any case, the exceptions have defined the statute's reach as a matter of statutory stare decisis going back 150 years. See Le Roy v. Tatham, 14 How. 156, 174. The §101 eligibility inquiry is only a threshold test. Even if a claimed invention qualifies in one of the four categories, it must also satisfy "the conditions and requirements of this title," §101(a), including novelty, see §102, nonobviousness, see §103, and a full and particular description, see §112. The invention at issue is claimed to be a "process," which §100(b) defines as a "process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material." Pp. 4-5.

(b) The machine-or-transformation test is not the sole test for patent eligibility under §101. The Court's precedents establish that although that test may be a useful and important clue or investigative tool, it is not the sole test for deciding whether an invention is a patent-eligible "process" under §101. In holding to the contrary, the Federal Circuit violated two principles of statutory interpretation: Courts " 'should not read into the patent laws limitations and conditions which the legislature has not expressed,' " Diamond v. Diehr, 450 U. S. 175, 182, and, "[u]nless otherwise defined, 'words will be interpreted as taking their ordinary, contemporary, common meaning,' " ibid. The Court is unaware of any ordinary, contemporary, common meaning of "process" that would require it to be tied to a machine or the transformation of an article. Respondent Patent Director urges the Court to read §101's other three patentable categories as confining "process" to a machine or transformation. However, the doctrine of noscitur a sociis is inapplicable here, for §100(b) already explicitly defines "process," see Burgess v. United States, 553 U. S. 124, 130, and nothing about the section's inclusion of those other categories suggests that a "process" must be tied to one of them.

(c) Section 101 similarly precludes a reading of the term "process" that would categorically exclude business methods.

(d) Even though petitioners' application is not categorically outside of §101 under the two a textual approaches the Court rejects today, that does not mean it is a "process" under §101. Petitioners seek to patent both the concept of hedging risk and the application of that concept to energy markets. Under Benson, Flook, and Diehr, however, these are not patentable processes but attempts to patent abstract ideas.

The CAFC remains the Supreme Court's favorite whipping post. SCOTUS specifically pawed at the 1998 State Street decision, which held "that the transformation of data, representing discrete dollar amounts, by a machine through a series of mathematical calculations into a final share price, constitutes a practical application of a mathematical algorithm, formula, or calculation, because it produces 'a useful, concrete and tangible result'."

Nothing in today's opinion should be read as endorsing the Federal Circuit's past interpretations of §101. See, e.g., State Street, 49 F. 3d, at 1373. [Cite typo: should be State Street, 149 F. 3d...]

On to the long player. From the majority opinion -

Section 101 defines the subject matter that may be patented under the Patent Act:

"Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title."

Section 101 thus specifies four independent categories of inventions or discoveries that are eligible for protection: processes, machines, manufactures, and compositions of matter. "In choosing such expansive terms . . . modified by the comprehensive 'any,' Congress plainly contemplated that the patent laws would be given wide scope." Diamond v. Chakrabarty, 447 U. S. 303, 308 (1980). Congress took this permissive approach to patent eligibility to ensure that "'ingenuity should receive a liberal encouragement.'" Id., at 308-309 (quoting Writings of Thomas Jefferson 75-76 (H. Washington ed. 1871)).

The Court's precedents provide three specific exceptions to §101's broad patent-eligibility principles: "laws of nature, physical phenomena, and abstract ideas." Chakrabarty, supra, at 309. While these exceptions are not required by the statutory text, they are consistent with the notion that a patentable process must be "new and useful." And, in any case, these exceptions have defined the reach of the statute as a matter of statutory stare decisis going back 150 years. See Le Roy v. Tatham, 14 How. 156, 174- 175 (1853). The concepts covered by these exceptions are "part of the storehouse of knowledge of all men . . . free to all men and reserved exclusively to none." Funk Brothers Seed Co. v. Kalo Inoculant Co., 333 U. S. 127, 130 (1948).

The §101 patent-eligibility inquiry is only a threshold test. Even if an invention qualifies as a process, machine, manufacture, or composition of matter, in order to receive the Patent Act's protection the claimed invention must also satisfy "the conditions and requirements of this title."§101. Those requirements include that the invention be novel, see §102, nonobvious, see §103, and fully and particularly described, see §112.

Under the Court of Appeals' formulation, an invention is a "process" only if: "(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing." 545 F. 3d, at 954. This Court has "more than once cautioned that courts 'should not read into the patent laws limitations and conditions which the legislature has not expressed.'" Diamond v. Diehr, 450 U. S. 175, 182 (1981) (quoting Chakrabarty, supra, at 308; some internal quotation marks omitted). In patent law, as in all statutory construction, "[u]nless otherwise defined, 'words will be interpreted as taking their ordinary, contemporary, common meaning.'" Diehr, supra, at 182 (quoting Perrin v. United States, 444 U. S. 37, 42 (1979)). The Court has read the §101 term "manufacture" in accordance with dictionary definitions, see Chakrabarty, supra, at 308 (citing American Fruit Growers, Inc. v. Brogdex Co., 283 U. S. 1, 11 (1931)), and approved a construction of the term "composition of matter" consistent with common usage, see Chakrabarty, supra, at 308 (citing Shell Development Co. v. Watson, 149 F. Supp. 279, 280 (DC 1957)).

Justice Stevens, in dissenting concurrence, called understanding the "terms in §101" "in light of their" "'ordinary, contemporary, common meaning'" "absurd."

Any suggestion in this Court's case law that the Patent Act's terms deviate from their ordinary meaning has only been an explanation for the exceptions for laws of nature, physical phenomena, and abstract ideas. See Parker v. Flook, 437 U. S. 584, 588-589 (1978). This Court has not indicated that the existence of these well-established exceptions gives the Judiciary carte blanche to impose other limitations that are inconsistent with the text and the statute's purpose and design. Concerns about attempts to call any form of human activity a "process" can be met by making sure the claim meets the requirements of §101.

The Court of Appeals incorrectly concluded that this Court has endorsed the machine-or-transformation test as the exclusive test... This Court's precedents establish that the machine-or-transformation test is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101. The machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible "process."

Given the swipe at State Street, a glimmer of gratuitous incongruity beams in the high Court backhandedly sanctioning "computer programs" as patentable subject matter, under the temporal umbrella that "times change."

It is true that patents for inventions that did not satisfy the machine-or-transformation test were rarely granted in earlier eras, especially in the Industrial Age, as explained by Judge Dyk's thoughtful historical review. See 545 F. 3d, at 966-976 (concurring opinion). But times change. Technology and other innovations progress in unexpected ways. For example, it was once forcefully argued that until recent times, "well-established principles of patent law probably would have prevented the issuance of a valid patent on almost any conceivable computer program." Diehr, 450 U. S., at 195 (STEVENS, J., dissenting). But this fact does not mean that unforeseen innovations such as computer programs are always unpatentable. See id., at 192-193 (majority opinion) (holding a procedure for molding rubber that included a computer program is within patentable subject matter). Section 101 is a "dynamic provision designed to encompass new and unforeseen inventions." J. E. M. Ag Supply, Inc. v. Pioneer Hi-Bred Int'l, Inc., 534 U. S. 124, 135 (2001). A categorical rule denying patent protection for "inventions in areas not contemplated by Congress . . . would frustrate the purposes of the patent law." Chakrabarty, 447 U. S., at 315.

As a result, in deciding whether previously unforeseen inventions qualify as patentable "process[es]," it may not make sense to require courts to confine themselves to asking the questions posed by the machine-or-transformation test. Section 101's terms suggest that new technologies may call for new inquiries.

As common with Supreme Court patent rulings, especially apropos for delineation of patentable subject matter, the majority opinion reeked of permissiveness.

It is important to emphasize that the Court today is not commenting on the patentability of any particular invention, let alone holding that any of the above-mentioned technologies from the Information Age should or should not receive patent protection. This Age puts the possibility of innovation in the hands of more people and raises new difficulties for the patent law. With ever more people trying to innovate and thus seeking patent protections for their inventions, the patent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles. Nothing in this opinion should be read to take a position on where that balance ought to be struck.

In a surreal statutory fugue, the majority opinion read into 35 U. S. C. §273 a tolerance of business method patents.

[W]hat §273 does is clarify the understanding that a business method is simply one kind of "method" that is, at least in some circumstances, eligible for patenting under §101.

A conclusion that business methods are not patentable in any circumstances would render §273 meaningless. This would violate the canon against interpreting any statutory provision in a manner that would render another provision superfluous. See Corley v. United States, 556 U. S. ___, ___ (2009) (slip op., at 9).

The minority-within-the-majority would pounce upon this as specious.

On brass tacks, unanimity that Bilski was overreaching. The perspective provided was naturally historical, a stroll down SCOTUS § 101 memory lane.

Even though petitioners' application is not categorically outside of §101 under the two broad and a textual approaches the Court rejects today, that does not mean it is a "process" under §101. Petitioners seek to patent both the concept of hedging risk and the application of that concept to energy markets. App. 19-20. Rather than adopting categorical rules that might have wide-rangingand unforeseen impacts, the Court resolves this case narrowly on the basis of this Court's decisions in Benson, Flook, and Diehr, which show that petitioners' claims are not patentable processes because they are attempts topatent abstract ideas. Indeed, all members of the Court agree that the patent application at issue here falls out-side of §101 because it claims an abstract idea.

In Benson, the Court considered whether a patent application for an algorithm to convert binary-coded decimal numerals into pure binary code was a "process" under §101. 409 U. S., at 64-67. The Court first explained that "'[a] principle, in the abstract, is a fundamental truth; an original cause; a motive; these cannot be patented, as no one can claim in either of them an exclusive right.'" Id., at 67 (quoting Le Roy, 14 How., at 175). The Court then held the application at issue was not a "process," but an unpatentable abstract idea. "It is conceded that one may not patent an idea. But in practical effect that would be the result if the formula for converting . . . numerals to pure binary numerals were patented in this case." 409 U. S., at 71. A contrary holding "would wholly preempt the mathematical formula and in practical effect would be a patent on the algorithm itself." Id., at 72.

In Flook, the Court considered the next logical step after Benson. The applicant there attempted to patent a procedure for monitoring the conditions during the catalytic conversion process in the petrochemical and oil-refining industries. The application's only innovation was reliance on a mathematical algorithm. 437 U. S., at 585-586. Flook held the invention was not a patentable "process." The Court conceded the invention at issue, unlike the algorithm in Benson, had been limited so that it could still be freely used outside the petrochemical and oil-refining industries. 437 U. S., at 589-590. Nevertheless, Flook rejected "[t]he notion that post-solution activity, no matter how conventional or obvious in itself, can transform an unpatentable principle into a patentable process." Id., at 590. The Court concluded that the process at issue there was "unpatentable under §101, not because it contain[ed] a mathematical algorithm as one component, but because once that algorithm [wa]s assumed to be within the prior art, the application, considered as a whole, contain[ed] no patentable invention." Id., at 594. As the Court later explained, Flook stands for the proposition that the prohibition against patenting abstract ideas "cannot be circumvented by attempting to limit the use of the formula to a particular technological environment" or adding "insignificant postsolution activity." Diehr, 450 U. S., at 191-192.

Finally, in Diehr, the Court established a limitation on the principles articulated in Benson and Flook. The application in Diehr claimed a previously unknown method for "molding raw, uncured synthetic rubber into cured precision products," using a mathematical formula to complete some of its several steps by way of a computer. 450 U. S., at 177. Diehr explained that while an abstract idea, law of nature, or mathematical formula could not be patented, "an application of a law of nature or mathematical formula to a known structure or process may well be deserving of patent protection." Id., at 187. Diehr emphasized the need to consider the invention as a whole, rather than "dissect[ing] the claims into old and new elements and then . . . ignor[ing] the presence of the old elements in the analysis." Id., at 188. Finally, the Court concluded that because the claim was not "an attempt to patent a mathematical formula, but rather [was] an industrial process for the molding of rubber products," it fell within§101's patentable subject matter. Id., at 192-193.

In light of these precedents, it is clear that petitioners' application is not a patentable "process." Claims 1 and 4 in petitioners' application explain the basic concept of hedging, or protecting against risk: "Hedging is a fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class." 545 F. 3d, at 1013 (Rader, J., dissenting); see, e.g., D. Chorafas, Introduction to Derivative Financial Instruments 75-94 (2008); C. Stickney, R. Weil, K. Schipper, & J. Francis, Financial Accounting: An Introduction to Concepts, Methods, and Uses 581-582 (13th ed. 2010); S. Ross, R. Westerfield, & B. Jordan, Fundamentals of Corporate Finance 743-744 (8th ed. 2008). The concept of hedging, described in claim 1 and reduced to a mathematical formula in claim 4, is an unpatentable abstract idea, just like the algorithms at issue in Benson and Flook. Allowing petitioners to patent risk hedging would preempt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea.

Petitioners' remaining claims are broad examples of how hedging can be used in commodities and energy markets. Flook established that limiting an abstract idea to one field of use or adding token postsolution components did not make the concept patentable. That is exactly what the remaining claims in petitioners' application do.

For the Supreme Court, Bilski having drawn a short straw says nothing about how long or strong straw may be.

Today, the Court once again declines to impose limitations on the Patent Act that are inconsistent with the Act's text. The patent application here can be rejected under our precedents on the unpatentability of abstract ideas. The Court, therefore, need not define further what constitutes a patentable "process," beyond pointing to the definition of that term provided in §100(b) and looking to the guideposts in Benson, Flook, and Diehr.

And nothing in today's opinion should be read as endorsing interpretations of §101 that the Court of Appeals for the Federal Circuit has used in the past. See, e.g., State Street, 149 F. 3d, at 1373; AT&T Corp., 172 F. 3d, at 1357. It may be that the Court of Appeals thought it needed to make the machine-or-transformation test exclusive precisely because its case law had not adequately identified less extreme means of restricting business method patents, including (but not limited to) application of our opinions in Benson, Flook, and Diehr. In disapproving an exclusive machine-or-transformation test, we by no means foreclose the Federal Circuit's development of other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text.

The judgment of the Court of Appeals is affirmed [in spite of its wrong-headed reasoning].

Justice Kennedy made short work of it, compared to the cork popped by Justice Stevens and his bridge partners (Ginsburg, Breyer, Sotomayor), who "would restore patent law to its historical and constitutional moorings" by damning business methods as not patentable.

For centuries, it was considered well established that a series of steps for conducting business was not, in itself, patentable.

Geezers typically think that the old ways are the best.

Justice Kennedy delivered a long-winded history lesson, and in doing so revealed a thrall to corporate capitalism that pervades the current high Court. Succoring corporations was the spur to wanting business methods banished.

Many have expressed serious doubts about whether patents are necessary to encourage business innovation. Despite the fact that we have long assumed business methods could not be patented, it has been remarked that "the chief business of the American people, is business."

"[C]ompanies have ample incentives to develop business methods even without patent protection, because the competitive marketplace rewards companies that use more efficient business methods." Burk & Lemley 1618.

Never mind that the Constitution was not so mercenary, instead mandating promoting scientific and utilitarian progress as one of the Powers of Congress: "To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;" (Article 1, Section 8)

In a separate concurrence, Justice Breyer, joined by Justice Scalia, played peacemaker, encapsulating points of concurrence among all Justices.

Given the concurring cacophony, and even the majority opinion hedge, today's SCOTUS Bilski decision wafts a transitional quality, as if there is another shoe to drop at a future date. Yet all that went on was the Court being its conservative self, casting a narrow merits decision that foreclosed nothing in principle beyond what had been previously proscribed.

Posted by Patent Hawk at June 28, 2010 1:49 PM | § 101

Comments

The Benson, Flook, and Diehr approach -- as Biden would say, BFD.

This case is a good example of why the Constitution ought to be amended to prohibit concurring opinions. Dissents -- fine, the opposing view means something. Concurrences are just justices who like to hear themselves blather. They take up space, they waste time, they muddy the water. Join the majority, dissent, or put a cork in it.

For instance, Breyer's concurring opinion was just a summary of the majority opinion, and Steven's was a self-serving, last ditch attempt to establish himself as the USSCt's patent guru. Go on, home, JP. You're past your "use by date."

Posted by: Babel Boy at June 28, 2010 2:24 PM

Just to point out the vacuous idiocy of the mainstream press - the Wall Street Journal blurb on Bilski by Brent Kendall was titled "US High Court Rules Against Expanding Business Method Patents".

Posted by: Patent Hawk at June 28, 2010 2:31 PM

Actually that's kind of true PH. It's a half truth.

But your original post was good and funny I did bust out laughing a couple of times.

Posted by: 6000 at June 28, 2010 3:58 PM

PH,

Your comment about "vacuous idiocy of the mainstream press" is spot on. If you read carefully between the linge, Scalia doesn't like patents on "business methods" (his unwillingness to join Part II B-2 of Kennedy's opinion), but he also doesn't agree with Stevens' concurrence that "Section 273 is a red herring." In other words, Scalia implicity agrees that 35 USC 273 would be meaningless if "business methods" (however you define them which even Congress didn't in 35 USC 273) weren't patent eligible under 35 USC 101. So the patent-eligibility of "business methods" still hangs in by a thin 5-4 thread.

Posted by: EG at June 29, 2010 4:22 AM

PH,

Your comment about "vacuous idiocy of the mainstream press" is spot on. If you read carefully between the lines, Scalia obviously doesn't like patents on "business methods" (his unwillingness to join Part II B-2 of Kennedy's opinion), but he also doesn't agree with Stevens' concurrence that "Section 273 is a red herring." In other words, Scalia implicitly agrees that 35 USC 273 would be meaningless if "business methods" (however you define them which even Congress didn't in 35 USC 273) weren't patent eligible under 35 USC 101. So the patent-eligibility of "business methods" still hangs in by a thin 5-4 thread.

Posted by: EG at June 29, 2010 4:23 AM

Bilski, the most-anticipated decision in the recent history of patent litigation, is maddeningly, if perhaps necessarily, short on specifics, definitions, or the means of determining patentability. The main difference is that, instead of stewing over machines and transformations, we'll all be trying to figure out what exactly is an abstract idea. Meet the new boss, same as the old boss.

Posted by: Gena777 at June 29, 2010 10:46 PM

101 is meant to be a threshold question with a wide open door. If you don't attempt to bring in the entire outdoors, you can make it through the door.

Too many want to preclude too much (as in subject matter - not individual applications).

Posted by: Pedantic Pete at June 30, 2010 3:28 AM