Last month, the Supreme Court heard oral argument in Alice Corporation v. CLS Bank. Many hope the Court’s decision in this case will help clarify the patent eligibly standard for process claims – particularly those process claims that are computer implemented and/or involve business method patents.
Patent eligibility is based on 35 U.S.C. § 101 which allows any “process, machine, manufacture, or composition of matter” to be eligible for patent protection. However, laws of nature, natural phenomena, and abstract ideas are not eligible for patent protection. It is important to note that patent eligibility is distinct from patentability (novel, useful, definite, non-obvious, etc.). For example, a chemist who discovers a previously unknown element cannot patent that element because it is a natural phenomenon. It is ineligible for patent protection regardless of how new and useful it is.
Traditionally, process claims were evaluated under the “machine-or-transformation test” which conferred patent eligibility on the process if (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. In the 1970s, broad claims to computer-implemented processes that utilized a mathematical algorithm or formula without meaningful limitations were held ineligible for patent protection under the abstract ideas exception despite requiring a computer in order to be performed. See Gottschalk v. Benson and Parker v. Flook. Four years ago, in Bilski v. Kappos, the Court affirmed the Federal Circuit’s ruling that the process of “hedging risk” in the commodities trading industry is also an abstract idea not eligible for patent protection. However, the Court went on to declare that the machine-or-transformation test is not dispositive of patent eligibility for claimed processes, especially in business method patents, but rather that the test is a “useful and important clue” in determining patent eligibility.
Now, in CLS Bank, the Supreme Court is faced with the patent eligibility of certain method, media, and system claims of particular business method patents that utilize escrow to protect against financial risk. Although the Federal Circuit sitting en banc decided 7-3 that both the method and media claims were not directed to patent eligible subject matter, the 7-member majority was split 5-2 on the justification. On the question of patent eligibility of the system claims, the court evenly split 5-5. By its own admission, the Federal Circuit is “irreconcilably fractured” on the complex issue of patent eligibility for process claims – particularly those that are computer-implemented and those in business method patents. Without destroying the software or finance industries, the Court could strike a balance by simply holding that business method patents tied only to a computer do not receive the benefit of the “clue” that the traditional “machine-or-transformation” test provides; the “abstract ideas” exception is controlling. This would allow business methods to remain generally patent eligible, preserve the utility of the “machine-or-transformation” test, and prevent software patents from becoming wholesale ineligible. Perhaps later this summer, the Supreme Court will provide clearer guidance for the Federal Circuit and the District Courts.
Both the claims and specification of Alice clearly describe a process and a machine. Not one of the Supreme Court judges are factually or legally competent to practice patent law. For instance, not one of the justice know what a computer or software is. Software is a way of wiring an electronic circuit, generally known as a computer. There is nothing abstract about electronic circuits, they are machines that implement processes.