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November 11, 2008 - David Hanson, Tom Krause, and Carl Moy


 Colorado Bar Association

November IP Section Luncheon - November 11, 2008
In re Bilski - The En Banc Opinion and The Future of §101 Cases

On November 11, 2008, an audience of 120 attorneys attending the Colorado Bar Association Intellectual Property Law Section’s luncheon had the opportunity to gain insight from a panel of three insiders who played prominent roles in the Oct. 30 decision in In re Bilski, No. 07-1130, 88 USPQ2d 1385(Fed. Cir. 2008).  In Bilski, the Court of Appeals for the Federal Circuit decided en banc that a machine-or-transformation test would now determine whether a process or method claim is drawn to a patent-eligible process under 35 U.S.C. § 101.  The decision sweeps away parts of the court’s decade-long State Street,149 F.3d 1368 (Fed. Cir. 1998), test that required such claims be directed at producing useful, concrete, and tangible results.[1]  The Bilski decision highlights a trend in the courts, which may ultimately have wide-ranging implications for both software and business method patents.

The luncheon meeting titled “In re Bilski and the Future of Patent Eligible Subject Matter under §101” had a panel comprised of:

David Hanson, Director and Partner of Webb Law Firm, who argued on behalf of Mr. Bilski before the Federal Circuit on May 8, 2008;

Tom Krause, Associate Solicitor for the PTO, who was heavily involved in Bilski and has extensive knowledge and experience in §101 cases; and

Carl Moy, Professor at the William Mitchell College of Law and the author of Moy's Walker on Patents, who submitted an amicus brief in Bilski.

Carl Moy, who also served as the moderator, provided a historical overview of §101, starting with the Supreme Court’s decision in Cochrane v. Deener (94 U.S. 780 (1876)), which for the first time established patentability of business method claims.  In Cochrane, the Court held that “A process . . . is an act, or series of acts, performed upon the subject-matter to be transformed and reduced to a different state of things” (id. at 788). 
David Hanson next provided highlights from Mr. Bilski’s 12-year-long battle, from provisional application to the Federal Circuit’s en banc decision, to try to get a patent on his method for hedging consumption risk with respect to a commodity market.  In discussing the outcome at the Federal Circuit, Mr. Hanson noted that the new test effectively restates the Supreme Court’s Nineteenth Century Cochrane test by requiring a physical transformation of some kind.  Mr. Hanson observed a difficulty with this test in the context of modern technology:  “Information is physical because it doesn’t exist unless it is captured in a physical medium.  If information is manipulated, it is physically manipulated.  If the method manipulates information, it involves a physical transformation.”  Mr. Hanson also expressed concern that the Cochrane rule will not effectively translate to the information age:  “It is a dangerous test in that this is the information age.  So where are we?  We are back down to the types of patents that were filed prior to 1960.” 
Following Mr. Hanson on the panel was Tom Krause, who began by discussing the USPTO’s handling of the evolving scope of §101 patentable subject matter over the past three decades.  Mr. Krause noted that, during much of the 1980s and 1990s, the PTO chose not to litigate the subject matter eligibility of business method patents, relying on the apparent acceptance by the Supreme Court of a fairly broad patentability of such claims (in cases such as Diehr, Flook, and Chakrabarty).  At one point during the discussion, Mr. Krause, underlying that he was not speaking on behalf of the PTO, offered an apology for this strategy because it led to the issuance of such questionable patent claims as those covering a method for using a golf putter or a method for writing patent applications.
More recently, Mr. Krause noted, USPTO has been more willing to challenge business method claims in part due to the skepticism that some U.S. Supreme Court Justices - notably Justices Breyer and Stevens - have recently expressed toward some types of process claims as suggested in cases such as LabCorp v. Metabolite, Inc. (79 USPQ2d 1065 (US 2006)).  One challenge to this approach, as expressed by Mr. Krause, is the USPTO’s goal of controlling and defining the scope of § 101 while avoiding the invalidation of decades of issued patents.  Mr. Krause emphasized that “software is still patent eligible as far as we know.  I don’t think we will go back from that anytime soon.  It is part of the fabric of patent law almost at this point.” 
A §101 committee within the USPTO, of which Mr. Krause is a member, is presently drafting guidelines to help patent practitioners deal with the Bilski decision.  Either guidelines or a memo are expected to be released sometime in the next nine months.  In the meanwhile, for practitioners concerned about crafting claims directed at software or business methods, Mr. Krause reiterated that “the more you can put it on a machine, the better off you are for now.  But it does seem like we are in an area where things might be changing.”
The event concluded with Carl Moy moderating several topics.  Not surprisingly, Mr. Hansen and Mr. Krause did not agree on the outcome that the Federal Circuit reached.  Mr. Hansen noted that, while the claims at issue did not recite a machine, one or more computers were realistically required to practice the claimed invention.  Moreover, Mr. Hansen argued that the Federal Circuit’s machine-or-transformation test does not adequately foresee modern and emerging technologies such as where a person, through electrodes inserted in his or her brain, is able to manipulate external machines by thoughts alone.  Mr. Hansen expressed his concern that the application of the machine-or-transformation test will limit the allowable method claims only to the industrial manufacturing methods, leaving out many potentially ground-breaking methods in more cutting-edge technologies that rely on manipulation of data alone.
Mr. Krause responded that the machine-or-transformation rule is not radically new, given that it is consistent with the way that the PTO has been issuing software patents to date under the guidance of State Street and AT&T.  Mr. Krause also noted that Bilski left many questions unanswered, such as how large of a role a machine must play in the claimed method, what constitutes a transformation, or what is the thing that must be transformed. 

Mr. Hansen would not comment on whether Mr. Bilski will appeal the Federal Circuit’s decision to the Supreme Court.  Mr. Krause noted that the PTO, had it lost at the Federal Circuit, would have appealed.  The discussion concluded with speculation about what the Supreme Court would do if Bilski were appealed.  Professor Moy noted that the impetus for Bilski came from the writings of a minority of Supreme Court Justices.  As such, he questioned the stability of the rule announced by the Federal Circuit in Bilski.  In order to ensure that the patent system remains relevant to the technology that drives the modern economy, Professor Moy speculated that the Supreme Court, urged by its more business-friendly Justices, would likely settle on a modernized version of the Cochrane test: “It is just a question of how modernized it will be.”  He concluded the discussion by emphasizing that “the Bilski case . . . stands . . . as the opportunity to really seriously reinvestigate what it is that we mean by a patentable process for the modern day.” 

A video replay of this event is available through Colorado Bar CLE at the link

This report was prepared by Lucky Vidmar, Greenberg Traurig, LLP. and David B. Wilson, Townsend and Townsend and Crew.

[1] The Bilski majority stated that “those portions of our opinions in State Street and AT&T relying solely on a ‘useful, concrete and tangible result’ analysis should no longer be relied on.”  Bilski, Slip Op. at fn. 19.  However, the court also noted that State Street invention was, in fact, a machine, not a business method as in Bilski, thereby apparently avoiding overturning State Street.

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