Business Methods Patents

Trends

Timothy Hadlock Chevron Corporation

Presented at IP Law Summit

Las Vegas, NV

June 3, 2008

© 2008 Timothy J. Hadlock

2

Outline

How We Got Here

Recent Developments Indirectly

Related to Business Method

Patents

What Does the Future Hold:

In re Bilski

3

Outline: How We Got Here (Part 1)

The Birth: (State Street, AT&T)

The Boom: Dot-Com Bubble

The Backlash: (e.g., One Click Patent

Case)

The PTO’s Response (double reviews)

4

Business Methods Patents

Timeline

Apr. 1999

1998 2005 Dec. 1999

~May 2000

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e-Patents – Class 705 Statistics

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Applications Filed Issued 1 Year Total Issued

Applications Filed 330 584 927 1340 2821 7800 8700 6782 6593 6200

Issued 1 Year 126 144 206 420 585 899 433 493 495 282

Total Issued 126 270 476 896 1481 2380 2813 3306 3801 4083

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

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e-Patents – Class 705 Statistics (cont.)

0

20

40

60

80

100

120

140

1999 2000 2001 2002 2003 2004

#Examiners

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What are Business Method

Patents

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What Distinguishes a “Business

Method” Patent

Utility

Apparatus, Machine, System

Composition Method, Process

Article of Mfg.

CD-ROM Bus. Method,

IT Process System Enabling

Bus. Method,

IT Process

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What Distinguishes a “Business Method” Patent

(cont.)

Method

Manufacture

Composition

Machine

Software (method/process) State Street –

1. A data processing

system for managing a

financial services . . .

comprising:

(a) computer processor

means for processing

data;

Business Method

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Sample Areas for Business Method

Patents

Customer Relationship

Management

Transaction Processing

Financial Management

Product Distribution

Supply Chain Management

Inventory Management

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Public/Industry Complaints

Aggressive Patent Litigants Pose Growing Threat to Big Business, Wall Street Journal, 2005.

Patently Obvious: The Internet has Fueled an Unhealthy Demand for Dubious Patents Covering Common Business Practices, L.A. Times, 2006.

Patents Out of Control, USA Today, 2004.

IBM Establishes Worldwide Patent Policy to Promote Innovation (2006).

BountyQuest.com

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§ 273. Defense to infringement based on earlier

inventor (Nov. 29, 1999)(American Inventors

Protection Act/First Inventor Defense Act)

35 U.S.C. 273(a)(3) the term "method" means a method of doing or conducting business; and

35 U.S.C. 273(b) Defense to infringement. (1) In general. It shall be a defense to an action for infringement under section 271 . . . with respect to any subject matter that would otherwise infringe one or more claims for a method if such person had, . . . actually reduced the subject matter to practice at least 1 year before the effective filing date of such patent, and commercially used the subject matter . . . .

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PTO’S Response: USPTO - BUSINESS METHODS PATENT

INITIATIVE: AN ACTION PLAN (March 2000)

INDUSTRY OUTREACH

Customer Partnership

Roundtable Forum

Industry Feedback

QUALITY

Enhance Technical Training

Revise Examination Guidelines

Expand Current Search Activities

Mandatory Search

Second Review

Expand Sampling Size

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One Proposed Definition: HR 5364, the Business

Method Patent Improvement Act of 2000 The term business method means:

(1) A method of:

(A) administering, managing, or otherwise

operating an enterprise or organization,

including a technique used in doing or

conducting business; or

(B) processing financial data;

(2) any technique used in athletics, instruction,

or personal skills; and

(3) any computer-assisted implementation of a

method described in paragraph (1) or a

technique described in paragraph (2).

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How We Got Here (Part 2)

PTO Rejects Applications for Lack of Technical

Arts.

BPAI Rejects the Technical Arts Requirement.

(Ex Parte Lundgren).

Rise of NPE (Non-Practicing Entities), NPE Patent

Litigation, Contingency Fees, and the Eastern

District of Texas.

A Perfect Storm of the 3 Branches of Government

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Recent Developments Indirectly Related

to Business Method Patents

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Signal Claims: In re Neujten

Methods of Diagnosis of Diseases: Lab.

Corp. of America Holdings v. Metabolite

Labs.

Distributed Infringement: NTP v.

Research In Motion

Organized Efforts for Patent Reform

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What Does the Future Hold:

In re Bilski

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Return of the Subject Matter Rejection

In re Comiskey, 499 F.3d 1365 (Fed.

Cir. 2007)

In re Bilski, en banc, Fed. Cir., No.

2007-1130, Oral Argument held May 8,

2008.

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The Issue

Software (method/process)

Business

Methods

Machine

Software (method/process)

Business

Methods

Machine

Composition

Article of Manufacture

Composition

Article of Manufacture

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In re Bilski – Claim 1 A method for managing the consumption risk costs of a

commodity . . . comprising . . .:

(a) initiating a series of transactions between said commodity provider and consumers of said commodity . . .

(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.

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In re Bilski (en banc) - Questions Presented 2. What standard should govern in determining whether a

process is patent-eligible subject matter under section 101?

3. Whether the claimed subject matter is not patent-eligible because it constitutes an abstract idea or mental process; when does a claim that contains both mental and physical steps create patent-eligible subject matter?

4. Whether a method or process must result in a physical transformation of an article or be tied to a machine to be patent-eligible subject matter under section 101?

5. Whether it is appropriate to reconsider State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999), in this case and, if so, whether those cases should be overruled in any respect?

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§ 101 is the Gateway*

§ 112

§ 102

§ 103

§ 101

*Dier, 450 U.S. at 188; Flook, 437 U.S. at 593; State Street, 149 F.3d at 1372, n.2.

Patent

Application

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35 U.S.C. §101

“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

therefore, subject to the conditions and

requirements of this title.”

§ 102, § 103, § 112

One may obtain a patent for his/her inventions

that meet the requirements of this title:

§101, § 102, § 103, § 112

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“Pure” Business Method Patent Have

Issued

Methods and investment instruments for

performing tax-deferred real estate

exchanges. 6,292,788 (2001).

Systems and methods for making jury

selection determinations. 6,607,389

(2003).

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Is the Future of Business Method Patents

Riding on the In re Bilski Case?

If Affirmed:

Business

Method

Patents

Barred

If Reversed:

Business

Method Patents

Continue

Stronger and

Broader than

Before

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The Development of the Law on “Process”

U.S. CONSTITUTION: “Useful Arts”

35 U.S.C. 101 (1952 Patent Act): Process, Machine, Manufacture,

Composition.

35 U.S.C. 101(b): “The term "process" means process, art, or method, and

includes a new use of a known process, machine, manufacture, composition of

matter, or material.”

SUPREME COURT CASES:

Dier, 450 U.S. 175, (§101 did not change meaning of process)

Flook, 437 U.S. 584, Benson, 409 U.S. 63 (“Process” not literal)

(1) Excluding Laws of Nature, Physical Phenomena, Abstract Ideas

(2) Limiting Mental Processes to those Tied to 1 of the other 3 Subject Matters?

(3) Tying Not merely Post-Solution Activity

1793 Patent Act: Useful Art, Machine, Manufacture, Composition

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The Development of the Law on “Process”

FED. CIR. CASES:

(1) Freeman-Walter-Abele Test (1978-1982)(applying Benson and Flook).

(2) In re Alappat, 33 F.3d 1526 (1994)(applying Diehr to replace FWA test)(a

“useful, concrete and tangible result” test).

(3) State Street Bank, 149 F.3d 1368, AT&T, 172 F.3d 1352: (Eliminating

Business Method Exception?)

(4) In re Comiskey, 499 F. 3d 1365 (2007): Mental Processes must be tied to

other statutory category?

(5) In re Bilski: ___________TBD_____________________?

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Many, Many Issues Up in the Air

What does

“Concrete” Mean?

What does

“Tangible” Mean?

A Test or

a Standard?

What does

“Process” Mean?

What does

“Abstract Idea” Mean?

What does

“Mental Process” Mean?

Is the

Supreme Court’s

“Transformation”

“test” inclusive or

exclusive ?

Is this a

Legislative Issue?

What did State Street

and AT&T hold?

What did the Supreme Court Hold

in Benson, Flook, and Diehr?

Should there be a

“Technological Arts” Test?

Are any Limitation on

“Process”

Constitutionally or

Legislatively Based?

Does CAFC

have Authority to Add

a 4th Exemption? Is No Test

Judicially Efficient?

Overlap

of 101

and 112?

What does

“Transform” Mean?

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Proffered Tests

“All sorts of Real World Activity”. (Bilski).

Useful, Tangible, and Concrete Result. (State Street).

Technological Arts (Electronic Frontier Foundation, PTO?).

Abstract Idea “tied to” a machine in an “nonconventional” way. (Various Amici).

Tied to a Machine in Embodies or Transforms subject matter to another State (PTO, Comiskey, Benson?, Flook?, Diehr?).

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Precedential Language Relied Upon (and to be

Interpreted) “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”, U.S. Const., Art. 1, §8, cl.8.

“The holding that the discovery of that method could not be patented as a ‘process’ forecloses a purely literal reading of §101.” Flook.

“Transformation and reduction of an article ‘to a different state or thing’ is the clue to the patentability of a process claim that does not include particular machines.” Benson and quoted in Diehr.

“Excluded from such patent protection are laws of nature, natural phenomena, and abstract ideas.” Benson, Flook, Diehr.

“[M]ental processes . . . are not patentable. Benson.

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Precedential Language Relied Upon (cont.)

“It is argued that a process patent must either be

tied to a particular machine or apparatus or must

operate to change articles or materials to a ‘different

state or thing.’ We do not hold that no process

patent could ever qualify if it did not meet the

requirements of our prior precedents.” Benson.

“ . . .Congress intended statutory subject matter to

‘include anything under the sun that is made by

man.’ ” Diehr, quoting Legislative History to 1952

Patent Act.

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Precedential Language Relied Upon (cont.)

“Today, we hold 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’—a final share price momentarily fixed for

recording and reporting purposes and even

accepted and relied upon by regulatory authorities

and in subsequent trades.” State Street Bank.

34

Concerns of the PTO and Fed. Cir.

Fed. Cir.: Certainty, Uniformity, Guidance.

Federal Courts Improvement Act of 1982.

PTO: Burden on Examining Corp

“The Acting Commissioner . . . filed a petition . . . urging that the decision . . . will have a debilitating effect on the rapidly expanding computer "software" industry, and will require him to process thousands of additional patent applications.” Flook.

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The Space of Uncertainty

Uncertainty

Mere Abstract Ideas

Or

Pure Mental Processes

Concrete,

Tangible Result

Or

Process Tied to

Machine or

Transforms Matter

Within §101 Outside §101

• Non-Computer-Implemented

Business Methods

• Sports Moves

• Computer-Implemented

Methods

• Chiropractic Adjustments

• Other Human Behavior

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Bilski Raises an Issue of First Impression

Benson: Algorithm to convert BCD to pure binary.

Flook: Algorithm to update alarm limits.

Diehr: Process to Cure Rubber Using a Computer.

State Street: Computer System for Mutual Fund

Pool.

AT&T: Computer-based Process to Aid Telephone

Billing.

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Law vs. Policy

Is the decision facing the Fed. Cir. a judicial or legislative one?

Should International Patent Harmonization Efforts Be Considered?

New Issues of “Distributed Infringement”?

New Issues of Importing the Product of a Patenting Process - §271(g)?

Can States Create Patent-Like Rights in “pure” Business Methods if the U.S. Does Not - Bonito Boats?

38

Is the Future of Business Method Patents

Riding on the In re Bilski Case?

If Affirmed:

Business

Method

Patents

Barred

If Reversed:

Business

Method Patents

Continue

Stronger and

Broader than

Before

Answer:

•Yes, for Business Methods Not Tied to One of Other

Statutory Categories.

•Possibly, for Computer-Implemented Business

Methods Tending Towards Abstract Ideas with Merely

“Post-Solution” Use of a Computer.

•Probably No, for Computer-Dependent Software-

Implemented Business Methods Such as in State

Street and AT&T.

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Strategies in View if In re Bilski

Hope For The Best And Prepare For The

Worst

What Result Is Desirable Will Depend On Your Client’s Business And Patent Strategies

Fall Back To Trade Secret Protection Or Pre-emptive Publication

Lobbying for Legislative Override

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Patents on Methods of Doing Business

Remain Valuable, but Controversial.

The Law is Still Developing (and will continue

for a long time).

Supreme Court or Legislative Limitations

Possible.

A Limiting Decision in In re Bilski Should: . . .

Conclusion

TIMOTHY HADLOCK Senior IP Counsel

Chevron Corporation 6001 Bollinger Canyon Road San Ramon, California 94583

Tel. 925.842.1884 Timothy.Hadlock@Chevron.com