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Speeches
Reflections on patentable subject matter in United States and Australian patent law
Justice Andrew Greenwood
1 August 2010
1 In Whitman v American Trucking Assns., Inc. [2001] USSC 15; 531
U.S. 457 (2001) at 468 , the United States Supreme Court observed that
Congress “does not, one might say, hide elephants in mouseholes”.
In the
recent decision in Bilski et al v Kappos 561 U.S. (28 June 2010),
the elephant was the “well‑understood historical conception” of what is
“patent‑eligible” subject
matter under the US 1952 Patent Act
(35 U.S.C., s 101) and that conception, according to the minority of
four Justices, Justice Stevens (with Justice Ginsburg, Breyer
and Sotomayor
concurring) does not include the notion that a method of doing or conducting
business is a “process”. The minority
said that the Court of Appeal’s decision
for the Federal Circuit in State Street Bank & Trust Co. v Signature
Financial Group, Inc. [1998] USCAFED 107; 149 F. 3d 1368 (1998) suggesting that methods of
doing or conducting business constitute patentable subject matter if the method
produces a “useful,
concrete, and tangible result” should be “repudiated” as a
“grave mistake”: Stevens J at 37 and 2 (fn 1).
2
By reasserting that “business methods are not patentable arts”
(Stevens J at 26), that is, business methods are not patent‑eligible
processes having regard to the “long accumulated distinctive meaning [of] the
term ‘process’” (at 11), the minority considered that “patent law
[would be] restore[d] to its historical and constitutional moorings” (at
1),
from which it is adrift having regard to the decisions in State Street and
AT&T Corp. v Exel Communications Inc. [1999] USCAFED 57; 172 F. 3d 1352 (1999).
3
In response to these decisions, Congress urgently enacted in 1999
a limited defence to claims of patent infringement regarding
certain methods of
doing or conducting business. The minority held that by enacting that
protective defence in response to criticisms
of State Street (and AT&T)
at the urging of the business chambers on the footing that business method
patents had been thought to be unsound, Congress had
not established nor
accepted that methods of doing or conducting business constitute patent‑eligible
subject matter.
4
In other words, Congress had not sought to hide the “well‑understood
historical conception” of what is patent‑eligible
subject matter in the
mousehole of a legislative amendment to deal with a transactional decision.
5
The majority constituting the Opinion of the Court (Justice
Kennedy; Roberts CJ, Thomas and Alito JJ joining, and Scalia J
joining
subject to particular exceptions), however, considered that nothing in
the language of s 101 governing the scope of patent‑eligible
subject
matter “categorically excludes business methods” (CI, 10) and, rather than
adopting “categorical rules that might have wide‑ranging
and unforseen
impacts” (III, 13), the case ought to be resolved on the “narrow” (III, 13)
basis that the process the subject of the patent application is not a
patentable process because it seeks to claim a monopoly for simply an “abstract
idea”.
6
Bilski and Warsaw’s patent application described a series
of steps for managing risk amongst buyers and sellers of commodities.
It
described a general method as a means of enabling suppliers and consumers to
minimise the risks resulting from fluctuations in
demand during specified time
periods. It set out a method of hedging risk applicable to any commodity but
with particular application
to the energy sector. The method contemplated a
series of transactions with consumers buying the commodity at a fixed rate
based
on historical averages taking account of the buyer’s risk position (the
“consumer transaction”); identifying market participants
who might act as
counter‑parties or counter‑risk participants to lay off the risk;
and implementing secondary transactions
between the commodity supplier and the
counter‑risk participants at a price that balanced the risk position
under the consumer
transaction.
7 The method involved a series of steps including the evaluation of
historical costs and the use of economic and statistical formulas
to analyse
data and predict outcomes.
8
In Bilski, the question was: Is a method of
hedging risk by the sequence of commercial and analytical steps so described
patentable subject
matter?
9 The United States Federal Patent Power derives from
Article 1, Section 8, clause [8] of the Constitution which
authorises Congress to legislate “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”. The constitutional clause
is regarded as both a
grant of power and a limitation conferring qualified
authority “unlike the power often exercised in the 16th and 17th centuries by the English Crown” eventually prohibited by the Statute of
Monopolies of 1623, subject to s 6 of that Act: Graham v John
Deere Co. [1949] USSC 95; 383 U.S. 1 (1966). The grant of power is limited to the “useful
arts” and the exercise of the patent power may not overreach the restraints
imposed by the constitutional purpose of promoting advances in the useful arts.
10
The first Congress enacted the Patent Act of 1790
conferring authority on the Secretary of State (and two others) to issue a
patent for no greater than 14 years to any petitioner
that “invented or
discovered any useful art, manufacture or device or any improvement therein not
before known or used … if sufficiently
useful and important …”. Thomas
Jefferson was then the Secretary of State and is therefore regarded as the
first administrator of
the US patent system. He wrote the Patent Act of
1793. He disliked the notion of monopolies including, initially, a limited
patent monopoly the benefit of which he thought “too
doubtful to be opposed to
that of [its] general suppression”. In 1788, he wrote from France to Madison
urging a Bill of Rights restricting
monopoly rights but in 1789 he again wrote
to Madison after the drafting of the Bill of Rights supporting a limited
monopoly to persons
“for their own productions in literature and their own
inventions in the arts” for a term of years and “no other purpose”. Jefferson’s
views as to conditions of patentability under the statutory scheme he conceived
are described by the Supreme Court as “worthy of
note”: Graham v John Deere
Co. at 7. According to Jefferson, only inventions and discoveries which
would “further human knowledge and were new and useful, justified
the special
treatment of a limited private monopoly”: Graham v John Deere Co. at
9. Jefferson’s 1793 Act describes statutory subject matter as “any new and
useful art, machine, manufacture, or composition of
matter, or any new or
useful improvement [therefor]”.
11
As to the distinction between inventions and discoveries
attracting such special treatment as compared with ideas, abstract
or
otherwise, Jefferson said this in a letter to Isaac McPherson in 1813 (6,
Writings of Thomas Jefferson, Washington Ed., at 180
and 181):
“If nature has made any one thing less susceptible
than all others of exclusive property, it is the action of the thinking
power called an idea, which an individual may exclusively possess as
long as he keeps it to himself; but the moment it is divulged, it forces itself
into the possession of everyone, and the receiver cannot dispossess himself of
it. Its peculiar character, too, is that
no one possesses the less, because
every other possesses the whole of it. He who receives an idea from me,
receives instruction
himself without lessening mine; as he who lights his taper
at mine, receives light without darkening me. That idea should freely
spread
from one to another over the globe, for the moral and mutual instruction of
man, and improvement of his condition,
seems to have been peculiarly and
benevolently designed by nature. …
Inventions
then cannot, in nature, be a subject of property. Society may give
an exclusive right to the profits arising from them, as an
encouragement to men to pursue ideas which may produce utility,
but this may or may not be done, according to the will and convenience of the
society, without claim or complaint from anybody.”
[emphasis added]
12
In the letter to McPherson, Jefferson urged that the
determination of what is new and useful justifying limited monopoly be
“turned
over to the judiciary to be matured into a system under which everyone might
know when his actions were safe and lawful”.
Congress agreed that the Courts
should develop the conditions of patentability and although the Patent Act was
amended, revised or codified 50 times between 1790 and 1950 “Congress
steered clear of a statutory set of requirements other than
the bare novelty
and utility tests reformulated in Jefferson’s draft of the 1793 Patent Act”: Graham v John Deere Co. at 10.
13
Importantly, in Hotchkiss v Greenwood 11 How 248, the
Court in determining conditions of patentability spoke of “that degree of skill
and ingenuity which constitute essential elements of every invention”
giving birth to “invention” as a term of legal art signifying patentable
inventions not as a “label” but as a description of a “functional approach
to questions of patentability”: Graham v John Deere Co. at 12
(emphasis added).
14
Much in the same way, although different in content, the
Commonwealth Parliament deliberately chose by s 18(1)(a) of the Patents
Act 1990 to leave it to the Courts to expound the concept of “manner of
manufacture” within the meaning of s 6 of the Statute of Monopolies,
novelty and inventive steps being entirely distinct matters: National
Research Development Corporation v Commissioner of Patents [1959] HCA 67; (1959) 102
CLR 252; CCOM Pty Ltd v Jiejing Pty Ltd [1994] FCA 396; (1994) 51 FCR 260 at
289B‑C and 290 E‑F per Spender, Gummow and Heerey JJ.
Similarly, the Australian Courts have over time expounded the
“distinct
principles or doctrines” concerned with patentability contained within the
phrase “any manner of new manufacture” within s 6 of the Statute
of Monopolies, isolating the need for a manner of manufacture itself,
novelty, and inventiveness. The Courts, having isolated those distinct
component parts, recognised that the phrase “manner of new
manufacture” came to
represent what the Federal Court in CCOM v Jiejing called the “residuum
of the central concept with which NRDC was concerned, namely, what the High
Court called the relevant concept of invention”: CCOM v
Jiejing at 290E‑F (emphasis added).
15
In determining the “excitingly unpredictable” (NRDC v
Commissioner of Patents, per the Court, Dixon CJ, Kitto and
Windeyer JJ at 271) scope of the concept of invention constituting a patentable
invention as
a “manner of manufacture” for the purposes of s 18(1)(a), the
word “manufacture” finds a place “in the present Act [which was a reference by
the High Court to the 1952 Act but equally applies
to the 1990 Act], not as a
word intended to reduce a question of patentability to a question of verbal
interpretation, but simply
as the general title found in the Statute
of Monopolies for the whole category under which all grants
of patents which may be made in accordance with the developed principles of
patent law, are to be subsumed”: NRDC, by the Court, at 269.
16
Accordingly, the United States Courts approached the notion of
“invention” not simply as a word or label requiring definition
but as a
description of a functional approach to patentable subject matter
deriving from judicial exposition of the constitutional purpose of promoting
the useful arts, and Australian
Courts expounded the concept of invention by
recognising that the notion of “manufacture” also comprehended a broad
functional or
conceptual approach subsuming the whole category under
which all grants of patents may be made consistent with principles developed by
the Courts. Any attempt to frame the ambit
of s 6 of the Statute of
Monopolies by precisely defining “manufacture” was “bound to fail” and
“would be unsound to the point of folly” necessarily limiting the “broad
sweep
of the concept”: NRDC v Commissioner of Patents at 271.
17
Section 101 of the US Patent Act (1952), 35 USC
provides:
“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.”
18
The Supreme Court interprets those words according to their
“ordinary, contemporary, common meaning” and cautions that courts
“should not
read into the patent laws limitations and conditions which Congress has not
expressed”: Diamond v Chakrabarty [1980] USSC 119; 447 U.S. 303 (1980). “Manufacture”
and “composition of matter” are “expansive terms” that warrant a “broad
construction” to liberally encourage
ingenuity particularly having regard to
the “comprehensive” word “any”: Diamond v Chakrabarty at 306. The 1952
US Patent Act replaced the word “art” with “process” but otherwise left Jefferson’s language in tact. The term “process” means “process, art or
method, and
includes a new use of a known process, machine, manufacture, composition of
matter or material”: s 100(b).
19
However, s 101 does contain recognised limitations. The
laws of nature, physical phenomena and abstract ideas have been held
unpatentable: Parker v Flook [1978] USSC 129; 437 U.S. 584 (1978); Gottschalk v
Benson [1972] USSC 223; 409 U.S. 63 (1972). Thus, a newly discovered mineral or a
plant found in the wild is not patentable subject matter. Likewise, “Einstein
could
not patent his celebrated law that E = mc²;
nor could Newton have patented the law of gravity”: Diamond v Chakrabarty at 309. In that case a microbiologist, Chakrabarty, filed an application
consisting of a process claim for the method of producing
particular bacteria;
claims for an inoculum comprised of carrier material; and a claim to the
bacteria. The human‑made genetically
engineered bacterium was capable of
breaking down multiple components of crude oil and was thought to have
significant value for
the treatment of oil spills. Because the claim to the
bacteria was not simply a claim to a previously unknown natural phenomenon
but
to a non‑naturally occurring manufacture or composition of matter, that
is, a product of human ingenuity, the bacteria
was found to be patentable
subject matter.
20
The re‑codification in 1952 of the patent laws replacing
the word “art” with “process” recognised that a process historically
enjoyed
patent protection because it was considered a form of “art” as that term was
used in the 1793 Act. In Cochrane v Deener [1876] USSC 41; 94 U.S. 780 (1877) the
Supreme Court said:
“That a process may be patentable irrespective of the
particular form of the instrumentalities used, cannot be disputed … A process
is a mode of treatment of certain materials to produce a given result. It is
an act, or a series of acts, performed upon
the subject‑matter to be
transformed and reduced to a different state or thing. If new and useful, it
is just as patentable
as is a piece of machinery. In the language of the
patent law, it is an art.”
21
This view however seems to suggest that a patentable process must
cause a physical transformation in the materials to which
the process is
applied.
22
In Diamond v Diehr [1981] USSC 40; 450 US 175 (1981), the Supreme
Court recognised that the analysis of the eligibility of a claim of patent
protection for a process did not change
with the adoption of that term in
s 101 and said, reaffirming a view expressed in Gottschalk v Benson [1972] USSC 223; 409
US 63 (1972), that “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”.
23
In Diamond v Diehr, the claimed invention was a process
for or method of “operating a rubber‑moulding press for precision moulded
compounds with
the aid of a digital computer” utilising particular data
processing techniques and algorithms. The industry problem addressed by
the
claim was the difficulty of obtaining uniformly accurate cures because the
internal temperature of the moulding press could not
be precisely measured thus
making it difficult to calculate cure times. The contribution to the art was
said to reside in the process
of constantly measuring the actual temperature
inside the mould and feeding that data into a computer which repeatedly re‑calculated
the cure time by use of a well‑known equation called the “Arrhenius
equation” causing the moulding press to open at the optimized
cure time.
24
In the opinion of the majority, the step‑by‑step
method involved the transformation of an article, in this case
raw uncured
synthetic rubber, into a different state, and the process or method was not
removed from patentable subject matter because
the method used a well‑known
mathematical equation and a computer. In Gottschalk v Benson [1972] USSC 223; 409
U.S. 63 (1972) the Court had held unpatentable, claims for an algorithm
used to convert binary code decimal numbers to equivalent pure binary
numbers on
the footing that the sole practical application of the algorithm was
directed to the programming of a digital computer (that is, pure programming). The Court held that an algorithm was simply a “procedure” for
solving a particular type of mathematical problem and
thus the Court concluded
that an algorithm or mathematical formula, like a law of nature, could not be
the subject of a patent.
The Court in Diamond v Diehr said that such a
conclusion was entirely consistent with “long‑established principles”
that “a principle, in the abstract, is
a fundamental truth; an original cause; …
[an] abstract idea … [and] these cannot be patented, as no one can claim in
[any] of them
an exclusive right”: Diamond v Diehr at 185. However,
the Court in Gottschalk v Benson did not hold that a patent is precluded
for any program servicing a computer. The question of whether the
patent makes a claim for protection beyond pure programming to an application
engaging a computer in a new and useful way would need to be determined.
25
The Supreme Court took a similar view in Parker v Flook [1978] USSC 129; 437
U.S. 584 (1978) on the footing that the application simply sought to
protect a formula for computing a number called an “alarm limit” without
explaining the chemical processes at work and the integration of the variables
engaged by the process within the application. In
Diamond v Diehr,
(Stevens J, Brennan, Marshall and Blackmun JJ joining) in dissent observed
that lower court decisions had “trivialise[d] the holding
in Flook and
the principle that underlies Benson”. Benson, they say, clearly
held that new mathematical procedures, like mental processes and
abstract intellectual concepts, are not patentable proceedings; and Flook,
firstly, was not simply limited to claims which amounted to a patent on the
algorithm itself and secondly, Flook makes it clear that “an improved
method of calculation even when employed as part of a physical process, is not
patentable subject
matter”.
26
As to the application in Diamond v Diehr, the Court’s
Opinion was expressed in this way at 187:
“[The claimants’] process admittedly employs a well‑known
mathematical equation, but they do not seek to pre‑empt
the use of that
equation. Rather they seek only to foreclose from others the use of that
equation in conjunction with all
of the other steps in their claimed process. …
Obviously, one does not need a “computer” to cure natural or synthetic rubber,
but if the computer use incorporated in the process patent significantly
lessens the possibility of “over‑curing” or
“undercuring”, the process as
a whole does not thereby become unpatentable subject matter.”
27
Consistent with the above view, the Court in Parker v Flook
had said at 590:
“… A process is not unpatentable simply because it
contains a law of nature or a mathematical algorithm. It is now commonplace
that an application of a law of nature or mathematical formula to a
known structure or process may well be deserving of patent protection.”
28
As to the correct approach to subject matter, the dissenting
Justices characterise the patent claim in Diehr as simply a new method
of programming a digital computer in order to calculate – promptly and
repeatedly - the correct curing time
in a familiar process and is thus
unpatentable subject matter. They do so because the majority, they say, “fail
to understand” or
“disregard” the important distinction between the “subject
matter of what the inventor claims to have discovered – a threshold issue –
and the question of whether the claimed discovery is in fact
novel”.
They say that if there is not even a claim that anything constituting
patentable subject matter has been discovered, no occasion
to address novelty
arises. They concede that if the claim is characterised in the way adopted by
the majority, the claim properly
asserts patentable subject matter.
29
The majority, however, accepted that subject matter and novelty
are truly separate questions, although they see the claim
as a sequence of
process steps solving a problem not simply a new method of programming a
computer giving rise simply to a claim
to a mathematical formula or an abstract
idea.
30
When considering a process claim, the majority took this
approach. In determining the eligibility of a process claim for patent
protection the claim must be considered as a whole and it is
inappropriate to dissect the claims into old and new elements and then ignore
the old elements in the analysis. The Court
said:
“This is particularly true in a process claim because
a new combination of steps in a process may be patentable even though all
the
constituents of the combination are well‑known and in common use before
the combination was made.”
31
The threshold question of whether the subject matter of the claim
falls within patentable subject matter under s 101 is divorced
from
whether the claim is novel (s 102) or otherwise satisfies non‑obviousness
(s 103). The approach to patentable subject
matter under s 101 is
this:
“The “novelty” of any element or steps in a process,
or even the process itself, is of no relevance in determining whether the
subject matter of a claim falls within [s 101] categories of possibly
patentable subject matter.
It has been urged that novelty is an appropriate
consideration under [s 101]. Presumably, this argument results from the
language in [s 101] referring to any ‘new and useful’ process, machine,
etc. Section 101, however, is a general statement of
the type of
subject matter that is eligible for patent protection ‘subject to the
conditions and requirements of this title’. Specific
conditions for
patentability follow and s 102 covers in detail the conditions relating to
novelty. The question therefore
of whether a particular invention is novel is ‘wholly
apart from whether the invention falls into a category of statutory subject
matter’.”
32
The majority also noted that “a mathematical formula as such is
not accorded the protection of our patent laws” and such a principle
cannot be
circumvented by attempting to limit the use of the formula to a particular
technological environment and cloth it with
an applied application attracting
subject matter.
33
In State Street Bank & Trust Co v Signature Financial
Group Inc. [1998] USCAFED 107; 149 F.3d 1368 (1998) and AT&T Corp v Exel Communications
Inc. [1999] USCAFED 57; 172 F.3d 1352 (1999) the Court of Appeals for the Federal Circuit held
that the test for determining whether a claimed invention is patentable
subject
matter as a “process” under s 101 is whether the invention produces a
“useful, concrete and tangible result”.
34
In applying that test to the application by Bilski and Warsaw, the examiner rejected it as a process not implemented on a specific
apparatus; it
merely manipulates an abstract idea; and seeks to solve a purely mathematical
problem without any limitation to a practical
application. Thus, the invention
was not directed to the “technical arts”. The intermediate Board of Appeal
determined that the
application involved only mental steps that did not
transform physical matter and was directed to an abstract idea.
35
The Federal Circuit Court of Appeals heard the case en Banc.
Chief Judge Michel wrote the opinion for the Court with eight Justices
joining: In re Bilski 545 F.3d 943. The Court rejected its earlier
“useful, concrete and tangible result” test and held at 954:
“… [a] claimed process is surely patent‑eligible
under [s] 101 if:
(1) it is tied to a particular machine
or apparatus; or
(2) it transforms a particular article
into a different state or thing.”
36
The Court held at 955 that this “machine‑or‑transformation
test” is the “sole test governing [s] 101 analyses” and is the test
for determining the patent eligibility of a “process” under s 101: at
956. On that footing, the Bilski Warsaw application was
not patent‑eligible.
Judge Mayer at 998 denied patent‑eligibility on the ground that the claim
was directed to “a method
of conducting business”. Judge Rader at 1011
considered the claim an unpatentable abstract idea. Judge Newman thought the
proceeding
should be remitted for the determination of related issues. Against
all of this background, the case came before the Supreme Court.
Leading the
Opinion of the Court, Justice Kennedy accepted that four independent categories
of inventions and discoveries are patent‑eligible
under s 101: processes,
machines, manufactures and composition of matter. Those terms are deliberately
expansive (applying Chakrabarty) and Congress took a “permissive
approach” to patent‑eligibility reflecting Jefferson’s desire to ensure
that “ingenuity should
receive a liberal encouragement” although, consistent
with Jefferson’s views about the integrity of ideas and discourse, three
exceptions
to s 101’s broad patent‑eligibility principles subsist:
laws of nature, physical phenomena and abstract ideas. These exceptions
are
“atextual” but consistent with the notion that a patent‑eligible process
must be “new and useful”. These atextual exceptions
have subsisted for over
150 years.
37
The subject‑matter or patent‑eligibility inquiry is a
threshold test of qualification. The second level inquiry
is whether the
claimed invention also satisfies the final limb of s 101 concerning “the
conditions and requirements of this title”
(novelty, s 102; non‑obviousness,
s 103; and fully and particularly described, s 112).
38
The majority noted that two limitations or categories of
exclusion are said to remove a process claim from the broad scope of
s 101.
The first, adopted by the Federal Circuit Court of Appeals is that if the
claimed process does not engage a machine or apparatus
or transform an article
into something different, the process cannot qualify as subject matter within
s 101. The second is that
if the process is a business method, it is
excluded.
39
As to the first limitation, Kennedy J applying Diamond v
Diehr and Chakrabarty, cautioned against reading limitations into
the patent laws not evident in the words of the statute construed according to
their
“ordinary, contemporary, common meaning”. Departure by the Supreme Court
from such a meaning has only occurred, in the majority’s
view, as “an
explanation” for the three exceptions from s 101 earlier mentioned. It
follows for Kennedy J at 6 and 7 that:
“Adopting the machine‑or‑transformation
test as the sole test for what constitutes a process (as opposed to just
an important and useful clue [consistent with Gottschalk v Benson]
violates these statutory interpretation principles.”
40
Having regard to the definition of process in s 100(b) (see
earlier, [16]), the Court was “unaware of any ordinary, contemporary,
common
meaning of the terms “process, art or method” that would require these terms to
be tied to a machine or to transform an article”:
Kennedy J at 7.
41
The Court of Appeals “incorrectly concluded” that the Supreme
Court had endorsed the machine‑or‑transformation test
as the
exclusive test of patent‑eligible subject matter for process claims. The
majority said that although Cochrane v Deener (see earlier [18]) seems
to suggest that a “process” engages an act or series of acts performed upon
something to be transformed or
reduced to a different state, such a notion is
neither “an exclusive or exhaustive test”, nor a statement capable of
supporting such
“broad implications”. Transformation or reduction of an
article to a different state is properly regarded as a clue to a process
within s 101 “that does not include particular machines”: Kennedy J
at 7 and 8 applying Gottschalk v Benson at 70. The majority observe
that Benson (at 71) “explicitly declined to hold that no process patent
could ever qualify if it did not meet machine‑or‑transformation
requirements” and Flook at 588 took a similar approach by “assum[ing]
that a valid process patent may issue even if it does not meet the machine‑or‑transformation
test. It followed for the majority that:
“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 s 101.
The machine‑or‑transformation test
is not the sole test for
deciding whether an invention is a patent‑eligible ‘process’.”
[emphasis
added]
42
The majority regard s 101 as a “dynamic provision” designed
to encompass new and unforseen inventions and whilst the machine‑linked
or transformation test may provide a “sufficient basis” for assessing whether
processes grounded in physical or tangible form satisfy a
threshold test of patent‑eligibility, “there are reasons to doubt whether
the test should be the sole criterion
for determining the patentability of
inventions in the Information Age”: Kennedy J at 9. The majority
observed that:
“As a result, in deciding whether previously unforseen
inventions qualify as patentable ‘process[es]’, it may not make sense to
require courts to continue … asking the questions posed by the machine‑or‑transformation
test. Section 101’s
terms suggest that new technologies may call for new inquiries.
See Benson, … at 71 (to ‘freeze process patents to old technologies,
leaving no room for the revelations of the new, on‑rushing technology,
…
is not our purpose’).”
43
As to the second limitation, the majority considered that
“method” within the definition of process as a textual matter may
include at
least some methods of doing business. Applying Diamond v Diehr, the
Court said it was unaware of any argument that the ordinary, contemporary,
common meaning of “method” excludes business methods.
Nor was it clear to the
majority how far a prohibition on business method patents would reach and
whether it would exclude technologies
for conducting a business more efficiently.
Contrary to the dissenting opinion, the Court considered that the presence in
the Patents Act of a defence of prior use (35 U.S.C., s 273(b)(1))
that might be asserted when a patent‑holder claims infringement based on
“a method in a patent” where method is defined as “a method of doing or
conducting business” undermined the notion that business
methods are a category
of processes or methods outside the scope of s 101.
44
The majority thought that the introduction of that section into
the Act in 1999 to provide prior users with a defence to State Street claims
could not change the conception of the much earlier enactment of s 101 but
“what s 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”. The Court recognised that some business method patents raise
special problems of vagueness and suspect
validity (eBay Inc. v MercExchange,
L.C., 547 U.S. 388 (2006)) and said:
“The Information Age empowers people with new
capacities to perform statistical analyses and mathematical calculations with a
speed and sophistication that enable the design of protocols for more efficient
performance of a vast number of business
tasks. If a high enough bar is not
set when considering patent applications of this sort, patent examiners and
courts could
be flooded with claims that would put a chill on creative
endeavour and dynamic change.
In searching for a limiting principle, this
Court’s precedents on the unpatentability of abstract ideas provide useful
tools.”
[emphasis
added]
45
However, beyond this useful tool or “some other limitation
consistent with s 101”, the majority found that the Patent Act leaves
open the possibility that there are at least some processes that can be
fairly described as business methods within patentable subject matter under
s 101.
46
Accordingly, the Court rejected the contention that two broad “atextual”
categories of exclusion of process claims from the
subject‑matter of
s 101 exist; that is, the notion that a process claim is not patent‑eligible
if it does not engage
a machine or transform an article, and the notion that a
process is not patent‑eligible if it is simply a business method.
47
Notwithstanding that the Bilski Warsaw patent claim was
not categorically excluded, it nevertheless claimed both the concept
of hedging
risk and the application of that concept to energy markets. With a view to
avoiding “wide‑ranging and unforseen
impacts” the majority resolved the
case “narrowly” based on Benson, Flook and Diehr on the
footing that “the claims are not patentable processes because they are attempts
to patent abstract ideas”: Kennedy J at 13.
The majority explained
contextually the significance of each of these decisions. Although there is
some difference of opinion between
the majority and the minority judgments as
to what these cases decided, the majority said this. Benson was an
example of an unpatentable abstract idea (filed as a process claim) as it was simply
an algorithm to convert binary coded
(that is, coded to 0 and 1) decimal
numerals into pure binary code which would wholly pre‑empt the use of the
formula, at large.
In Flook, the applicant’s process for monitoring
catalytic conversion activity was reliant on a mathematical algorithm.
Although the claim
was limited to use of the algorithm in the petro‑chemical
industry so that it would be freely used otherwise, the subject matter
fell
outside s 101:
“… not because it contained a mathematical algorithm
as one component but because once the algorithm was assumed to be within
the
prior art, the application contained no patentable invention considered as a
whole”.
48
Flook is explained as standing for the proposition that the
prohibition against patenting abstract ideas cannot be circumvented by
attempting
to limit the use of the abstract idea (whether a formula, code,
algorithm) to a particular environment thus limiting pre‑emption.
Diehr
is explained as recognising that while an abstract idea, law of nature or
mathematical formula cannot be patented, an application of such a law or
formula to a known process may be patentable provided the invention is
considered as a whole.
49
Having regard to those statements of authority, the majority took
the view that hedging is a fundamental economic practice long
prevalent in America’s system of commerce and taught extensively in introductory finance classes. The
concept of hedging risk, reduced
to a mathematical formula in claim 4 of
the application, was found to be an unpatentable abstract idea just like the
algorithms at
issue in Benson and Flook. Allowing the claimants
to patent risk hedging would pre‑empt, in the majority’s view, the use of
the hedging methodology
in all fields and would effectively grant a monopoly
over an abstract idea.
50
Although the Supreme Court majority judgment emphasises the
importance of disaggregating the assessment of patent‑eligible
subject
matter under s 101 from questions of novelty and non‑obviousness and
other statutory questions going to the “conditions
and requirements” of the Patent
Act, the analysis of whether a claim satisfies s 101 seems to carry
with it an inquiry into whether there is something new and useful
within the
claim which attracts functional satisfaction (Graham v John Deere Co.)
as an invention.
51
In the minority opinion in Bilski, the Justices are
critical of the majority’s failure to maintain the proper ground of distinction
between s 101 and the other “conditions
and requirements” of the US Patent Act.
52
The approach of the dissenting Judges in this context is
important.
53
Their views are these.
54
Although the machine‑or‑transformation test is
reliable in most cases, it is not the exclusive test. For centuries,
it was
considered well established that a series of steps for conducting business was
not, in itself, patentable. In the late 1990s
in State Street and
AT&T, the Federal Circuit called that proposition into question
causing the Congress to respond with a limited defence to patent infringement
claims based on methods of doing business. Following several years of
confusion, the Federal Circuit changed course and held that
a series of steps
may constitute a patentable process only if it is tied to a machine or
transforms an article into a different state or thing. This machine‑or‑transformation
test
excluded general methods of doing business. The minority accept that the
Court correctly holds that the machine‑or‑transformation
test is
not the sole test for a patentable “process” but is properly regarded as a
“critical clue” to a patentable process. The
point of departure for the
minority is that the Opinion of the Court is quite wrong to suggest that “any
series of steps that is
not itself an abstract idea or law of nature may
constitute a “process” within the meaning of s 101. Such a view can only
create
“mischief” and the wiser course would have been to hold that the
claimant’s method is not a “process” because “it describes only
a general
method of engaging in business transactions – and business methods are not
patentable”. The minority formulated that notion
more precisely by putting it
this way: “… although a process is not patent‑ineligible simply because
it is useful for conducting
business, a claim that merely describes a method of
doing business does not qualify as a process under s 101” (for the reasons
indicated
shortly).
55
The minority was critical of the references to construing the
language of s 101 in the light of ordinary, contemporary, common
meaning
as the terms “process” and “method” have attracted a well‑understood
technical meaning as terms of art. Abandoning
the meaning derived from those
terms of art would lead to “absurd” results. Further, the minority considered
that the Court, in
describing hedging as “long prevalent in our system of
commerce” (thus denying the claim to patent eligibility), confused the issue
of
novelty under s 102 with the proper characterisation of a process for the
purposes of s 101. In summary, the minority said this:
“The Court, in sum, never provides a satisfying
account of what constitutes an unpatentable abstract idea. Indeed, the Court
does not even explain if it is using the machine‑or‑transformation
criteria. The Court essentially asserts its
conclusion that petitioners’
application claims an abstract idea. This mode of analysis (or lack thereof)
may have led to
the correct outcome in this case, but it also means that the
Court’s musings on this issue stand for very little.”
[emphasis
added]
56
The minority observe that no patent is available for a discovery,
however useful, novel, and non‑obvious unless it falls
within one of the
express categories of patentable subject matter. The term “process” has long
accumulated a distinctive meaning
in patent law and when that term was
introduced into the 1952 Patent Act it was neither intended nor
understood to encompass “any series of steps or any way to do any
thing” (original emphasis): Stevens J at 11. Although construing
language according to its ordinary common meaning is a “fine approach
to statutory
interpretation in general” it is a “deeply flawed” approach to a statute that
relies on “complex terms of art developed
against a particular historical
background”. Indeed, abandoning that historical understanding would render
s 101 “almost comical”
facilitating a process for training a dog or a
series of dance steps or a method of shooting a basketball, all patent‑eligible.
57
The minority understand the historical record as supporting the
conclusion that a method of doing business is not a “process”
under s 101
notwithstanding that s 101 is a dynamic provision and “one must therefore
view historical conceptions of patent‑eligible
subject matter at an
appropriately high level of generality”. However, when the Congress enacted
the 1952 Patent Act, it did so against the background of a “well‑settled
understanding” that a series of steps for conducting business cannot be
patented and these considerations ought to guide the analysis, in the
minority’s view. They note the observation of Justice Holmes
that sometimes “a
page of history is worth a volume of logic”: New York Trust Co. v Eisner,
[1921] USSC 125; 256 U.S. 345 (1921).
58
As to the historical background, the minority note that the Statute
of Monopolies of 1623 permitted grants of exclusive rights to the “working or
making of any manner of new manufacture” and that the early decisions
seem to
confine that notion to any mode, method or way of manufacture, manufacturing
processes, the practice of making or to new
results of principles carried into
practice. Although, in the minority’s view, it is difficult to derive a
precise understanding
of what sorts of methods were patentable under English
law, no basis can be found in the text of the Statute of Monopolies or
pre‑1790 English decisions to suggest that “business methods” could
qualify. It does not appear that “anyone seriously believed
that one could
patent a method for organising human activity”: Stevens J at 17 adopting
the observation of Dyk J in the Federal
Circuit Court of Appeals. The
minority observed that there were a small number of patents issued between 1623
and 1790 relating
to banking or lotteries and one for a method of life
insurance and these patents were “probably viewed not as inventions or
discoveries
but rather as special state privileges that until the mid‑1800s
were recorded alongside inventions in the patent records”.
The minority regard
as noteworthy that which was not patented under the English system. They
observe that during the 17th and 18th centuries Great Britain saw innovations in business organisation, business models, management
techniques and novel solutions to the
challenges of operating global firms in
which subordinate managers could be reached only by a long sea voyage. Few
methods reflected
in these innovations in conducting business were patented.
59
So far as the American experience is concerned, Congress passed
the first Patent Act in 1790 to promote progress in the “useful Arts”
slightly modifying the language of that Act with the passage of the Patent
Act in 1793 written by Jefferson. The constitutional object and the
statutory authorisation for process patents was the relationship
with the term
“useful Arts”. The minority observe that “we know that the term ‘useful arts’
was used in the founding era to refer
to manufacturing and similar applied
trades”. The Framers of the Constitution, in the minority view, undoubtedly
contemplated a distinction between the industrial, mechanical and manual arts
of the late 18th century and the seven “liberal arts” and four “fine
arts” of “classical learning”. The term “useful arts” was widely understood
to
encompass the fields that “we would now describe as relating to technology or
‘technological arts’”. Thus, fields such as “business
and finance were not
generally considered part of the ‘useful arts’ in the founding Era”. Everyone
knew that “manufactures and machines
were at the core of the patent system” and
against this background “it would have been seen as absurd for an entrepreneur
to file
a patent on methods of conducting business”. For nearly 160 years,
Congress retained the term “useful arts” leaving wide latitude
for judicial
construction to keep pace with industrial development. Although the rationale
for decisions over that time varied,
the one “overarching theme, at least in
dicta” was that “[b]usiness methods are not patentable arts”. Between 1790 and
1952 the
Supreme Court never addressed the patentability of business methods
but, in the minority’s view, the Court consistently focused the
inquiry on
“whether an ‘art’ was connected to a machine or physical transformation, an
inquiry that would have excluded methods of
doing business”: Stevens J at
27.
60
By the mid 1900s many courts were construing the term “art” as
synonymous with “method, process, system, or like terms”. Thus,
in 1952 when
Congress re‑codified the patent laws, it replaced the term “art” with
“process” and introduced a definition of
“process” as a “process, art or
method”. This change was made for clarity and did not alter the scope of
understanding of what constituted
a patent‑eligible process. The Act
merely “codified” the prevailing judicial interpretation of that category of
subject matter.
The Act did not expand the scope of patent‑eligible
subject matter by suggesting that any series of steps may be patented
as a
process under s 101. The minority note that the Supreme Court has cast
“significant doubt” on the proposition that the Act
authorises business methods
by recognising that at least a clue to a process patent is whether the process
satisfies the machine‑or‑transformation
test as a general clue
to patent subject matter which, necessarily excludes, business methods.
61
The minority note that since at least the days of the Assyrian
merchants, people have devised better and better ways to conduct
business yet
historically those methods, processes and innovations were not understood as
being patent‑eligible subject matter.
For those reasons, the Bilski and Warsaw patents simply failed to satisfy s 101, in their view, and the minority view
would restore
s 101 to its “historical and constitutional moorings”.
62
In NRDC v Commissioner of Patents [1959] HCA 67; (1959) 102 CLR 252,
the High Court confronted the “central question” of whether a process or method
for eradicating weeds from crop areas containing
particular leguminous fodder
crops, Lucerne (alfalfa) and clover through the use of particular compounds and
selective herbicidal
compositions operating upon the enzyme characteristics of
the tissues of the plants and weeds, fell within the category of inventions
to
which the Patents Act 1952 (and equally the 1990 Act) is confined, by the
phrase “any manner of new manufacture within s 6 of the Statute of
Monopolies”. Because “invention” is defined not by reference to the
language of the period of the enactment of the various Commonwealth Patent
Acts
or usage from the period of 1623, all that falls within the word “invention” is
comprehended by “new manufacture”, and “manufacture”
commands a conceptual
inquiry not a textual one. A textual inquiry limits thinking by
reference to the idea of making tangible goods by hand or machine. The concept
extends to any new results
of principles carried into practice, new processes
in any art producing effects useful to the public. The term comprehends both
a
product (vendible article) and a process. In NRDC, the High Court
observed that for the purposes of Australian law, whether it is enough that a
process produces a useful result without
creating or transforming “some
physical thing” was in 1959 undecided.
63
In England, prior to the 1977 harmonisation legislation, a method
or process was thought to be a manner of manufacture if it
resulted in the
production of some vendible product or if it improved or restored the product’s
former condition or had the effect
of preserving from deterioration some
vendible product to which the process applied: Re G.E.C.’s Application (1942) 60 R.P.C. 1, per Morton J. A series of cases addressed the
elasticity of the notion of “vendible product” which ultimately led the High
Court
to conclude, having regard to the authorities at that time, that “what is
meant by a ‘product’ in relation to a process is only something
in which the
new and useful effect may be observed”. The “something” need not be a “thing”
in the sense of an article. It may be
any physical phenomenon in which the
effect, be it creation or merely alteration, may be observed. The Court said
“it is, we think,
only by understanding the word “vendible” as pointing
only to the requirement of utility in practical affairs, that the language of [Re
G.E.C.’s Application] “rule” may be accepted as wide enough to convey the
broad idea which the long line of decisions on the subject has shown to be
comprehended
by the [Statute of Monopolies]. This observation is
reminiscent of the machine‑or‑transformation test as a “clue” to a
patent eligible process as
applied by the United States Supreme Court.
64
As to the claim in question, the Court observed that the newly
discovered factor reflected in the claim was the relationship
between the enzyme
make‑up of the tissues of the plants and the particular type of hormone
herbicide derived from straight‑chain
aliphatic acids such that in the
relevant plants the herbicide did not degrade to derivatives harmful to the
plant although it did
so degrade within the tissues of the nominated weeds
normally found in association with the relevant plants. Having so analysed
the
claim, the Court concluded that the method or process had as its end result an
artificial effect falling squarely within the
true concept of what must be
produced by a process if it is to be held patentable. The Court said:
“The effect produced by the [claimant’s] method
exhibits the two essential qualities upon which ‘product’ and ‘vendible’ seemed
designed to insist. It is a ‘product’ because it consists in an artificially
created state of affairs, discernible by observing
over a period the growth of
weeds and crops respectively on sown land on which the method has been put into
practice. And
the significance of the product is economic; for it provides a
remarkable advantage, indeed to the lay mind a sensational advantage,
for one
of the most elemental activities by which man has served his material needs,
the cultivation of the soil for the
production of its fruits. … The method cannot
be classed as a variant of ancient procedures. It is additional to the
cultivation.
It achieves a separate result, and the result possesses its own
economic utility consisting in an important improvement. …”
65
These principles have been applied in CCOM Pty Ltd v Jiejing
Pty Ltd [1994] FCA 396; (1994) 51 FCR 260 and Grant v Commissioner of Patents [2006] FCAFC 120; (2006)
154 FCR 62. In Grant, the Full Court, applying NRDC held
that a physical effect in the sense of a concrete effect or phenomenon or
manifestation or transformation is required in the
application of the process
so as to attract patent eligible subject matter. Since the business method in Grant
did not produce any concrete, tangible, physical or observable effect, it
was a mere scheme, abstract idea or intellectual formulation
which fell outside
the notion of “invention” as it fell conceptually outside the recognised
approach in Australia to “manner of manufacture”.
66
The question of what might constitute a concrete, tangible,
physical or observable effect in the context of the “Information Age” as
discussed by the majority in Bilski and disputed by the dissenters
against the background of the historical factors discussed, will undoubtedly
come before the Federal
Court for comprehensive consideration before too long.
Justice Andrew Greenwood
Federal Court of Australia
1 August 2010
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