TRANSFORMING THE PATENTABILITY OF
BUSINESS METHOD PATENTS

Raymond R. Tabandeh and David W. Klinger

In the late 1990's, the Court of Appeals for the Federal Circuit opened the door to the patentability of business methods. Two cases were key. The first was State Street Bank & Trust Co. v. Signature Financial Group, 149 F.3d 1368 (Fed. Cir. 1998), where the Federal Circuit determined that a computer configured to convert financial data into a share price, enabling more effective management of a mutual fund that would not be viable without the use of a computer, was patentable subject matter because it produced a "useful, concrete and tangible result." The second was AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999), where the Federal Circuit held that methods lacking any physical structure are still patentable subject matter as long as they produce a useful, concrete and tangible result.

Recently, in In re Bilski, 545 F3d 943 (Fed. Cir. 2008), the Federal Circuit reversed course. The Court held that its "useful, concrete and tangible result" test was too broad. In its place, the Court has adopted a "machine or transformation" test. This has broad implications for business method, software, and medical treatment patents. Specifically, the Federal Circuit held that a process that involves "fundamental principles," such as abstract ideas and mental processes, laws of nature, and natural phenomena, is not patentable unless the process uses a machine or transforms a particular article into a different state or thing. According to the Court, the "use of a specific machine or transformation . . . must impose meaningful limits on the claim's scope" and the "involvement of the machine or transformation . . . must not merely be insignificant extra-solution activity."

In Bilski, the patent was directed to a "method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price." Claim 1 recited, in part:

1. initiating transactions between a commodity provider and consumers of the commodity at a first fixed rate;
    
2. identifying market participants for the commodity having a counter-risk position to the consumers;
    
3. initiating transactions between the commodity provider and the market participants at a second fixed rate so that the transactions between the commodity provider and consumers and commodity provider and market participants balance the risk position.

The Federal Circuit did not address the machine or apparatus prong of the test, as the applicant admitted that the claims did not encompass a particular machine or apparatus. The decision did, however, provide some insight into the sort of transformation that is required to meet the transformation prong of the test. The Court ruled that such transformation "must be central to the purpose of the claimed process." Furthermore, the transformation must transform a "physical object or substance, or an electronic signal representative of any physical object or substance." Therefore, the court reasoned, the transformation of "legal rights" to purchase a commodity, in claim 1 of Bilski's patent application, is neither physical, nor representative of something physical. Accordingly, because Bilski's patent does not recite a particular machine or sufficient transformation that imposes meaningful limitations, it is not drawn to patentable subject matter.

As identified by Judge Rader in the dissent, the Bilski decision raises a number of questions: What form or amount of transformation suffices? When is a representative of a physical object sufficiently linked to that object to satisfy the transformation test? What link to a machine is sufficient to invoke the machine prong? Concrete answers to these questions may never be provided.

It is likely that Bilski will render many issued patents invalid and make patents on business methods and software more difficult to obtain. However, there are a number of creative patent drafting strategies that may help inventors obtain patents on business methods, software, and other processes by meeting the Federal Circuit's machine or transformation test.

• Include both a transformation element and a machine element in the claims, with detailed support in the specification, if possible. If data transformation is represented in the claims, be sure to indicate the steps of the data transformation, and what the data being transformed represents, with as much clarity as possible. If the data in some way represents a physical object, specifically state the physical object in the claims. Explain in the claim steps how the physical object, or data representing the physical object, is transformed.
   
• Include sufficient structure (a machine) in the claims if possible. For a business method patent, this means including a computer, CPU, input device, memory, display unit, etc., if applicable. These structural limitations should be included and integrated into the claims. Failure to integrate sufficient structure in the claims could make the process steps either "meaningless limitations" or "insignificant extra-solution activity" and thus not patentable subject matter under Bilski. Claim limitations such as "providing a CPU to . . . ;" "providing an input device in communication with the CPU to receive data . . .;" or "receiving X by the input device . . ." should be considered.
   
• If the invention utilizes a mathematical formula or algorithm, be sure the claims include the formula or algorithm. Rather than reciting 'balancing the risks of two types of transactions,' as in Bilski, recite the actual formula or algorithm steps used to balance the risk. If the algorithm is integrated with a structure, be sure to integrate the algorithm with the structure in the claims. Integrating the steps of the algorithm with a machine will aid in making the machine more than a "meaningless limitation." For example, a business method claim could include: "A method for displaying Y comprising: receiving a first set of data X by an input device; storing X in a memory; retrieving X from the memory; calculating Y in Y = X² + B by a CPU; and displaying Y on a display unit as a list of data points." Alternatively, in each step of a claim for computing an algorithm, one may use the limitation of "electronically performing" the steps. Such language necessarily implies some sort of machine, and thus may satisfy the machine prong of the machine or transformation test.
   
• In a medical treatment claim, specifically list the steps required to implement or use the scientific principle in the claim. For instance, in a claim reciting a correlation between a protein found in the body and a medical condition, specifically describe in the claim how the protein level determines the medical condition. Also, include as many tangible objects as possible, and integrate the tangible objects into the claim.

We have witnessed a significant increase in the number of rejections for lack of patentable subject matter from the Patent Office since Bilski, most of which have been overcome by using one or more of these claim-drafting strategies.