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Federal Circuit Appeals Court Limits Business-Method Patents 73

Posted by timothy
from the sounds-smart-so-far dept.
Zordak writes "The Court of Appeals for the Federal Circuit has just issued its much-anticipated opinion in In Re Bilski [PDF]. This was a re-visit of the State Street issue of what constitutes patentable subject matter (including whether software and business methods are patentable). In summary, the court has affirmed and strengthened the 'machine-or-transformation' test, upholding the patent office's rejection of claims on a method for hedging risk in the field of commodities trading. Although the court refused to exclude software patents categorically, it is likely that the reasoning of this decision will be used to reject many software patents (note that some of the dissenting judges would have completely overturned State Street and tossed out all software and business method patents). Although not as sweeping as some had hoped for, it is certain that this decision, along with the Supreme Court's KSR decision last year, will lay a difficult mine field for those who want to patent software and business methods."
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Federal Circuit Appeals Court Limits Business-Method Patents

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  • by ChromaticDragon (1034458) on Thursday October 30, 2008 @05:07PM (#25575381)

    It helps to be first

    • by Enki X (1315689)
      Surprisingly relevant... It doesn't matter if the patent has any substance at all... you just have to be the first to submit an application... (and have loads of money)
      • by rs232 (849320)
        "I work full-time and gross $19,200/year and I'm a Democrat. What's your excuse?"

        If all you socialists get into power we'd all be broke .. oh ... wait ... :]

        Give a man $10 he's a free-loader .. give a man $700 billion he's a captain of industry ...
      • Re: (Score:2, Interesting)

        Slightly inaccurate. The US is a "first to invent" system, as opposed to "first to file" system (which is how the rest of the world operates), and proof is required. In addition, patent application reviewers are actually reviewed, judged, and promoted by the number of patents that they REJECT. There are very visible and acknowledged rejection quotas that the employees must meet. The only patents that are simply approved are the 1-year provisional patents, which are usually just stamped and thrown in a file.
        • Re: (Score:2, Insightful)

          by alexborges (313924)

          "but the substance needs to be there and in the right form for approval"

          Franz Kafka tried to sue you for infringement of his humor.

        • There are very visible and acknowledged rejection quotas that the employees must meet.

          This is something I've never heard of. I'd love to learn more about that; can you give a cite?

          • by princessproton (1362559) on Thursday October 30, 2008 @07:49PM (#25577385)
            I recently took an IP law class (taught by a patent attorney) and he mentioned this fact. He also said that the best way to get a patent through is to contact the patent reviewer assigned to your application near the end of the month, agree to a rejection on specific grounds (even if they are minor, simply to help them fill their quota), and then resubmit the next month with a response to those issues. The reviewer assigned to your case is always the same, so they will recognize your application and approve it on its second time through as a quid pro quo. So yes, there's no denying there are issues and opportunities for corruption within the approval process, but it's actually more natural for the reviewers to reject rather than approve to make a dent in their caseload. Also, the grounds for objection (obviousness, for example) can be very subjective so it is possible to reject many patents based on a combination of several pieces of prior art and the assumption that it could have been discovered or invented by anyone with ordinary skill in the art, even if this might be unlikely in reality.
            • Re: (Score:3, Interesting)

              by Dachannien (617929)

              He also said that the best way to get a patent through is to contact the patent reviewer assigned to your application near the end of the month, agree to a rejection on specific grounds (even if they are minor, simply to help them fill their quota), and then resubmit the next month with a response to those issues.

              "Agree to a rejection"? As an applicant, you don't have any say in whether your application gets rejected or not, aside from doing your best to ensure that the application meets the statutory requirements when you file it or amend it. You could contact the examiner, I suppose, and say that you happily accept a rejection, but the examiner still has to write up a rationale for the rejection. Once you get the office action describing the rejection, you have some time to submit a response, and at that point,

              • Yes, my answer was poorly worded (I should also clarify that this is also not necessarily the "best" way to get a patent through). You are correct, applicants do not get generally get a say, HOWEVER, proactively eliciting a rejection to ease the examiner's caseload (especially if explicitly offering potential grounds for rejection, since most patents ask for far more than the inventor actually needs/is likely to get anyway) CAN result in your response be viewed more favorably and not scrutinized as closely.
                • If, as an applicant, you are in possession of potential grounds for rejection, you have a statutory duty to disclose those grounds to the PTO. Later on, if your patent ends up the subject of litigation, and it becomes apparent that you intentionally withheld information from the PTO relevant to the patentability of your invention, that alone is grounds for invalidation of the patent.

        • The only patents that are simply approved are the 1-year provisional patents, which are usually just stamped and thrown in a file.

          I agree with your post, with a slight correction. These are provisional patent applications, they're not issued, and they grant no rights whatsoever... all they give is a filing date that a later nonprovisional patent application can use for the purposes of avoiding prior art. i.e.: A files a provisional on 1/1/2008. B files a provisional on 6/1/2008. A files a nonprovisional on 1/1/2009. B's application can't be used against A. But that doesn't mean that A can claim he has a patent, or any other rights.

          • by Zordak (123132)

            I agree with your post, with a slight correction. These are provisional patent applications, they're not issued, and they grant no rights whatsoever...

            I agree with your post, with a slight correction. Provisional patent applications grant almost no rights whatsoever. They grant you the right to stamp "Patent Pending" on your widget.

            • by Veramocor (262800)

              They also reserve your priority date. Where prior art clocks start on the date before the provisional not the non-provisional application. Also helps in case of interferences.

        • by Anonymous Coward

          Completely FALSE. Do you have any evidence of this? Please show me in the MPEP (Manual of Patent Examining Procedures) where it says that patent examiners are reviewed, judged, and promoted based on rejections.

          I work at the U.S. patent office and you do not have quotas set for how many rejections you do.

          You have so many COUNTS per week that you have to do. The first time you look at a case and make a decision you get a count (A First Action On the Merits FAOM, whether you reject it or allow it). When a

          • by Zordak (123132)

            As for pay in 5 years if you get all your promotions you would make around 110,000. A person with 15 years of experience or a supervisor around 150,000 [a representative to the U.S. house makes 169,000 for comparison, although I would say that most patent examiners are smarter than the House reps but who on slashdot isn't Parent thread excluded). The government couldn't pay more if they wanted to as the top grade level/step is capped by congress for all federal employees.

            And here's the real problem. Marke

      • I work full-time and make $68,000 per year, and I'm a Democrat.
        My brother-in-law works full-time and makes $24,000 per year, and he's a Republican. But then again...I have a college degree and he doesn't.

  • Full text as HTML (Score:4, Informative)

    by schestowitz (843559) on Thursday October 30, 2008 @05:12PM (#25575473) Homepage Journal
    To those interested, here it is as HTML [boycottnovell.com] and here it is as a more complex HTML version with images [boycottnovell.com].
  • by postbigbang (761081) on Thursday October 30, 2008 @05:13PM (#25575477)

    It's not a full victory, as mentioned. But it's a step in the direction of sanity versus a congress that's been overly influenced by the IP troll communities.

    The victory seems solid, but SCOTUS has a different palette of judges to look at this with. We'll see if it becomes the law of the land or not, then, a few years from now should it be appealed-- and my guess is that it will be despite its strong tone.

    • by Chris Burke (6130) on Thursday October 30, 2008 @05:30PM (#25575739) Homepage

      We'll see if it becomes the law of the land or not, then, a few years from now should it be appealed-- and my guess is that it will be despite its strong tone.

      Or it could be something that they deliberately don't appeal, and they and other companies avoid going against in other cases so as to avoid an even stronger SCOTUS precedent. Kinda like when in Microsoft vs AT&T, they got close enough to the issue of software patent-ability that one of the Justices questioned whether they were assuming it to be the case, as they'd(SCOTUS) never held software to be patentable before, and the counsel for both sides backed way off so as to avoid any possible ruling for or against software patents. Seems especially prudent when the Justice semi-implies what the answer would be.

      So it could go either way. Apparently the issue of whether software or business methods are patentable has never reached the Supreme Court before. It'd be rather sad if the whole software patent regime that's caused so many problems over the last couple decades was just a legal fluke that never should have happened. On the other hand, one of the main limits on Judicial power is that they can only rule on issues that come before them.

      • Re: (Score:3, Insightful)

        by postbigbang (761081)

        It's important to pick the right battles, that's for sure-- but this one already has years, and lots of money spent on it. Maybe it's not the right time for them to pursue it, we'll agree, but there's a lot invested here-- including those patents that summarily become invalidated should it be tested again. Only SCOTUS has the final say beyond a new law-- that's the thing to fear most. Big guns will cry in a bad economy, and get sympathetic ears. That frightens the hell out of me.

        • Only SCOTUS has the final say beyond a new law-- that's the thing to fear most. Big guns will cry in a bad economy, and get sympathetic ears. That frightens the hell out of me.

          Bear in mind that this isn't a constitutional issue... Congress is explicitly empowered to craft patent legislation, so all SCOTUS would be doing is interpreting the statute, and congress is free to amend it... and if Microsoft, Google, Apple, and others are throwing money at congress, they'll modify 35 USC 101 to include software. Count on it.

          • by postbigbang (761081) on Thursday October 30, 2008 @09:13PM (#25578125)

            We agree on 35 USC 101.

            Then there's:The Congress shall have power ... 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.

            And there's the perversion in IP law that SCOTUS might have to deal with. That's what I fear: new legislation, and the IP battle of titans to get software patents more deeply entrenched, or other business 'theory' concepts established in any way.

            • by Talondel (693866)
              Given modern interpretations of the commerce clause, it's doubtful that the "intellectual property clause" that you quote in any way limits Congress' ability to legislate in this area. Congress can pass IP laws under their commerce clause power without having to worry about the limiting language in the IP clause.

              For example, it's not at all clear what the constitutional authority for the DMCA is, but the legislative history shows that one draft cited the IP clause as the constitutional authority, and ano
    • Groklaw link: (Score:4, Informative)

      by toby (759) * on Thursday October 30, 2008 @05:37PM (#25575821) Homepage Journal
      here [groklaw.net].
    • by Veramocor (262800)

      SOCOTUS loves to smack down the CAFC.

      In fact the KSR decision was a repudiation of the CAFC interpreting obvious strictly based on the TSM (teaching suggestion motivation) test.

      If I were a betting man this decision will be changed by the SCOTUS is some way (either broadening what is patentable under 101 or further narrowing it).

      • by afidel (530433)
        No, the 9th district is just VERY large and so has many cases reviewed by SCOTUS, SCOTUS overturns the majority of cases they hear and hence to someone not analyzing the data it appears that the 9th gets overruled a lot. There has been plenty of analysis done on the subject, I suggest you check Google =)
        • by afidel (530433)
          mea culpa. I misread CAFC as California and hence 9th. Please excuse my momentary stupidity.
  • Patent Office (Score:3, Interesting)

    by truthsearch (249536) on Thursday October 30, 2008 @05:18PM (#25575549) Homepage Journal

    So, will this change policy at the patent office? Or does it change the potential outcome of patent related lawsuits?

    If the patent office doesn't change what applications they approve, then the battles will still need to be fought in courts, right?

    (Is it obvious IANAL?)

    • by Enki X (1315689)
      http://yro.slashdot.org/article.pl?sid=08/07/24/1458215 [slashdot.org]

      Did I miss something here?
      • Re: (Score:3, Insightful)

        by Zordak (123132)
        Yes. The law of patents is what the Federal Circuit says it is (unless the Supreme Court says differently, which happens only occasionally). If the Federal Circuit had said "software is patentable subject matter, and that's final," the USPTO could not reject any software on the basis of subject matter.
    • by SirLanse (625210)
      Sadly the patent office just takes the money and hands out the paper. It lets the courts do all the dirty work. If there is prior art, the court overturns the patent. If it is stupid, the court overturns it. The only thing the patent helps is if you have it, you get to make a little money. Chances are, a really good idea will be profited from while you litigate.
      • Sadly the patent office just takes the money and hands out the paper. It lets the courts do all the dirty work. If there is prior art, the court overturns the patent. If it is stupid, the court overturns it. The only thing the patent helps is if you have it, you get to make a little money. Chances are, a really good idea will be profited from while you litigate.

        What's even sadder and more important is that until someone actually challenges the patent holder, nothing is going to happen. Put it in the hands of a giant like Microsoft with vast resources and the best legal team, and who's going to stand up to them, even if they're phony?

    • This ruling goes along with the PTO's current practice to a large degree, actually. The only major hole through which software patents can be driven through under current practice is the "machine-readable medium encoding a program"-type of claim.

  • by kaltkalt (620110) on Thursday October 30, 2008 @06:04PM (#25576235)
    The problem is that Congress decided not to fund the USPTO and allow it to fund itself through application fees, processing fees, and all whatever other fees the USPTO wants to charge. So, the more patents they review and grant, the more money they make. This was the primary cause of the patent explosion - it suddenly became in the Patent and Trademark Office's best interests to allow and grant as many patents as possible. Take the $500 application fee (or whatever it is), charge a review fee, charge a patent issuance fee, and leave it up to the courts sort out whether or not a patent on a method of removing snot from a nose with a finger is a valid patent or not. That's what's been going on. My solution is for congress to fund the USPTO, but that they should only be allowed to issue, say, 100 patents per year. All patent applications are held and reviewed and at the end of the year, the top 100 are granted patents. Frankly, 100 is too generous, I'd rather it be 20 to 30. These days there are nowhere close to 100 truly innovative and nonobvious inventions per year. Maybe 5 or 6, at the most. So 20 patents per year is more than adequate, and 100 is allowing crap that shouldn't otherwise be patentable. Once new patents become a rarity, the number of patent applications will drop exponentially. It should not be a valid business model to own a portfolio of ridiculous patents and sit around waiting for someone to infringe them. That does not foster innovation - quite the opposite.

    So, give the USPTO $100,000 or so in federal funding, grant 100 patents per year (a board can pick the top 100), and by all means don't give the USPTO financial incentives to grant as many patents as it can, only to leave the actual work of determining patent validity up to the judiciary. Our courts are clogged enough without people suing over patent infringement for nosepicking methods.
    • Re: (Score:3, Informative)

      by Dachannien (617929)

      That's not entirely true. All of the PTO's funding still has to be appropriated by Congress, but they generally give back roughly all the revenue that the PTO collects.

      Also, since KSR v. Teleflex last year, allowance rates are down sharply.

      • by kaltkalt (620110)
        See http://www.washingtonmonthly.com/features/2005/0506.roth.html [washingtonmonthly.com] for a nice summary of the issue I'm talking about. I believe 35 U.S.C. section 42 [uspto.gov] is the law in question re: USPTO self-funding.

        From the article:

        Then, in 1991, under pressure to reign in massive budget deficits, lawmakers passed (and President George H.W. Bush signed) a law that revolutionized the way the patent office does business. Borrowing ideas then in vogue among private sector consultants and CEOs to "reengineer" organizations t
        • Borrowing ideas then in vogue among private sector consultants and CEOs to "reengineer" organizations to make them more "customer-driven," Congress instructed the patent office, which had always been funded from government revenues, to now pay its own way through fees charged to applicants, and to make the process of winning a patent easier on them.

          Trouble being, the patent applicants aren't actually the customers -- they're the product. The customers would be all the rest of us, who get the benefits of the (supposedly) increased innovation the patent system (supposedly) provides.

    • well, i think it makes sense to determine the USPTO's funding based on the volume of applications they receive/process, but they definitely shouldn't be making money based on how many patents they grant. that's a blatant conflict of interest. any money they make should go to the treasury, letting the OMB, CBO, or whoever is in ordinarily in charge of the federal budget decide how much money the USPTO should receive each fiscal year.

      and there really ought to be some form of government or public oversight to

    • Re: (Score:3, Insightful)

      by db32 (862117)
      $100,000 per year? So your plan is to turn the patent office into 2 employees working in the dark out of a cardboard box in a bad part of town? Someone is a bit out of touch with reality in terms of money.
  • It could get overturned on appeal (and Microsoft friendly Dems are going to be in charge in all likelihood soon), but one wonders.
    • Re: (Score:2, Interesting)

      by alexborges (313924)

      Are "friendly dems" the kind that actually took microsoft to court in the 90's only to be saved by baby bush?

    • Re: (Score:1, Offtopic)

      Microsoft friendly Dems are going to be in charge in all likelihood soon

      If the Democrats are Microsoft friendly, then why are so many slashdotters anti-Microsoft and pro Democrat?

      • You mean independents like me (who will be voting for Obama tomorrow) ?

        Its an open secret that Democrats might be agnostic in this Microsoft vs open standards debate, but Democratic lawmakers tend to be pro-Microsoft (as are many Republicans). The reason is pretty simple - much of their money in campaigns comes from the silicon valley and other tech firms on the West Coast. Most of them like Microsoft. With the emergence of Google, that picture might change, but it hasn't yet.

        Take a look at RIAA,
    • by gtall (79522)

      Errr...you do realize there's a difference among the Judicial, Legislative, and Executive branches of government. Here's a clue, this is a court case.

      Gerry

  • by Grond (15515) on Thursday October 30, 2008 @06:41PM (#25576701) Homepage

    There is some more legally (as opposed to policy) oriented coverage of the decision at Patently-O [patentlyo.com].

    The majority decision introduces a new, complex, and vague test for patentability of business methods and software that raises more new questions than it answers. The end result will likely be the discovery of several 'magic words' that patent applicants can insert into their applications to ensure patentability without materially affecting what the claims cover. Unfortunately, those magic words will likely only be discovered after millions of dollars are wasted on expensive legal battles.

    The new test states that a business method or software-implemented invention must be either "tied to a particular machine" or "transform a particular article." The court does not define what a 'particular machine' is. It is possible that a general purpose computer is sufficient, but it may not be. If it is not, it is unclear how specific the patent must be about what kind of computer it is tied to.

    The court also failed to define what was a suitable level of transformation or what kinds of articles would suffice. Maybe the transformation must be significant, or maybe any change in state at all is enough. Maybe it will depend upon the nature of the invention. Maybe some articles are physical enough while others are not. All of these questions will require millions of dollars and years of litigation to answer. In the meanwhile, the value of thousands of patents will be called into question.

    The court did point out that the article need not be physical, as in the example of a CT scanner which manipulates data representing a patient's body but not the body itself. So perhaps as long as there is some ultimate tie-in to a physical object, the invention is patentable. It is unclear why the manipulation of data representing a patient's body is adequately tied to a physical article but the manipulation of data representing commodities (which are ultimately very real barges full of coal, for example) is not. Figuring out exactly where that line is will be very difficult.

    In my opinion (and in the opinion of Judge Rader, who wrote one of the three dissenting opinions) , the law already provided plenty of reasons to deny the application in the case as well as other overly broad or overly vague business method and software patents. Inventing complicated new tests will do more to provide employment for patent attorneys than it will to streamline business and encourage innovation.

    Of course, I would also call into question the requirement for a physical tie-in of any kind. So long as the business method or software patent is limited to a specific, useful application (and is new, nonobvious, etc), I see no reason why we shouldn't encourage the development of such inventions. For example, better that a hedge fund patent a new kind of derivative and the world see what they are doing than they keep it an in-house trade secret. Assuming the Supreme Court or Congress does not overrule it, this decision will do much to drive such complex financial methods into the shadows.

    One other very real concern. This decision could very well spell the end of Google's Page Rank and AdWords patents. If that happens, expect Microsoft and Yahoo to announce new, improved versions of their search engines and ad-delivery systems...and expect Google's stock to tank. Almost all of Google's value is tied up in its intellectual property. This decision weakens some of the fundamental parts of its business. Without software patents, it will be much harder for Google (or the next clever startup) to challenge more established companies.

    • The Federal Circuit may be going after mental process patents where at least one step is performed in the mind of the practicer. An example of such a case would be Metabolite, where a doctor infringed a patent by looking at blood test results and concluding the patient was at risk for heart problem.

      The abstract nature of machine has been tried earlier. Some patentee as arguing that his patent required the alteration of electrical signals and that THIS was a physical transformation. The Federal Circuit went

    • Re: (Score:3, Insightful)

      by Alsee (515537)

      I just finished reading the ruling, and I just was about to post many of the same points you just did. I completely agree with your analysis of this victory-for-confusion ruling. It's amusing to be in such complete agreement on the analysis, and be so diametrically opposed with your "I would also call into question the requirement for a physical tie-in of any kind..." followup.

      The Supreme Court RULE, repeatedly stated and reaffirmed by the Supreme Court and repeated and reaffirmed in this ruling, is "Transf

      • by Grond (15515)

        I agree with you that, as the law stands now, software and business method patents are in a precarious position. What I don't agree is that they are undeserving of protection as a policy matter. You've made a few commonly raised points, so I'll address them.

        A 100 digit number may be novel and non-obvious and useful for some specific application. I *do* see reason why we should not "encourage the development of such inventions". A number is not an invention. Math is not an invention.

        But I am not talking ab

        • by Alsee (515537)

          But do not claim that software patents are not desirable to a lot of programmers and software companies

          It is technically true that a "lot" of programmers are left handed. It is also a wildly fraudulent statement. Programmers re overwhelmingly right handed, and overwhelmingly opposed to software patents. Small and medium software companies are largely opposed. And of your megacorp list "Google, Apple, IBM, Sun, Microsoft", unless I'm mistaken at minimum one of them does not support software patents, at minim

          • by Grond (15515)

            I'm gonna paraphrase your points to keep the post length down. I will try to be fair in my paraphrasing.

            Programmers are virtually all anti-software patent

            The US patent system is a pragmatic one: if protection encourages innovation, then it is good; if not, it is bad. We should not look to the opinion of scientists or programmers but rather to the hard data. Empirical economic analysis either shows a mixed picture or a benefit. It does not show anything like a clear case for eliminating software patents.

    • Without software patents, it will be much harder for Google (or the next clever startup) to challenge more established companies.

      Good. That means IP holding companies can't use stupid patents to browbeat legitimate businesses.

  • by russotto (537200) on Thursday October 30, 2008 @11:20PM (#25579223) Journal

    ...it seems the patent office SHOULD have rejected the claim for "a method to hedging risk in the field of commodities trading" because it was non-useful.

There is no distinction between any AI program and some existent game.

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