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Federal Circuit Places Limits On Business Method Patents

2009.2.5

Ten years ago, the US Court of Appeals for the Federal Circuit issued a stunning en banc decision in State Street Bank vs. Signature Financial. The decision held that business method claims were patentable if the claims met the same legal requirements for patentability as applied to any other process or method. Prior to the State Street decision, an exception applied to methods of doing business, rendering business method claims ineligible as patentable subject matter.

The State Street decision set forth an inquiry for determining whether a method or process was eligible subject matter for a US utility patent. Namely, if the method or process produces a useful, concrete and tangible result, the method or process is determined to be eligible subject matter under the decision in State Street. This inquiry applied to all methods and processes, including business methods.

At the end of October of 2008, the Federal Court of Appeals sitting en banc published its decision in In re Bilski and concluded that the “useful, concrete and tangible result” inquiry was inadequate. Instead, the proper test to apply was a machine-or-transformation test to determine whether a method or process was directed to eligible subject matter for a US patent.

Under the machine-or-transformation test, a method or process claim recites eligible subject matter if the claim is tied to a particular machine or the claim transforms an article. However, according to the Bilski Court, the use of a specific machine or transformation of an article must impose meaningful limits on the claim scope.

This immediately raises the question of whether the recitation of a computer is sufficient to tie a method or process to a particular machine and impose meaningful limits on the claim scope. Unfortunately, the Court did not address this question, stating that this would be left for elaboration in future cases.

More particularly, the patent applicants in Bilski admitted that the claim recitations did not limit any process step to any specific machine or apparatus. Accordingly, the applicants could not show that the claimed process was tied to a particular machine. The Court therefore did not need to address whether the claimed process was tied to a particular machine, and focused on the transformation part of the machine-or-transformation test in reaching its decision.

The Court reviewed two instances of transformation of articles that were sufficient to meet the transformation part of the machine-or-transformation test. According to the Court, it was virtually self-evident that a process for a chemical or physical transformation of physical objects would be sufficient. The Court noted that electronic transformation of data into a visual depiction was also sufficient in at least one previous case.

The claim at issue before the Bilski Court was directed to a method for hedging risk in commodities trading. The claimed method is reproduced below:

A method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of:
(a) initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said consumer;
(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

With respect to the claimed method, the Court held that it did not transform any article to a different state or thing. Namely, transformations of legal obligations or business risks were considered to be abstractions by the Court that could not meet the requirement for transformation of an article. The Court thus concluded that the claimed method did not recite subject matter that was eligible for patent protection under a US patent and affirmed the rejection of the claim.

There have already been decisions by the Board of Patent Appeals and Interferences (“BPAI”) citing Bilski. In Ex parte Halligan, decided November 24, 2008, the BPAI applied the machine-or-transformation test to claims reciting “[a] programmed computer method”. One such claim (Claim 119) from the decision is reproduced below:

119. A programmed computer method based upon the six factors of a trade secret from the First Restatement of Torts for identifying trade secrets within a plurality of potential trade secrets of business, where each of the plurality of potential trade secrets comprise information, said method implemented by the programmed computer to effect the following steps:
a) the programmed computer providing a predetermined criteria for evaluating a potential trade secret of the plurality of potential trade secrets under each of the six factors of a trade secret from the First Restatement of Torts, said six factors including (1) the extent to which the information is known outside of the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken by the business to guard the secrecy of the information; (4) the value of the information to the business and its competitors ; (5) the amount of time, effort or money expended by the business in developing the information and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others;
b) the programmed computer receiving a numerical score value for the potential trade secret under the predetermined criteria for each of the six factors;
c) the programmed computer calculating a metric from the received numerical score values under the six factors; and
d) the programmed computer determining that the potential trade secret is a trade secret when the calculated metric exceeds a predetermined threshold value.

According to the Board in Halligan, the issue presented by Claim 119 was whether the recitation of a programmed computer sufficiently tied the method to a particular machine. This was the same issue that the Bilski Court specifically declined to provide elaboration for. Nonetheless, the Board noted the guidance of the Bilski Court that the use of a specific machine must impose meaningful limits on claim scope. Applying this guidance, the Board concluded that the recited computer failed to impose any meaningful limits on claim scope. Specifically, the recitation merely required the use of a general purpose computer programmed in an unspecified manner to implement functional steps recited in the claims. In the opinion of the Halligan Board, the recitation of a computer in the claims was merely a field-of-use limitation and insufficient to tie the method to a particular machine with meaningful limits on claim scope. The Board accordingly decided that the claim did not recite eligible subject matter for a US patent.

Another Board decision citing Bilski was decided on November 6, 2008, less than a week after the Bilski decision. The decision was Ex parte Bo Li, citing Bilski in considering the rejection of Claim 42, which had been rejected for failing to recite subject matter eligible for a US patent.

Claim 42 in Bo Li recited a method, but in the form of a “computer program product”. This type of claim is frequently referred to as a “Beauregard Claim” in US patent practice. The name for this type of claim is taken from the 1995 Federal Court of Appeals decision entitled In re Beauregard, which was the first decision by this Court addressing this type of claim with respect to the issue of eligible subject matter.

Claim 42 read as follows in the Bo Li decision:

42. A computer program product, comprising a computer usable medium having a computer readable program code embodied therein, said computer readable program code adapted to be executed to implement a method for generating a report, said method comprising:
providing a system, wherein the system comprises distinct software modules, and wherein the distinct software modules comprise a logic processing module, a configuration file processing module, a data organization module, and a date organization module;
parsing a configuration file into definition data that specifies: a data organization of the report, a display organization of the report, and at least one data source comprising report data to be used for generating the report, and wherein said parsing is performed by the configuration file processing module in response to being called by the logic processing module;
extracting the report data from the at least one data source, wherein said extracting is performed by the data organization module in response to being called by the logic processing module;
receiving, by the logic processing module, the definition data from the configuration file processing module and the extracted report data from the data organization module; and
organizing, by the data display organization module in response to being called by the logic processing module, a data display organization of the report, wherein said organizing comprises utilizing the definition data received by the logic processing module and the extracted report data received by the logic processing module.

As can be seen, Claim 42 is directed to a method for generating a report. The Examiner had rejected the claim for failing to recite eligible subject matter under the test set forth in the State Street decision, i.e., whether the method produces a useful, concrete and tangible result. According to the Examiner, the final step of the claim does not output a report and merely prepares it for output and thus there is no tangible result.

The Board observed that arguments based on State Street were no longer dispositive in view of Bilski. The Board further observed that it has been the practice for a number of years to consider a “Beauregard Claim” as reciting a product, rather than as method or process, and that such a claim does therefore recite eligible subject matter despite the recitation of method steps. Finally, the Board noted that the claim recited a number of software components embodied upon a computer readable medium. Accordingly, the Board declined to sustain the Examiner’s rejection for failing to recite eligible subject matter.

As can be seen from the two post-Bilski BPAI decisions, claiming a business method as a computer program product has an additional benefit in examination over a claim reciting the same subject matter as a programmed computer method. Namely, the claim reciting a computer programmed method is subject to the machine-or-transformation test, while the claim reciting a computer program product is not. Unless there is some compelling reason not to, applicants seeking a US patent for a business method should always include at least one Beauregard-type claim to take advantage of this benefit.

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