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Machine-or-Transformation Test Is the Singular Test for Evaluating Process Claims Under 35 U.S.C. § 101

07-1232
March 06, 2009

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Last Month at the Federal Circuit - April 2009

Judges: Newman (concurring), Mayer, Gajarsa (author)

[Appealed from: Board]

In In re Ferguson, No. 07-1232 (Fed. Cir. Mar. 6, 2009), the Federal Circuit affirmed the Board’s decision that all sixty-eight claims of U.S. Patent Application No. 09/387,823 (“the ’823 application”) were not directed to patent-eligible subject matter under 35 U.S.C. § 101.

Applicants filed the ’823 application on September 1, 1999. The ’823 application included claims 1-23 and 36-68 that were directed to a method of marketing a product (“method claims”) and claims 24-35 that were directed to a paradigm for marketing software (“paradigm claims”). All sixty-eight claims were rejected by the examiner under 35 U.S.C. §§ 102, 103, and/or 112. On appeal, the Board reversed the examiner’s rejections of claims 1-68 under 35 U.S.C. §§ 102, 103, and/or 112, but entered a new rejection, rejecting claims 1-68 under 35 U.S.C. § 101 as not being directed to statutory subject matter.

Applicants requested a rehearing of the Board’s decision, wherein the Board responded by entering a new rejection of claims 1-68 under 35 U.S.C. § 101 based on the PTO’s Interim Guidelines for Examination of Patent Applications for Patent Subject Matter Eligibility, which the PTO issued after the Board’s original decision. Regarding the method claims, the Board acknowledged that these claims were analogous to a “process,” one of the four enumerated categories of statutory subject matter set forth in the text of 35 U.S.C. § 101, but concluded that the method was directed to an “abstract idea” and thus not patent eligible. With respect to the paradigm claims, the Board concluded that claims directed to a paradigm did not fall within one of the four enumerated categories of statutory subject matter and therefore were not patentable subject matter. Applicants requested a rehearing, but the Board declined to modify its ruling. Applicants appealed to the Federal Circuit.

On appeal, in light of its recent opinion in In re Bilski, 545 F.3d 943 (Fed. Cir. 2008) (en banc), the Court considered whether Applicants’ claims were directed to patent-eligible subject matter. The Court first considered Applicants’ method claims and determined that, although the method claims nominally fall into the category of process claims, the decision in Bilski established that the method claims were not directed to patent-eligible subject matter. The Court relied on its statement in Bilski that the Supreme Court’s machine-or-transformation test is the “definitive test to determine whether a process claim is tailored narrowly enough to encompass only a particular application of a fundamental principle rather than to pre-empt the principle itself.” Slip op. at 6 (quoting Bilski, 545 F.3d at 954). Using this test, the Court first concluded that Applicants’ method claims are not tied to any particular machine or apparatus and thus do not satisfy the machine-or-transformation test set forth in Bilski.

Applicants argued that the method claims are tied to the use of a shared marketing force. The Court, however, concluded that a shared marketing force is not a machine or apparatus. The Court reminded that a machine or apparatus is a “concrete thing, consisting of parts, or of certain devices and combination of devices.” Id. (quoting In re Nuijten, 500 F.3d 1346, 1355 (Fed. Cir. 2007)). The Court held that a shared marketing force did not meet the definition of a machine or apparatus as set forth in Nuijten. Thus, the Court determined that Applicants’ method claims were not tied to a machine or apparatus.

The Court then reviewed Applicants’ method claims to determine if they satisfied the transformation prong of the machine-ortransformation test. The Court stated that “[a]t best it can be said that Applicants’ methods are directed to organizing business or legal relationships in the structuring of a sales force (or marketing company).” Id. at 7. The Court reiterated its statement in Bilski that for transformations to satisfy the machine-ortransformation test, they must be transformations of a physical object or substance or representative of a physical object or substance. Consequently, because the method claims failed to meet either prong of the machine-or-transformation test, the Court affirmed the Board’s rejection of the method claims under 35 U.S.C. § 101 as not being directed to statutory subject matter.

The Court proceeded to address Applicants’ argument that, according to the Court’s earlier decision in State Street Bank & Trust Co. v. Signature Financial Group, 149 F.3d 1373 (1998), the method claims satisfied the “useful, concrete, and tangible result test” set forth by the Court in that decision. The Applicants also argued that the method claims are directed to business methods and should therefore be treated as statutory subject matter in view of the Court’s holding in State Street. The Court noted, however, that although the Bilski decision did not overturn the decision in State Street, the Court did reject the viability of the “useful, concrete, and tangible result test” because, although such an inquiry may provide an initial indication as to whether the claim is drawn to a fundamental principle or practical application of such a principle, it focuses on the result of the claimed invention rather than on the claimed invention itself. The Court also noted that State Street did not provide patent eligibility to business methods per se, because the claims at issue in State Street were drawn to a patent-eligible machine implementation of what otherwise may have been an ineligible abstract idea and thus were patentable even under the machine-or-transformation test.

The Court further considered Applicants’ request to consider a new test for patentability: “Does the claimed subject matter require that the product or process ha[ve] more than a scintilla of interaction with the real world in a specific way?” Slip op. at 8. The Court reasoned that in Bilski, the machine-or-transformation test was held as being the definitive test for determining if a process claim is patent eligible under 35 U.S.C. § 101. Further, the Court found that Applicants’ proposed “‘scintilla of interaction’ test begs the question whether even the most abstract of ideas and natural of phenomena interact with the real world” and would lead to ambiguity and conflict with the machine-or-transformation test. Id. Accordingly, the Court refused to adopt Applicants’proposed “scintilla of interaction” test and reaffirmed that the machine-or-transformation test is the singular test for a process claim under 35 U.S.C. § 101. The Court concluded that Applicants’ method claims, when analyzed using the machine-or transformation test, are not patentable.

Next, the Court proceeded to determine whether Applicants’ paradigm claims were directed to statutory subject matter. The Court first considered whether the paradigm claims were directed to subject matter that fit into any of the four enumerated categories of statutory subject matter. The Court noted that the claims were clearly not directed to processes, a manufacture, or a composition of matter. The Court further noted that the paradigm claims were not directed to a machine, because the paradigm claims “do not recite ‘a concrete thing, consisting of parts, or of certain devices and combination of devices,’” and therefore are no more than an abstract idea. Id. at 10 (quoting Nuijten, 500 F.3d at 1355). The Court concluded that because the paradigm claims were directed to no more than an abstract idea, they were unpatentable as not directed to statutory subject matter. In particular, the Court remarked, “Indeed, it can be said that Applicants’ paradigm claims are drawn quite literally to the paradigmatic abstract idea.” Id. at 11 (internal quotation marks omitted).

Judge Newman concurred with the judgment that the claims of the ’823 application were not patentable because they do not pass the test of nonobviousness set forth in 35 U.S.C. § 103. However, Judge Newman did not agree with the majority’s determination that the claims of the ’823 application were not directed to statutory subject matter under 35 U.S.C. § 101. Judge Newman asserted that the majority redefined the Bilski opinion, adding dicta that was more than necessary given the facts in this particular case, and casting doubt on thousands of previously granted patents. Specifically, Judge Newman stated that the majority not only erroneously asserted that the machine-or-transformation test is the test for patentability of the Supreme Court, but also that Bilski overturned the tests for patentability set forth in State Street and in the Freeman-Walter-Abele series of cases. Judge Newman noted that the majority defines an abstract idea as anything that does not meet the machine-or-transformation test, even if the claim itself is directed to something that is not an abstraction. Judge Newman warned that the majority in this case, and in previous cases such as Bilski, was not supporting innovation and investment in new ideas and new technologies by analyzing patentability using old tests such as the machine-or-transformation test.