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After Bilski: Another business method patent overturned

A special thanks to Daniel Parrish for the following post: The Federal Circuit recently rejected a patent held by American Master Lease LLC for methods of creating an investment structure to take advantage of an IRS tax-deferment exemption.  Fort Properties, Inc. v. American Master Lease LLC, No. 2009–1242, 2012 WL 603969 (Fed. Cir. Feb. 27, 2012).  The court ruled that the investment structure’s ties to the physical world such as deeds, contracts and real property, like the commodities and money in Bilski v. Kappos, did not transform the abstract method into a patentable process.  130 S.Ct. 3218.  Furthermore, the court ruled that adding a limitation requiring the use of a computer did not “play a significant part in permitting the claimed method to be performed,” citing the recent Dealertrack decision, recently reviewed in this blogDealertrack, Inc. v. Huber, Nos. 2009-1566, -1588, 2012 WL 164439, (Fed. Cir. Jan. 20, 2012). For those following business method patents, being comfortable with some uncertainty regarding statutory subject matter is a prerequisite, yet the Supreme Court provided some insight in 2010, when we learned three things in Bilski: [1] the test for whether a business method is statutory subject matter is not solely the “machine or transformation” test, wherein the method is either tied to a particular machine or transforms a particular article into a different state or thing.  This test is a “useful clue” in determining patentability. [2] business methods are indeed statutory subject matter.  This is clear because 35 U.S.C. § 273(b)(1) provides a prior user defense for “method[s] of doing or conducting business.”  As a matter of statutory interpretation, declaring all business methods unpatentable would render the above provision useless.  Thus, there must be some category of business methods that are patentable. [3] Methods of hedging risk of price changes in the energy commodities market are not patentable under 35 U.S.C. § 101, even when a specific mathematical formula has physical ties to the real world. If some business methods that fail the “machine or transformation” test are still patentable, what is the correct test to apply?   The US Supreme Court has yet to provide this test, but a look at history may provide some insight.  The Fort Properties decision summarizes the seminal Supreme Court precedents drawing the line between patent eligible processes and abstract ideas.  These are graphically represented below: Bilski v. Kappos, 130 S.Ct. 3218; Diamond v. Diehr, 450 U.S. 175 (1981); Parker v. Flook, 437 U.S. 584 (1978); and Gottschalk v. Benson, 409 U.S. 63 (1972). The Fort Properties decision also outlines recent Federal Circuit decisions on patents involving methods and computer limitations.  These are graphically represented below: Fort Properties, Inc. v. American Master Lease LLC, No. 2009–1242, 2012 WL 603969 (Fed. Cir. Feb. 27, 2012); Dealertrack, Inc. v. Huber, Nos. 2009-1566, -1588, 2012 WL 164439, (Fed. Cir. Jan. 20, 2012); Ultramercial, LLC v. Hulu, LLC, 657 F.3d 1323, 1328 (Fed. Cir. 2011); Cybersource Corp. v. Retail Decisions, Inc., 654 F.3d 1366, 1369 (Fed. Cir. 2011). Although it is always difficult to predict what, if any, specific test the Supreme Court may enact, we can make a few generalizations.  Inventions in existing statutory categories that incorporate non-statutory subject matter as part of the invention are likely to still be patentable.  As business method patents are relatively new, we do not yet have “classic” business method patent categories.  We do know that business method patents must do more than recite a computer limitation.  A business method with ties to the “real world” must be significant to the invention, not merely using a computer to generate deedshares or to execute a calculation.  The more that the claimed invention requires a computer (as opposed to incidentally using a computer) the more likely it will qualify as statutory subject matter. Further speculation is, well, just that.  Future cases may clarify matters or add to the uncertainty.  Here’s hoping for a more concrete statutory test for business method patents!

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