Ten Years From Bilski: The Beginning of the End, with No Improvement in Sight

“In the years since Bilski, the Court has decided Mayo v. Prometheus, Myriad and Alice. If the decision in State Street can be said to have marked the onset of a golden era in the patentability of software and business method patents, the decision in Bilski marked the beginning of the end, and Alice was its death knell.”

Ten years ago today, the U.S. Supreme Court handed down what at the time was one of the most important patent decisions in decades. It signaled a new era in patent law—not least of all because Bilski seemed to jump start the Supremes’ interest in patent cases. On this milestone anniversary, it’s worth reminding ourselves how we ended up where we are today.

Hedging Risk

Bernard Bilski’s patent application claimed methods whereby sellers in the energy market could protect against the risk of price changes. Claim 1 included the steps of initiating a series of transactions between buyers and sellers of a commodity at a fixed price based on the risk position of the buyers, identifying market participants having a counter-risk position to the buyers, and initiating a series of transactions between the market participants and sellers at a second rate such that the risk position of the buyer transactions is balanced by the market participant transactions. In short, a method of hedging risk for energy brokers.

The Examiner rejected Bilski’s application, asserting that the claims represented nothing more than the manipulation of an abstract idea, without any limitation to a practical application and concluding that the invention was “not directed to the technical arts.” The Board of Patent Appeals and Interferences (BPAI) affirmed, adding that the claims recited only mental steps that did not transform physical matter.

The Federal Circuit heard the case en banc and affirmed, generating five different opinions in the process. Chief Judge Paul Michel drafted the majority opinion and rejected the test—that a claimed invention was a patentable process under Section 101 if it produced a “useful, concrete, and tangible result”—set forth in State Street Bank. State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368, 1373 (1998). Shutting down what some have termed “the golden age” of software patents, Chief Judge Michel wrote “[a] claimed process is surely patent-eligible under §101 if (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” In re Bilski, 545 F.3d 943, 954 (Fed. Cir. 2008)(en banc). The Court concluded that this “machine or transformation test is the sole test governing §101 analysis” and thus, “the test for determining patent eligibility of a process under 101.” Id, at 955-956.

Although three judges wrote dissenting opinions, Judge Newman, was the only one to assert that Bilski’s claims should not have fallen under a Section 101 analysis but stopped short of saying the application should have been granted. Instead, Judge Newman asserted that the case should have been remanded to determine whether the application met the other statutory requirements for patentability.

The Supreme Court granted cert and affirmed the result, but rejected the process used to reach it.

The SCOTUS Decision

The majority opinion was written by Justice Kennedy and includes three sections—Part I, giving the procedural background of the case, Part II including a discussion of applicable legal principals and part III, a discussion of Supreme Court precedent. Chief Justice Roberts and Justices Thomas and Alito joined Justice Kennedy. Justice Scalia joined the majority “except for parts II-B-2 and II-C-2”, directed to discussions of the industrial age vs. the information age and a comparison of the considerations for subject matter eligibility between the two. And so, Justice Kennedy’s opinion is the majority opinion, but for those two sections.

At Section II.A.1, the opinion restates the three exceptions to 101’s defined subject matter eligibility, and while acknowledging that they are not provided by statute, rather defensively argues their appropriateness as follows:

The Court’s precedents provide three specific exceptions to 101’s broad patent eligibility principles: “laws of nature, physical phenomena and abstract ideas”… While these exceptions are not required by the statutory text, they are consistent with the notion that a patentable process must be “new and useful.” And in any case, these exceptions have defined the reach of the statute as a matter of stare decisis going back 150 years.

The opinion continues, finding that the statutory definition of “process” does not allow for the application of the “categorical limitations” adopted by the Federal Circuit:

The present case involves an invention that is claimed to be a process under 101. Section 100(b) defines “process” as:

‘Process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material.’

…Under the Court of Appeal’s formulation, an invention is a “process” only if: ‘(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.’ 545 F. 3d at 954…

And then:

Any suggestion in this Court’s case law that the Patent Act’s terms deviate from their ordinary meaning has only been an explanation for the exception for laws of nature, physical phenomena, and abstract ideas. See, Parker v. Flook, 437 U.S. 584, 588-589 (1978). This Court has not indicated that the existence of these well-established exceptions gives the Judiciary carte blanche to impose other limitations that are inconsistent with the text and the statute’s purpose and design. Concerns about attempts to call any form of human activity a “process’ can be met by making sure that the claim meets the requirements of §101…Adopting the machine-or-transformation test as the sole test for what constitutes a process (as opposed to just an important and useful clues) violates these statutory interpretation principles…The Court is unaware of any ‘ordinary, contemporary, common means’ of the definition terms, process, art or method’ that would require these terms to be tied to a machine or to transform an article.

Similarly, the Court rejected the argument that the term “process” as used in 101, categorically excludes business methods:

The Court is unaware of any argument that the “ordinary, contemporary, common meaning of method” excludes business methods. Nor it is clear how far a prohibition on business method patents would reach, and whether it would exclude technologies for conducting a business more efficiently.

The Court further held that the argument that business methods represent ineligible subject matter was undermined by the fact that federal law explicitly concedes the existence of at least some business method patents, referring with particularity to 35 USC 273, and the defense of prior use:

For purposes of this defense alone, “method” is defined as ‘a method of doing or conducting business’… In other words, by allowing this defense, the statute itself acknowledges that there may be business method patents…A conclusion that business methods are not patentable would render §273 meaningless.

After providing some consolation in the form of a mild compliment (Referring to the five opinions authored in the underlying decision, the Court stated “Students of patent law would be well advised to study those scholarly opinions”), the Court turned to chiding the Federal Circuit that they need have only referred to the numerous precedents the Court had provided as guidance:

In searching for a limiting principle, this Court’s precedents on unpatentability of abstract ideas provide useful tools…Indeed if the Court of Appeals were to succeed in defining a narrower category or class of patent applications that claim to instruct how business should be conducted, and the rule that the category is unpatentable because, for instance, it represents an attempt to patent abstract ideas, this conclusion might well be in accord with controlling precedent.

And indeed, proceeded to affirm the Federal Circuit’s decision, albeit after rejecting its analysis, on this basis:

Even though petitioners’ application is not categorically outside of 101 under the two broad and atextual approaches the Court rejects today, that does not mean it is a process under 101…Rather than adopting categorical rules that might have wide-ranging and unforeseen impacts, the Court resolves this case narrowly on the basis of this Court’s decisions in Benson, Flook, and Diehr, which show that petitioner’s claims are not patentable processes because they are attempts to patent abstract ideas. Indeed, all members of the Court agree that the patent application at issue here falls outside of §101 because it claims an abstract idea.

Emphasis added.

The Critics

Patent practitioners and scholars alike expressed frustration that the Court took such great pains to avoid providing greater clarity to the law concerning subject matter eligibility, indeed, seeming to take pride in providing a “narrow” holding avoided doing so. Similarly frustrating is the dicta:

With ever more people trying to innovate and thus seeking patent protections for their inventions, the patent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent creative application of general principles. Nothing in this opinion should be read to take a position on where that balance ought to be struck.

Of course not. Why would practitioners look to the highest court in the land for that?

The opinion concludes:

Today, the Court once again declines to impose limitations on the Patent Act that are inconsistent with the Act’s text. The patent application here can be rejected under our precedents on the unpatentability of abstract ideas. The Court, therefore, need not define further what constitutes a patentable process, beyond pointing to the definition of that term provided in 100(b) and looking to the guideposts in Benson, Flook and Diehr.

And nothing in today’s opinion should be read as endorsing interpretations of §101 that the Court of Appeals for the Federal Circuit has used in the past…It may be that the Court of Appeals thought it needed to make the machine-or-transformation test exclusive precisely because its case law had not adequately identified less extreme means of restricting business method patents, including (but not limited to) application of our opinions in Benson, Flook and Diehr. In disapproving an exclusive means or transformation test, we by no means foreclose the Federal Circuit development of other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text.

Intervening Years

In the years since Bilski, the Court has decided Mayo v. Prometheus, Myriad and Alice. If the decision in State Street can be said to have marked the onset of a golden era in the patentability of software and business method patents, the decision in Bilski marked the beginning of the end, and Alice was its death knell, with its introduction of a two-step test for eligibility. Indeed, the unpredictability of application of 101 extends throughout all practice areas – I practice in the chemical arts, and have seen an increase in Section 101 rejections, as well as wild variability in the underlying logic supplied in support thereof. See also, American Axle & Manufacturing, Inc., v. Neapco Holdings LLC, wherein claims directed to a method of manufacturing a portion of a car’s drivetrain were found patent ineligible for their recitation of a “law of nature” and more recently In re Rudy directed to a method of fishing.

Those hoping for judicial intervention will have to be patient. Despite the urging of an en banc panel of the Federal Circuit, the Supreme Court recently refused cert in Athena v. Mayo, as well as Berkheimer, Cellspin, Power Analytics, ChargePoint and Trading Technologies.

Practice Impact

The USPTO has recently acknowledged the problems caused by Alice with its release of a new study entitled “Adjusting to Alice: USPTO patent examination outcomes after Alice Corp v. CLS Bank International”. The report provides graphs that provide illustration of the likelihood of receiving a first office action 101 rejection, and the variability of first office action 101 rejection rates. Both went up precipitously after the Alice decision.

I know I am not the only one who, when confronted with a seemingly inexplicable 101 rejection, thinks “this is really a 112, 102 or 103 rejection in disguise.” Because the support required for a 101 rejection is much lower than the other statutory provisions (e.g., the analysis of the the 8 Wands factors required to support a prima facie case of lack of enablement is much more involved than the 2-step Alice analysis), it seems that Section 101 gets used more than it ought to, in situations where it does not apply. The best solution is arguably legislative. Unfortunately, efforts in that realm have been seemingly futile.

Pending Legislation

In April of 2019, Senators Coons and Tillis proposed a draft framework to redefine subject matter eligibility under 101, and in May of 2019, Representatives Collins, Johnson and Stivers joined forces to propose a bicameral bill containing new text for Section 101, as well as new definitions for Section 100.

Specifically, section 101 (a) of the bill makes usefulness the cornerstone of eligibility, defined to be an invention or discovery that “provides specific and practical utility in any field of technology through human intervention.” Section 101 (b) requires that the claimed invention be considered “as a whole” without discounting or disregarding any claim limitation. The draft bill further states that subject matter eligibility is to be determined “without regard to: the manner in which the claimed invention was made; whether individual limitations of a claim were well known, conventional or routine, the state of the art at the time of the invention or any other considerations relations to section 102, 103, or 112 of this title. Requirements that the invention be “new” or “useful” have also been removed from the bill. Even better, the bill sets for a statutory abrogation:

No implicit or other judicially created exceptions to subject matter eligibility, including ‘abstract ideas’, ‘laws of nature’, or ‘natural phenomena’, shall be used to determine patent eligibility under section 101, and all cases establishing or interpreting those exceptions to eligibility are hereby abrogated.

Take that SCOTUS, take that. And finally, to dispel any arguments to the contrary, the proposed bill explicitly states that “the provisions of 101 shall be construed in favor of eligibility.” Should the bill pass, I suspect the collective sigh of relief from patent practitioners would be detectable on Doppler radar.

Unfortunately, and although days of hearings were held in June of 2019 during which leaders from the IP community testified as to the urgent need for statutory reform, the legislation appears to have stalled. At a recent IPO meeting, Senator Tillis stated that “I don’t see a path forward for producing a bill—much less steering it to passage—in this Congress. … If we’re going to get anything done on this issue, everyone will have to compromise. Anything less than that is dead on arrival.”

And although Rep. Johnson seemed to walk these comments back in a conversation with Law360 wherein he stated that although reform is “very complicated,” “we’re working our way through that process and hopefully before the end of this session of Congress we’ll have something that stakeholders can all come together and agree on,” this comment was reported pre-global pandemic.