On September 24, 2018, at the 46th Annual Meeting of the Intellectual Property Owners Association, Andrei Iancu, Director of the United States Patent and Trademark Office (“USPTO”), announced that the USPTO is considering “revised guidance” on what is patentable subject matter under Section 101 of the Patent Act. In an earlier blog post, I discussed new USPTO guidance involving the possible presence of contested issues of fact in determining whether an invention was “routine, conventional and well-understood.” However, in his September remarks, Director Iancu reveals that the USPTO is considering going much further to take on directly the issue of what it means for a claim to be “directed to” unpatentable subject matter, such as an abstract idea, and how such a claim may be nonetheless patentable. The new guidance would place the USPTO in front of, and possibly in conflict with, the U.S. Federal Circuit Court of Appeals and the U.S. Supreme Court on how to deal with patentability issues involving abstract ideas or other judicially-created exceptions to patentability.
Director Iancu’s Proposed New Guidance to Patent Examiners
There are two components to Director Iancu’s announced revised guidance being considered by the USPTO:
· Consider patent eligibility under section 101 separately from other conditions of patentability (e.g., sections 102, 103, 112); and
· Establish clear categories for “abstract ideas,” and what it means for an invention to be directed to an abstract idea, and how such an invention may be patentable nonetheless.
Director Iancu proposes that we heed the advice of the late Judge Giles Rich, a former judge on the Federal Circuit, who is widely viewed as the principal author of the 1952 Patent Act. In his remarks, the Director quotes frequently from Judge Rich, and although he does not cite a source, the quotations are apparently taken from the late judge’s opinion in In re Bergy, 596 F.2d 952 (CCPA 1979).
On the issue of keeping eligibility under section 101 separate from other conditions of eligibility (e.g., sections 102 and 103), the Director quotes Judge Rich as having stated:
[Problems can arise due to the] unfortunate … though clear commingling of district statutory provisions which are conceptually unrelated, namely, those pertaining to the categories of invention in §101 which may be patentable, and to the conditions for patentability demanded by the statute …”
See 596 F.2d at 959.
The Director’s point is “[i]f something is not inventive, then invalidate it under [sections] 102 or 103. If something is indefinite, or too broad to be fully enabled or described, then invalidate it under 112.” He would have examiners under section 101 “first look to see if the claims are within the four statutory categories: process, machine, manufacture, or composition of matter.” But as the Director says, “this is not new – we always do this.”
What would be new, however, is the next step he proposes if the subject matter is within the statutory categories, namely, to determine whether the claims recite matter within one of the judicially created exceptions to patentability. In the case law, such exceptions are generally defined as: laws of nature, natural phenomenon and abstract ideas. See, e.g., Alice Corp. v. CLS Bank Intern’l, ____ U.S. ____, 134 S. Ct. 2347, 2354 (2014) (“Laws of nature, natural phenomenon and abstract ideas are not patentable.”), citing Assoc. for Molecular Pathology v. Myriad Genetics, Inc., 133 S.Ct. 2017, 2116 (2013). The Director refers to these judicial exceptions more generally as “the basic tools of scientific and technological work,” see Alice, 134 S.Ct at 2354, which in his view “certainly include pure discoveries of nature, such as gravity, electromagnetism, DNA, etc.” He goes on to say that ‘[t]here is less difficulty with understanding the categories for laws of nature and natural phenomenon” because “things like gravity or DNA” are easily identified; however, abstract ideas “have proven more difficulty to define.” He then proposes three categories into which all abstract ideas would fit for purposes of a section 101 analysis:
· Mathematical concepts like mathematical relationships, formulas, and calculations;
· Certain methods of organizing human interactions, such as fundamental economic practices; commercial and legal interactions; managing relationships or interactions between people; and advertising, marketing and sales activities;
· Mental processes, which are concepts performed in the human mind, such as forming an observation, evaluation, judgment, or opinion.
Such categories would certainly help in making the section 101 analysis as conducted by patent examiners and the courts more uniform and consistent. Also, as the categories appear to be based on case law, their use would not seem to contradict existing law.
However, it is the next step proposed by Director Iancu that would move the USPTO beyond and possibly in conflict with existing case law. He proposes that if a claim recites a categorized exception to patentability, then the examiner would be instructed to determine whether “such exception is integrated into a practical application.” If so, then the claim would be deemed as “not directed to” non-patentable subject matter and would be deemed patentable under section 101. Notice that in Director Iancu’s proposed section 101 “practical application” analysis, there is no reference whatsoever to whether the claim recites matter that is “routine, conventional and well-understood.”
Director Iancu Resurrects State Street Bank & Trust Co. v. Signature Financial Group, Inc.
With respect to the patentability exception of “abstract ideas,” Director Iancu’s proposal would resurrect the section 101 analysis in the seminal case State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998) focusing of whether an invention produces a “useful, concrete and tangible result.” As Judge Rich wrote in State Street:
The question of whether a claim encompasses statutory subject matter should not focus on which of the four categories of subject matter a claim is directed to --process, machine, manufacture, or composition of matter--but rather on the essential characteristics of the subject matter, in particular, its practical utility. Section 101 specifies that statutory subject matter must also satisfy the other "conditions and requirements" of Title 35, including novelty, nonobviousness, and adequacy of disclosure and notice. See In re Warmerdam, 33 F.3d 1354, 1359, 31 USPQ2d 1754, 1757-58 (Fed.Cir.1994). For purpose of our analysis, as noted above, claim 1 is directed to a machine programmed with the Hub and Spoke software and admittedly produces a "useful, concrete, and tangible result." In re Alappat, 33 F.3d 1526, 1544, 31 USPQ2d 1545,1557 Fed. Cir.1994). This renders it statutory subject matter, even if the useful result is expressed in numbers, such as price, profit, percentage, cost, or loss.
149 F.3d at 1375. It seems clear that Director Iancu’s proposed requirement at step one that the claim be “integrated into a practical application” would be satisfied by a claim that produces a “useful, concrete and tangible result.”
Of course, problems with the USPTO unilaterally resurrecting the analysis in State Street include that (1) the Federal Circuit repudiated State Street in In re Bilski (en banc), 545 F.3d 943 (Fed. Cir. 2008), and (2) the Supreme Court upheld the result in Bilski v. Kappos, 561 U.S. 593, 130 S. Ct. 3218 (2010) and reiterated the Bilski v. Kappos reasoning in Alice.
In in re Bilski, the Federal Circuit repudiated State Street and its “useful, concrete and tangible result” test in the following language:
[W]e conclude that the “useful, concrete and tangible result” inquiry is inadequate and reaffirm that the machine-or-transformation test outlined by the Supreme Court [Diamond v. Diehr, 450 U.S. 175, 192, 101 S. Ct. 1048 (1981); Gottschalk v. Benson, 409 U.S. U.S. 63, 70, 93 S. Ct. 253 (1972)] is the proper test to apply.
545 F.3d at 959-60.
In Bilski v. Kappos, the Supreme Court affirmed the Federal Circuit’s In re Bilski ruling but did not ground its decision on an application of the “machine or transformation” test. Rather, Justice Kennedy, writing for the majority, found the Bilski invention to be unpatentable because it was directed to the abstract idea of risk hedging just like the algorithms in Benson and Parker v. Flook, 437 U.S. 584 (1978). See 130 S. Ct. at 3231. In the Court’s view the invention was not patentable even though some of the claims were directed to practical uses of hedging in commodity and energy markets. Id. The Court further emphasized that the “machine or transformation test” advanced by the Federal Circuit is not the sole test to be used to determine patentability under section 101. See 130 S. Ct. at 3227. But the Court distanced itself from Judge Rich’s prior Federal Circuit State Street opinion. As Justice Kennedy wrote:
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. See, e.g., State Street, 149 F. 3d, at 1373; AT&T Corp., 172 F. 3d, at 1357.
130 S. Ct at 3231.
In Alice, Justice Thomas, writing for the majority, relied heavily on the reasoning and holding in Bilski v. Kappos. As he wrote:
there is no meaningful distinction between the concept of risk hedging in Bilski and the concept of intermediated settlement at issue here. Both are squarely within the realm of “abstract ideas” as we have used that term.
134 S. Ct. at 2357.
Justice Thomas also adopted the two-step analysis in Mayo Collaborative Services v. Prometheus Labs, 566 U.S. 66, 132 S. Ct 1289, 1294 (2012), which was decided after Bilski v. Kappos. Under Mayo, if an invention is directed to a prohibited judicial exception, it may nonetheless be patentable if it contains a sufficient “inventive concept,” which must be more than the implementation of activities “well-understood, routine, [and] conventional,” previously known in the industry. See Mayo, 132 S. Ct. at 1298; Alice, 134 S. Ct. at 2359. Justice Thomas pronounced that the invention in Alice failed this step two test, finding that “the use of a computer to obtain data, adjust account balances, and issue automated instructions” involved computer functions that are “well-understood, routine, conventional activit[ies]” previously known to the industry.” Director Iancu’s proposal would greatly reduce the use of the Mayo/Alice “well-understood, routine and conventional” test, as it would come into play only if the subject invention failed step one as not being integrated into a practical application.
It seems clear based on the foregoing that Director Iancu’s well-meaning proposal to interject an “integrated into a practical application” test in determining at step one of the Mayo/Alice analysis whether a patent claim is directed to an abstract idea would face formidable obstacles in the contrary Supreme Court rulings in Bilski v. Kappos and Alice.
The attorneys at Toikka Law Group, LLP stand ready to assist you in providing advice, and legal services to prosecute or enforce patents, including those involving arguably abstract ideas.
© Richard S. Toikka, 2019. All rights reserved.
 35 U.S.C. § 101 Inventions patentable.
Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.