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Patent Eligibility

Posted Monday, January 20, 2014 by Brian Apel

Last month, the Supreme Court granted certiorari in Alice Corporation v. CLS Bank. Many hope the Court’s decision will help clarify the patent eligibly standard for process claims – particularly those process claims that are computer implemented and/or involve business method patents.

Patent eligibility is based on 35 U.S.C. § 101 which allows any “process, machine, manufacture, or composition of matter” to be eligible for patent protection. However, laws of nature, natural phenomena, and abstract ideas are not eligible for patent protection. It is important to note that patent eligibility is distinct from patentability (novel, useful, definite, non-obvious, etc.).

Traditionally, process claims were evaluated under the “machine-or-transformation test” which conferred patent eligibility on the process 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 the 1970s, broad claims of computer-implemented processes that utilized a mathematical algorithm or formula without meaningful limitations were held ineligible for patent protection under the abstract ideas exception despite requiring a computer in order to be performed. See Gottschalk v. Benson and Parker v. Flook. Four years ago, in Bilski v. Kappos, the Court affirmed the CAFC’s ruling that the process of “hedging risk” in the commodities trading industry is also an abstract idea not eligible for patent protection. However, the Court went on to declare that the machine-or-transformation test is not dispositive of patent eligibility for claimed processes, especially business method patents, but rather that the test is a “useful and important clue” in determining patent eligibility.

Now, in CLS Bank, the Supreme Court will be faced with deciding the patent eligibility of certain method, media, and system claims of particular business method patents that utilize escrow to protect against financial risk. Although the CAFC sitting en banc decided 7-3 that both the method and media claims were not directed to patent eligible subject matter, the 7-member majority was split 5-2 on the justification. On the question of patent eligibility of the system claims, the court evenly split 5-5. By its own admission, the CAFC is “irreconcilably fractured” on the complex issue of patent eligibility for process claims – particularly those that are computer-implemented and those in business method patents. Perhaps later this year the Supreme Court will provide clearer guidance for the CAFC and the District Courts.

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