Patent law
More madness over business methods

To patent or not to patent? That is the question … at least when it comes to business methods. The recent case of In re Ferguson saw the U.S. Court of Appeals for the Federal Circuit reiterate that a patentable business method must pass muster under the “machine-or-transformation” test. But change may be on the way.

A mix of marketing

The patent application at issue covered a “marketing paradigm for bringing products to market.” It comprised 56 method claims and 12 paradigm claims. The process claims were directed to a method of marketing a product by developing a shared market force and using the market force to exclusively market several products made by different companies in exchange for a share of the total profits.

The paradigm claims were directed to a marketing company that markets software from different independent and autonomous companies using the method described above in return for a contingency share of a total income stream while allowing the software companies to retain their autonomy. The patent examiner rejected all of the patent claims as anticipated by the prior art, obvious and/or not enabled.

The Board of Patent Appeals and Interferences (BPAI) didn’t sustain any of the examiner’s grounds for rejection. Instead, it rejected the method claims as directed to a nonpatentable “abstract idea.” And it rejected the paradigm claims under Section 101 of the U.S. Patent Act, which enumerates four categories of patentable subject matter: 1) process, 2) machine, 3) manufacture, and 4) composition of matter. The BPAI found nothing in the record that suggested “a marketing company” clearly fell within any of the categories.

Methodical analysis

On appeal, the Federal Circuit evaluated the method and paradigm claims separately. Finding that the method claims “at least nominally fall into the category of process claims,” the Federal Circuit concluded that its recent decision in In re Bilski was dispositive on the patentability of method claims. In Bilski, the court deemed the machine-or-transformation test 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.”

Under the test, a process is eligible for a patent if it’s tied to a particular machine or apparatus or it transforms a particular article into a different state or thing. The court found that the applicants’ method claims in Ferguson didn’t satisfy either prong of the test.

Although the applicants argued that the claims were tied to the use of a shared marketing force, the court held that a marketing force isn’t a machine or apparatus under the first prong. The court has defined a machine as “a concrete thing, consisting of parts, or of certain devices and combination of devices,” including every mechanical device or combination of mechanical powers and devices to perform some function and produce a certain result. The method claims here weren’t tied to any such concrete parts, devices or combination of devices.

As to the second prong of the test, the Federal Circuit held that, at best, the methods were directed to organizing business or legal relationships in the structuring of a sales or marketing force. But it cited Bilski for the principle that transformations of public or private legal obligations or relationships, business risks, or other such abstractions alone cannot satisfy the machine-or-transformation test. The purported transformations here didn’t transform physical objects, or substances or items that are representative of physical objects or substances.

Paradigm shift

Turning to the paradigm claims, the court considered whether the subject matter fit into any of the four categories in Sec. 101. It quickly concluded that the claims weren’t directed to processes, manufacture or a composition of matter.

The applicants, however, argued that a company constitutes a “physical thing, and as such [is] analogous to a machine.” The Federal Circuit disagreed, finding that the paradigm claims didn’t recite “a concrete thing, consisting of parts, or of certain devices and combination of devices.” Rather, the claims represented an abstract idea — in other words, a business model for an intangible marketing company.

Business (method) as usual

For the time being, the Federal Circuit’s holding in Bilski will apply to all business method patent claims. But this may not last forever. (See “Supreme Court agrees to review Bilski ruling”.) If an inventor hopes to secure a patent for a business method, the method must satisfy one of the prongs of the machine-or-transformation test. •