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| | The Court interpreted the word "process" in the patent statute to exclude all processes that do not transform physical matter or that are not performed by machines. | | The Court interpreted the word "process" in the patent statute to exclude all processes that do not transform physical matter or that are not performed by machines. |
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| | + | == The Patent Application == |
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| | + | The claim is for a method of hedging risk in the field of commodities trading. For example, coal power plants (i.e., the "consumers") purchase coal to produce electricity and are averse to the risk of a spike in demand for coal since such a spike would increase the price and their costs. Conversely, coal mining companies (i.e., the "market participants") are averse to the risk of a sudden drop in demand for coal since such a drop would reduce their sales and depress prices. The claimed method envisions an intermediary, the "commodity provider," that sells coal to the power plants at a fixed price, thus isolating the power plants from the possibility of a spike in demand increasing the price of coal above the fixed price. The same provider buys coal from mining companies at a second fixed price, thereby isolating the mining companies from the possibility that a drop in demand would lower prices below that fixed price. And the provider has thus hedged its risk; if demand and prices skyrocket, it has sold coal at a disadvantageous price but has bought coal at an advantageous price, and vice versa if demand and prices fall. Importantly, however, the claim is not limited to transactions involving actual commodities, and the application discloses that the recited transactions may simply involve options, i.e., rights to purchase or sell the commodity at a particular price within a particular timeframe. |
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| | + | The patent examiner ultimately rejected claims 1-11 under 35 U.S.C. § 101, stating: "[r]egarding ... claims 1-11, the invention is not implemented on a specific apparatus and '''merely manipulates [an] abstract idea and solves a purely mathematical problem without any limitation to a practical application, therefore, the invention is not directed to the technological arts'''." The examiner noted that Applicants had admitted their claims are not limited to operation on a computer, and he concluded that they were not limited by any specific apparatus. |
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| | + | == Appeal to Patent Board == |
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| | + | On appeal, the Board held that the examiner erred to the extent he relied on a "technological arts" test because the case law does not support such a test. Further, the Board held that the requirement of a specific apparatus was also erroneous because a claim that does not recite a specific apparatus may still be directed to patent-eligible subject matter "if there is a transformation of physical subject matter from one state to another." Elaborating further, the Board stated: "'mixing' two elements or compounds to produce a chemical substance or mixture is clearly a statutory transformation although no apparatus is claimed to perform the step and although the step could be performed manually." |
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| | + | But the Board concluded that Applicants' claims do not involve any patent-eligible transformation, holding that transformation of "non-physical financial risks and legal liabilities of the commodity provider, the consumer, and the market participants" is not patent-eligible subject matter. The Board also held that Applicants' claims "preempt[] any and every possible way of performing the steps of the [claimed process], by human or by any kind of machine or by any combination thereof," and thus concluded that they only claim an abstract idea ineligible for patent protection. Finally, the Board held that Applicants' process as claimed did not produce a "useful, concrete and tangible result," and for this reason as well was not drawn to patent-eligible subject matter. |
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| | + | == "Physical Steps" Test == |
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| | + | The Court affirmed its rejection that a patent must include "physical steps": |
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| | + | :In ''AT&T'', we rejected a "physical limitations" test and noted that "the mere fact that a claimed invention involves inputting numbers, calculating numbers, outputting numbers, and storing numbers, in and of itself, would not render it nonstatutory subject matter." 172 F.3d at 1359 (quoting State St., 149 F.3d at 1374). The same reasoning applies when the claim at issue recites fundamental principles other than mathematical algorithms. Thus, the proper inquiry under § 101 is not whether the process claim recites sufficient "physical steps," but rather whether the claim meets the machine-or-transformation test. As a result, even a claim that recites "physical steps" but neither recites a particular machine or apparatus, nor transforms any article into a different state or thing, is not drawn to patent-eligible subject matter. Conversely, a claim that purportedly lacks any "physical steps" but is still tied to a machine or achieves an eligible transformation passes muster under § 101. |
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| | + | Accordingly, the Court confirmed that "it is simply inapposite to the § 101 analysis whether process steps performed by software on a computer are sufficiently 'physical.'" But it emphasized that "a claimed process wherein all of the process steps may be performed entirely in the human mind is obviously not tied to any machine and does not transform any article into a different state or thing. As a result, it would not be patent-eligible under § 101." |
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| | + | == The dissent == |
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| | In dissent, Judge Newman was highly critical of this decision: | | In dissent, Judge Newman was highly critical of this decision: |