Indiana Law Review Developments in Intellectual Property Law Christopher A. Brown* Introduction Over the survey period, intellectual property law changed in a number of important cases and other changes in intellectual property came down. The federal courts and the U.S. Patent and Trademark Office (PTO) have further expounded upon the boundaries of patentable subject matter, and the Supreme Court is set to revisit that issue. Further, a new PTO director is suggesting that some significant changes in the practicalities of prosecution may lead at least to a less-adversarial environment. These and other developments will be of interest to Indiana legal practitioners and others concerned with protection of intellectual property. I. iNREBlLSKf The U.S. Court of Appeals for the Federal Circuit in In re Bilski reversed or at least substantially curtailed the patentability of business methods affirmed in 1998 in State Street Bank & Trust Co. v. Signature Financial Group, Inc? In State Street, the Federal Circuit had analyzed a number of opinions interpreting § 101 of the Patent Act in coming to the conclusion that methods of doing business were patentable subject matter.^ In the words of the State Street court, "the transformation of data, representing discrete dollar amounts, by a machine through a series of mathematical calculations into a final share price, constitutes a [patent-eligible invention] because it produces 'a usefixl, concrete and tangible result. '"^ Based on State Street, many thousands ofpatent applications have been filed seeking to protect a variety of methods of doing a variety of tasks.^ Ten years later, the Federal Circuit revisited the idea of opening the patent gates to any type ofmethod in In re Bilski. Bilski pitted inventors of a method of hedging investments against the PTO. The PTO examiner and Board of Patent Appeals and Interferences had held that the inventors' patent application did not claim subject matter eligible under the statute for patent protection.^ The inventors argued throughout prosecution at the PTO, and in their appeal to the Federal Circuit, that the statute allowed "processes" to be patented, and that the State Street decision and Supreme Court authority that preceded it permitted any * Partner, Woodard, Emhardt, Moriaity, McNett & Henry LLP, Indianapolis. J.D., summa cum laude, 1996, Indiana University School of Law—Indianapolis; past Chair, Indiana State Bar Association, Intellectual Property Section. 1. 545 F.3d 943 (Fed. Cir. 2008), cert, granted, 129 S. Ct. 2735 (2009). 2. 149 F.3d 1368 (Fed. Cir. 1998). 3. Id. at 1375. 4. Mat 1373. 5 . Bilski, 545F.3datl004 (Mayer, J. , dissenting) (citing information available as ofJanuary 2008 from the PTO). 6. Id. at 950. 838 INDIANA LAW REVIEW [Vol. 43 :837 methods to be considered for patent protection.^ The inventors sought to patent methods "for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price" including steps of initiating transactions between the commodity provider and consumers, identifying market participants having a different risk position to those consumers, and initiating transactions between the commodity provider and those market participants so as to balance the risk position.^ These claims recited ways of manipulating risk and arranging transactions, strictly handling intangible concepts. The claims did not suggest any actual transfer of any commodity, nor any change of a commodity from one state to another.^ The PTO examiner rejected the claims under § 101 as "not directed to the technological arts," because the claimed methods were not performed by a particular device (e.g. a computer) and were directed simply to an "abstract idea" or "mathematical problem without any limitation to a practical application."*^ The Board questioned the examiner's rationale, saying that such a "technological arts" test has no legal support, and that a method can still be "patent-eligible subject matter 'if there is a transformation of physical subject matter from one state to another. '"* ' Nevertheless, the Board agreed with the examiner's rejection because the claims did not recite a patent-eligible transformation. In the Board's words, a transformation of "non-physical financial risks and legal liabilities" is not the stuff of which patents are made.'" The attempt by the inventors to cover all possible ways—human, machine and otherwise—of carrying out the listed steps indicated that an abstract idea was claimed, and abstract ideas are not patentable. The lack of a "useftil, concrete and tangible result" formed a frjrther reason for the Board to reject the claims as not proper subject matter for a patent.'^ The Federal Circuit's legal analysis began with a review ofthe statute, which recites four types of subject matter for which patents will be issued: machines, processes, manufactures and compositions of matter. ''^ Noting that the issue revolved around the meaning of "process," and that the statutory definition was unhelpftil in its circularity,'^ the court examined Supreme Court decisions holding 7. Mat 959-60. 8. Id. at 949. 9. Mat 950. 1 0. Id. (quoting Exparte Bilski, No. 2002-2257, 2006 WL 5738364, at *3 (B.P.A.I. Sept. 26, 2006) {Board Decision)). 11. Id. (quoting Board Decision, at *42). 12. Id. (quoting Board Decision, at *43). 13. Id. (quoting Board Decision, at *49-50). 14. 35 U.S.C. § 101 (2006). "Whoever invents or discovers any new and useful process, machine, manufacture, or composition ofmatter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title." Id. 15. Bilski, 545 F.3d at 951 & n.3 ("The term 'process' means process, art or method, and includes a new use ofa known process, machine, manufacture, composition ofmatter, or material." (quoting 35 U.S.C. § 100(b) (2006)). 2010] INTELLECTUAL PROPERTY 839 that the legal meaning of"process" in this context was narrower than the standard dictionary definition. ^^ Specifically, even though they might fall within a common definition of "process," such notions as natural laws and phenomena, abstract ideas and mental processes are "fundamental principles" that "'are not patentable, as they are the basic tools of scientific and technological work.'"'^ To determine whether subject matter is a potentially-patentable process or a "fundamental principle," the Federal Circuit turned to Gottschalk v. Benson^^ and Diamond v. Diehr^^ for guidance on the proper test for the PTO and courts to apply. In Diehr, the Supreme Court permitted claims that recited use of a particular equation in a process for treating rubber.^^ The Bilski court noted that the claims at issue in Diehr did not pre-empt all uses of the particular equation, just those within the rubber-treating process as further defined in the claims.^' The Bilski court noted that in Benson, however, the Supreme Court did not permit claims to an algorithm for converting data in one particular format to another format because doing so would withhold fi"om the public all uses of that algorithm.^^ Noting the difficulty in assessing whether all uses of an idea or algorithm would be pre-empted by a claim, and the limited utility of comparing particular fact patterns to those of Diehr and Benson, the Bilski court distilled from these and other cases a "definitive test" for whether a claimed process covers a limited use or the whole field of a fundamental principle.^^ As announced by the court, a 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. "^"^ The connection of the fundamental principle, whether an abstract idea, natural phenomenon, or other such abstraction, to a concrete device or to the change of an item is plainly an indication that uses of the abstraction with a different device or to change a different item (or the same item in a way not claimed) are not pre-empted. Comparing this formulation to the facts in Diehr, the court saw the claimed process as using an equation specifically to transform raw rubber into particular 16. Mat 95 1-52. 17. Id at 952 (quoting Gottschalk v. Benson, 409 U.S. 63, 67 (1972)). 18. 409 U.S. 63(1972). 19. 450 U.S. 175(1981). 20. Diehr, 450 U.S. at 188-89. 21. Bilski, 545 F.3d at 952-53 {citing Diehr, 450 U.S. at 187-88). 22. Id at 953-54 (citing Benson, 409 U.S. at 65). 23. Mat 954. 24. Id. (citing inter alia Diehr, 450 U.S. at 192 (holding that using mathematical formula in "transforming or reducing an article to a different state or thing" is patent-eligible); Parker v. Flook, 437 U.S. 584, 589 n.9 (1978) (arguably the Supreme Court "has only recognized a process as within the statutory definition when it either was tied to a particular apparatus or operated to change materials to a 'different state or thing'"); Benson, 409 U.S. at 70 ("Transformation and reduction ofan article 'to a different state or thing' is the clue to the patentability ofa process claim that does not include particular machines.")). 840 INDIANA LAW REVIEW [Vol. 43:837 products, hence the result in Diehr of proper subject matter for a patent.^^ The court viewed another case^^ as considering use of a formula to determine an "abnormal condition during an unspecified chemical reaction," and without limits on the conditions, reactions or devices in question, the claims were not drawn to proper subject matter.^^ After briefly reviewing how the facts of other Supreme Court cases fit the test, the Federal Circuit noted the "difficult case" in Benson, which claimed a process operated on a particular device, a computer.^^ Nonetheless, the claims in Benson were not to proper subject matter, according to the court, because the device recitation did not provide any meaningftil limitation insofar as the algorithm at issue had no other usefiilness outside of a computer.^^ Merely reciting the computer, without fiirther context (such as Diehr' s vulcanizing process) did not "reduce the pre-emptive footprint" of the claim in Benson?^ The language used in the test cited above suggests that machine-or- transformation is a sufficient condition for patentable subject matter. The Federal Circuit went on to say that it is also a necessary condition, rejecting arguments that other tests may also be used to determine whether a patent claim satisfies § 101.^' Although the Supreme Court's Benson opinion said "transformation and reduction of an article 'to a different state or thing' is the clue to the patentability of a process claim that does not include particular machines,"^^ the Federal Circuit noted that statement seemed initially equivocal. Later Supreme Court decisions removed that equivocation, according to the court. Further, the court found no basis to reach beyond the machine-or-transformation test, even while recognizing that ftature technological developments (or reconsideration by the Supreme Court) could provide changes or alternative tests.^^ Further, the Federal Circuit viewed Supreme Court precedent to hold that a "fundamental principle" cannot be made patentable by limitation to a field ofuse, outside of the machine-or-transformation test.^"^ Such a pre-emption within an entire field demonstrates that "the claim is not limited to a particular application 25. Id. at 954-55 (citing Diehr, 450 U.S. at 184). 26. Parkerv.Flook, 437 U.S. 584(1978). 27. Bilski, 545 F.3d at 955 (citing Flook, 437 U.S. at 586). 28. Id. 29. Id 30. Id. (citing Benson, 409 U.S. at 71-72). 31. Mat 955-56. 32. Id. at 956 (quoting Benson, 409 U.S. at 70 (emphasis added)). 33. Id. at 956. Note id. at 958-59, in which the court calls "inadequate" the ipinor Freeman- Walter-Abele test focusing on whether an algorithm is applied to "physical elements or process steps" (see In re Freeman, 573 F.2d 1237 (C.C.P.A. 1978); In re Walter, 618 F.2d 758 (C.C.P.A. 1980); and In reAhele, 684 F.2d 902 (C.C.P.A. 1982)), and in which the court calls "insufficient" the "useful, concrete, and tangible result" test suggested in In reAlappat, 33 F.3d 1 526, 1 544 (Fed. Cir. \99A) duad State Street Bank & Trust Co. v. Signature Financial Group, 149F.3d 1368, 1373 (Fed. Cir. 1998). 34. Id at 957 (citing Diehr, 450 U.S. at 191-92). 20 1 0] INTELLECTUAL PROPERTY 84 1 of the principle."^^ Accordingly, whether a claimed process is narrowly tailored seems ofprimary importance to the current Federal Circuit. That narrow tailoring must be presented as a meaningful limitation of the operative steps or solution presented by the claimed process as well. The court asserted that Diehr confirmed the proposition that a fundamental principle cannot be made patentable merely by additionally claiming "insignificant postsolution activity. "^^ Mere recitation of a machine or a transformation does not automatically equate to proper subject matter, without an indication that the machine or transformation is an important part of the technological solution or answer provided by the process. Regarding implementation ofthe machine-or-transformation test, the Federal Circuit first noted that the "machine" branch ofthe test was not implicated by the applicants' claims at issue, and so "elaboration ofthe precise contours ofmachine implementation" in satisfaction of the test was left for future decisions.^^ On the "transformation" side of the test, the court noted again that the transformation must be central or important to the claimed process, but focused most on what might be an "article," the transformation of which would be patent-eligible.^^ Sensibly, a transformation of physical objects or substances will meet the test. Questions remain as to whether "[t]he raw materials of many information-age processes . . . electronic signals and electronically-manipulated data," or such concepts or intangible items as "legal obligations, organizational relationships, and business risks," are things for which a transformation will permit patent protection.^^ The court chose not to depart fi"om its previous "measured approach" on this question."*^ Its Ahele decision found a general claim reciting "graphically displaying variances of data from average values" not to include patent-eligible subject matter."*^ On the other hand, a more specific claim in which the data was x-ray related data produced by a computed tomography (CT) device recited proper subject matter."^^ According to the court, the particular data in Ahele, representing particular objects and relationships, was sufficiently changed to permit consideration for patent protection. Limiting the scope of the claim to specific data in a specific context (i.e. representing bones or other tissues) eliminated the possibility of pre-empting all uses of a fundamental principle—graphic display—at issue."*^ Although transforming data in an appropriately narrow context is patent- eligible, the court reiterated an earlier holding that gathering data is generally not 35. Id. 36. Id. 37. Mat 962. 38. Id 39. Id 40. Id 41 . Id (citing In re Abele, 684 F.2d 902, 909 (C.C.P.A. 1982)). 42. Mat 962-63. 43. Id (citing Abele, 684 F.3d at 908-09). 842 INDIANA LAW REVIEW [Vol. 43:837 a transformation of the data or other article(s).'^ The court would also consider gathering data for analysis "insignificant extra-solution activity," because the solution is apparently the analysis or manipulation of the data."^^ Merely reciting the gathering of data, without a context, device or other explanation of the technique of data gathering, will not make an otherwise ineligible subject matter patent-worthy. With respect to the patent application before the court, the Federal Circuit considered whether the claims at issue fit the transformation branch of the test, and held they did not."*^ The obligations, risk and relationships identified the claims were not physical items nor were they representative of physical items, and so are not proper "articles" or "things" the transformation ofwhich would be proper subject matter for a patent. In essence, the court required whatever was part of the claimed transformation to be physical or so related to physical object(s) or substance(s) as to represent them."^^ Transformation of intangible items, in the sense that such items are not at least stand-ins for physical "stuff," is not the "stuff of which patents are made, according to this court."^^ The court further considered some of its prior opinions finding claims non- patentable under §101. In In re Comiskey,"^^ the court held that a claimed process for arbitration of disputes was not eligible for a patent because it was directed only to a mental process for arbitration, i.e. a fundamental principle. Without a machine or a process to transform physical objects, the arbitration process was not a "process" under the meaning of the patent statutes. The court analogized the present case, characterizing it as "directed to the mental and mathematical process of identifying transactions that would hedge risk."^^ In In re Meyer,^^ the court held claims for "diagnosing the location of a malfunction in an unspecified multi-component system" that included assigning and updating values for each component based on testing the components to be improper for patent protection.^^ Once again, the claims in Meyer were deemed to be drawn to a mental process only, and the court analogized the claims in Bilski's application. Three judges provided separate dissenting opinions totaling seventy-six slip- opinion pages. The dissents express to varying degrees a concern that the 44. Mat 963. 45. Id. 46. Mat 963-64. 47. Id. at 964 (holding that "claim 1 does not involve the transformation of any physical object or substance, or an electronic signal representative of any physical object or substance"). 48. Id 49. 499 F.3d 1 365 (Fed. Cir. 2007), vacateden banc 554 F.3d 967 (Fed. Cir. 2009). Notably, the en banc Comiskey court did not refer to Bilski in its discussion of patentable subject matter under 35 U.S.C. § 101 (2006). Certain claims were affirmed as unpatentable because not directed to proper subject matter, and others were remanded to the patent examiner for determination of whether Section 101 was satisfied. 554 F.3d at 981-82. 50. Bilski, 545 F.3d at 965. 51. 688 F.2d 789 (C.C.P.A. 1982). 52. Bilski, 545 F.3d at 965 (citing Meyer, 688 F.2d at 792-93). 2010] INTELLECTUAL PROPERTY 843 "machine-or-transformation" test is too narrow for the technology and innovations of the twenty-first century and beyond. Judge Newman's dissent suggests that the test, which is necessarily considered without regard to novelty, unobviousness, utility or other tests of the patent law, at least introduces uncertainty as to patentability of methods within the "knowledge economy" and at most eliminates protection for inventions applying "electronic and photonic technologies, as well as other processes that handle data and information in novel ways."^^ She draws from many ofthe same Supreme Court decisions used by the majority to reach opposite conclusions, arguing that Benson and Flook do not support an exclusive machine-or-transformation test.^"* Even returning to an analysis of the English Statute of Monopolies and evolution of protection for processes in U.S. law. Judge Newman comes to the conclusion that § 101 permits protection for any "process invention that is not clearly a 'fundamental truth, law of nature, or abstract idea.'"^^ Judge Mayer's twenty-five-page dissent, however, argues forcefully that the State Street case should be overruled, and asserts unequivocally that the patent system aims to "protect and promote advances in science and technology, not ideas about how to structure commercial transactions."^^ His basic principle is that business methods are not "useful arts" and are thus not within the Constitutional scheme for patent protection.^^ Where the innovative method is "entrepreneurial rather than . . . technological," in his view, no patent protection is available.^^ The majority did not go far enough, according to Judge Mayer, to categorically repudiate State Street and "recalibrate the standards for patent eligibility."'' Judge Rader's dissent agreed with the principle that the claims at issue are unpatentable as abstract ideas, but expressed concern that the majority opinion "disrupts settled and wise principles of law."^^ Similar to Judge Newman, Judge Rader was concerned that views and arguments expressed in earlier cases are too limiting for present-day technological conditions. "Process," in his view, is broadly given in the statute and should not be circumscribed by judge-made limitations.^^ These dissents agree that "fundamental principles" or "natural laws" cannot be patented, but diverge as to what might fit into those intellectual categories. Judges Newman and Rader would allow a broad understanding of "process" foreclosed by the majority opinion, at least insofar as technology continues to evolve and as Congress has not limited the reach ofthe statutory term "process." 53. Id. at 976-77 (Newman, J., dissenting). 54. Mat 978-80. 55. Id. 2X991. 56. Id. at 998 (Mayer, J., dissenting). 57. Id at 999, 1001-02. 58. Id at 1002-04. 59. Mat 1011. 60. Id. (Rader, J., dissenting). 61. Mat 1012-13. 844 INDIANA LAW REVIEW [Vol. 43 :837 Judge Mayer, on the other hand, seeks a return to a pYQ-State Street time, and considered that the device on which the business method is performed may be patentable, but the commercial nature of the method itself is outside the Constitutional scope. The majority came to the question somewhat from the negative side, defining what is not a "fundamental principle," namely processes tied to a machine or transform a physical article or its representation into a different state or article. In re Bilski is currently under consideration by the U.S. Supreme Court.^^ Several dozen amicus briefs were filed, in testament to the high feelings and wide potential for effect to industries such as the pharmaceutical and software industries. On November 9, 2009, the case was argued to the Court,^^ and so an opinion could be rendered at any time. In the meantime, however, the Federal Circuit and the USPTO are proceeding to apply the rule in Bilski as it stands. In Prometheus Laboratories, Inc. v. Mayo Collaborative Services,^ the Federal Circuit examined a patent claiming methods for establishing proper dosages of drugs used for treating autoimmune diseases. A representative claim defined a method of "optimizing therapeutic efficacy" in treatment of a disorder by using the steps of administering a drug that provides a certain metabolite and determining the level of the metabolite in the patient, where a level ofthe metabolite below a particular threshold value indicates a need for more drug in subsequent administrations, and a level below another threshold value indicates a need for less drug in subsequent administrations.^^ Mayo had at one time purchased the patented test fi'om Prometheus. But once Mayo stopped buying the test and began using its own method, Prometheus sued for patent infringement. According to the court's recitation of facts, Mayo's test assessed the same metabolites as in Prometheus' claims, but used different threshold levels than those recited in Prometheus' claims.^^ In the district court, Prometheus won a summary judgment of infiingement, but Mayo won a summary judgment of invalidity based on its argument that Prometheus' claims did not claim proper subject matter under § 101. In the Federal Circuit's words. Mayo contended "that the patents impermissibly claim natural phenomena—^the correlations between, on the one hand, thiopurine drug metabolite levels and, on the other hand, efficacy and toxicity—and that the claims wholly preempt use ofthe natural phenomena."^^ The district court agreed with Mayo, finding that the claims merely recite administering drug and determining metabolite levels, which it considered only data-gathering steps.^^ The final portions ofthe claims, warning that changes to the dosage were needed. 62. Bilski v. Doll, 129 S. Ct. 2735 (2009). 63. See Transcript of Oral Argument, Bilksi v. Kappos, 129 S. Ct. 3735 (No. 08-964), afvai//aZ)/e