In re Ferguson: Affirming Bilski’s Machine-or-Transformation Test

In one of the first post-Bilski decisions by a Federal Circuit panel, the court confirmed the Bilski holding that business methods do not constitute patentable processes if they fail the machine-or-transformation test. Specifically, in In re Ferguson, 558 F.3d 1359 (Fed Cir. 2009), the Court held that the applicant’s marketing method and paradigm did not constitute patentable subject matter under 35 U.S.C. section 101 because it was too abstract and neither tied to a machine nor transformative.

Background

Patent attorney Scott Harris is named as one of the named inventors in a patent application that sought a patent for a business process and marketing paradigm for bringing products to market. The process claims related to a method of marketing a product by developing a shared market force and using that force to exclusively market a number of different products made by a number of separate companies in exchange for a share of the total profits obtained.

The claims in the application identify a paradigm for marketing software using a marketing company that employs the process described above in return for a share of the resulting income stream while allowing the separate companies to retain their autonomy.

The PTO examiner rejected all of the claims in the application under 35 U.S.C. sections 102, 103 and/or 112 as anticipated by the prior art, obvious, or not enabled. The Board of Appeals and Interferences (BPAI) subsequently agreed and issued a superseding rejection under section 101. The BPAI determined that Section 101 requires that a claim have a “useful, concrete, and tangible result” or “transform” something; the applicants’ claims related to an “abstract idea,” and therefore were not patent-eligible subject matter. 558 F.3d at 1362. The BPAI also found that a “paradigm” does not fall within any of section 101’s four enumerated categories of statutory subject matter. Id.

Representing his fellow inventors, Harris brought In re Ferguson as a test case, asking the Federal Circuit Court to clearly define patentable subject matter as including business methods. Harris argued that the PTO’s limited machine-or-transformation guidelines were never intended by the courts to be an “exclusive test” and that his claims are in fact patentable subject matter. The Court disagreed with Harris and upheld the Board’s decision. In re Ferguson, 558 F.3d 1359 (Fed Cir. 2009).

The Supreme Court’s machine-or-transformation test is “definitive”

The Federal Circuit Court began by identifying the four categories of patentable subject matter, according to section 101: “processes, machines, manufactures, and compositions of matter.” 558 F.3d at 1363. The court further stated that even if an invention technically falls into one of those statutory categories, it still may not be patent eligible under the Bilski machine-or-transformation test.  Id. “A claimed process is surely patent-eligible under section 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.” Id. (citing In re Bilski, 545 F.3d 943, 954(Fed. Cir. 2008))(See LawUpdates.com Commentary In re Bilski: Business Method Patents Take a Hit; State Street Bank Is Out). Because the applicants’ invention fit into neither of these categories, it was not patent eligible.

The applicants argued that its method claims were tied to the use of a shared marketing force. The court rejected that argument, stating that “a marketing force is not a machine or apparatus,” which the court defined as a “mechanical device or combination of mechanical powers and devices to perform some function and produce a certain effect or result.” 558 F.3d at 1364.

Moreover, the Court found that the applicants’ claims did not cause any kind of transformation: “At best it can be said that Applicants’ methods are directed to organizing business or legal relationships in the structuring of a sales force (or marketing company). But as this court stated in Bilski, “(p)urported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances.” Id.

The applicants’ proposed a new patentable subject-matter test: “Does the claimed subject matter require that the product or process has more than a scintilla of interaction with the real world in a specific way?” Id.  However, the court refused to consider this proposed alternative test due to Bilski’s “clear statements that the ‘sole,’ ‘definitive,’ ‘applicable,’ ‘governing,’ and ‘proper’ test for a process claim under section 101” is the machine-or-transformation test. Id. at 1365.

The Court also rejected the applicants’ paradigm claims because they did not fall into any of the four statutory categories and therefore were patent-ineligible. The applicant’s argued that the “company” referenced in the claims “is a physical thing, and as such analogous to a machine.” Id. at 1366. But the court also rejected this argument, finding that the paradigm provided nothing more than the abstract idea of a business model for a marketing company. It was not a machine because it was not a touchable, physical concrete thing. Id.

Conclusion

The Ferguson opinion seems to clarify that the machine-or-transformation test of Bilski is the sole remaining test of patent-eligibility, and that there is no business method or software exception to section 101 patentability. The issue of business method patents may not be completely dead, however. In her concurring opinion, Judge Pauline Newman argued that it is good for the economy to have business method patents, so we should be careful in limiting them. She stated that she felt the majority opinion went “farther than is necessary or appropriate” in its blanket application of Bilski by “expounding dicta that transcen(s) the facts of this case.” Id. at 1367.

Moreover, patent lawyers have rapidly been conjuring up ways to structure patent applications so that otherwise non-eligible subject matter may meet the machine-or-transformation test for patentability.

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Yuri Mikulka

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