IP Views

U.S. SUPREME COURT rejects “machine-or-transformation” as sole test for patent eligibility of “process” or business method invention; will the Philippines follow suit?

July 09, 2010
by: Ferdi Negre

In a much awaited decision, the U.S Supreme Court finally issued its decision in Bilski v. Kappos, 129 S. Ct. 2735, 561 US __, 2009, on June 28, 2010.

Bilski’s patent application seeks protection for a claimed invention that explains how commodities buyers and sellers in the energy market can protect, or hedge, against the risk of price changes. The key claims are claim 1, which describes a series of steps instructing how to hedge risk, and claim 4, which places the claim 1 concept into a simple mathematical formula. The remaining claims explain how claims 1 and 4 can be applied to allow energy suppliers and consumers to minimize the risks resulting from fluctuations in market demand. The patent examiner rejected the application on the grounds that the invention is not implemented on a specific apparatus, merely manipulates an abstract idea, and solves a purely mathematical problem. The Board of Patent Appeals and Interferences (BPAI) agreed and affirmed, concluding that the application involved only mental steps that do not transform physical matter and was directed to an abstract idea. In turn, the Court of Appeals for the Federal Circuit (CAFC) affirmed the BPAI decision.

The CAFC, sitting en banc, rejected its own prior test for determining whether a claimed invention was a patentable “process” under Patent Act, 35 U. S. C. §101, i.e., whether the invention produced a “useful, concrete, and tangible result.” Instead, the CAFC held that a claimed process is surely patent eligible if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. Concluding that this “machine-or-transformation test” is the sole test for determining patent eligibility of a “process” under §101, the CAFC applied the test and held that the application was not patent eligible.

The U.S. Supreme Court affirmed the CAFC judgment in ruling that Bilski’s Claims 1 and 4 explain the basic concept of hedging and reduced that concept to a mere mathematical formula. “Indeed, all members of the Court agree that the patent application at issue here falls outside of §101 because it claims an abstract idea.” “This is an unpatentable abstract idea,” the Supreme Court ruled.

More importantly, the Supreme Court also ruled that “(t)he machine-or-transformation test is not the sole test for patent eligibility under §101… although that test may be a useful and important clue or investigative tool, it is not the sole test for deciding whether an invention is a patent-eligible “process” under §101.” The Supreme Court maintained that “the Patent Act leaves open the possibility that there are at least some processes that can be fairly described as business methods that are within patentable subject matter under §101.”

What is the “machine-or-transformation” test?

“[A]n invention is a “process” only if: ‘(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.’” This is the “machine-or-transformation” test formulated by the CAFC.

Business method patents in the Philippines – quo vadis?

The Intellectual Property Code of the Philippines (IP Code) defines in §21 patentable inventions as “[a]ny technical solution of a problem in any field of human activity… It may be or may relate to, a product, or process, or an improvement of any of the foregoing.” Thus, Philippine patent law seems to include “technicity” as a requirement for patent eligibility. The IP Code further enumerates in §22 non-patentable inventions to include among others: (1) “Discoveries, scientific theories and mathematical methods” and (2) “Schemes, rules and methods of performing mental acts, playing games or doing business, and programs for computers.”

Based on the provisions of the IP Code, it seems that Philippine patent law is more akin to the European approach. Article 52 (2) of the European Patent Convention (EPC) also provides, in identical wordings, that the two sets of non-patentable inventions in §22 of the IP Code mentioned above “shall not be regarded as inventions.” The difference lies in Article 52 (3) of the EPC which provides that the exclusion to patentability applies “only to the extent to which a European patent application or European patent relates to such subject-matter or activities “as such.” There is no mirror or equivalent “as such” provision in the Philippine patent law.

The current practice at the Intellectual Property Office of the Philippines (IPO Philippines) is to require “technicity” or technical character or effect in the claimed business method invention to make it patent eligible. By technical character, the IPO Philippines requires the presence of an apparatus that constitutes a physical entity or concrete product, suitable for performing or supporting an economic activity. By technical effect, if some practical (i.e. technical) effect is achieved by a computer or machine operating according to the instructions contained in a computer program, a claim directed to that practical effect will be patentable.

These ‘technicity” requirements - (1) technical character consisting of an apparatus and (2) technical effect achieved by a computer or machine - seem to refer to the same “machine-or-transformation” test formulated by the CAFC which the US Supreme Court rejected as the sole test in determining patentability of business methods. To recall the CAFC’s formulation, “an invention is a “process” only 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 conclusion, it seems that the Philippines is currently following the European approach of non-patentability of business methods “as such,” which is similar to the CAFC’s “machine-or-transformation” test, a test that US Supreme Court rejected as the sole test.

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