Federal Circuit asks whether it should reconsider or overrule State Street

On February 15, in connection with the ongoing appeal of the In re Bilski case, the U.S. Court of Appeals for the Federal Circuit issued an order stating that, on the Court’s own motion, it will hold a hearing on several issues, including:

Whether it is appropriate to reconsider State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999), in this case and, if so, whether those cases should be overruled in any respect?

and

Whether a method or process must result in physical transformation of an article or be tied to a machine in order to be patent-eligible subject matter under section 101 [of the Patent Act].

In State Street, the Court held that:

“(…) the transformation of data, representing discrete dollar amounts, by a machine through a series of mathematical calculations into a final share price, constitutes a practical application of a mathematical algorithm, formula, or calculation, because it produces ‘a useful, concrete and tangible result’.”

In AT&T, the Court confirmed that a process need not produce a physical transformation in order to be patentable.  These cases led to a significant expansion of the number of patent filings relating to business methods, as they assured that a novel process may be patentable so long as it produces a “useful, concrete and tangible result.”

The case arises from an appeal of the USPTO’s final rejection of a patent application that claimed a method practiced by a commodity provider (such as a provider of energy) for managing (i.e., hedging) certain risks associated with selling the commodity at a fixed price.  The patent application’s representative claims did not require that the process be performed on a machine.  Thus, the claims covered processes that could be completely performed by a human.  After the applicant appealed the final rejection, the USPTO’s Board of Patent Appeals and Interferences interpreted State Street and AT&T to limit patentable business methods to those methods in which data is transformed “by a machine.” 

The parties’ briefs are due March 6, amicus briefs are due 30 days afterward, and the oral hearing is scheduled for May 8.  That means an opinion is likely in late summer or fall 2008. 

Is the Federal Circuit likely to issue an overall ban on business method patents?  Probably not, but it may be willing to restrict business method patents to those that are implemented by a machine and result in transformation of an object or data.  New patent applications relating to business methods should include “machine-implemented” claims so that they can have value if the Federal Circuit agrees with the USPTO in this case.

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