Software patents update

The pace of change in the field of software and business method patents is rapid.

Chris de Villiers
By Chris de Villiers, ,
Johannesburg, 10 Jun 2009

Due to the pace of change in the field of software and business method patents, the series of Industry Insights published over the last few months needs to be updated already.

An important court decision in the US has redefined the test for patentability of business methods, and the result is effectively that the US has fallen largely in line with other major countries in this area.

In the case of In re Bilski, the US Court of Appeals for the Federal Circuit moved away from the relatively relaxed test for patentability of business methods, as per the 1999 State Street Bank decision, to a much stricter test. Prior to the new decision, the standard for patentability was whether the claims of the patent or application resulted in "a useful, concrete and tangible result”. Under the previous regime, large numbers of patents were granted for business methods that had little “technical character” (to use the phrase employed by the European Patent Office).

New limits

In the Bilski decision, this standard was narrowed by the introduction of a “machine-or-transformation test”. In applying this test, the court has to enquire whether the claimed business method is tied to a particular machine (computer) or transformation of an article, and the use of the machine or transformation of the article must impose a limitation on the scope of the claim.

The Bilski patent application related to a method of hedging risk in the field of commodities trading. Claim one of the patent application indicated that the subject matter for which Bilski sought protection is merely related to steps of doing business, which do not comprise any technical features defining the method from a technical perspective. The Federal Circuit held that this subject matter is unpatentable.

Fundamentally, Bilski and earlier Federal Circuit decisions allow patents for useful applications of an idea, while rejecting claims that merely attempt to patent abstract ideas or fundamental principles.

This new test has raised questions as to whether the Federal Circuit has created an overly restrictive patentability standard for computer software and business method inventions. Some commentators were of the view that the test stifles innovation and creates more confusion than clarity, while others were of the view that the ruling has the effect of signalling an end to software-related patents.

Several patent cases have already been decided in the light of Bilski, and these have helped to clarify the situation. In the recent Versata Software v. Sun Microsystems case, Sun raised an objection against the validity of two Versata patents (US 5 515 524 and 5 708 798) relating to a product configuration software system. Sun was accused of infringing the two patents and alleged that the patents did not meet the machine portion or the transformation portion of the new Bilski test. The US District Court held that the Bilski test does not apply in general to software patents, and noted that the Federal Circuit in the Bilski case expressly declined to adopt a broad exclusion over software or any other category of claims, since the patent at issue in the Bilski case did not involve software but a business method.

Further clarification

An important court decision in the US has redefined the test for patentability of business methods, and the result is effectively that the US has fallen largely in line with other major countries in this area.

Chris de Villiers is a partner at Spoor & Fisher.

In other recent cases, some further clarification has been forthcoming. In ex parte Cornea-Hasegan the US Patent Office's Board of Patent Appeals and Interferences held that limiting a claim to computer-readable media does not add any practical limitation to the scope of the claim, and does not satisfy the machine portion of the test. Basically, the process involved in the claim is not tied to a “particular machine” if it just recites a processor in a method claim. Therefore, a claim to a computer-readable medium requires other limitations in order to meet the Bilski requirement.

In ex parte Nawathe et al, software-related apparatus claims were held patentable. The claims defined means, which performed certain functions, and these means were said to correspond to different modules in a computer. Thus, it was held that in fact the modules were performing the functions. It was therefore held that “the claim recites a physical apparatus with physical modules for transforming a data structure ...”. Lastly, it was held in ex parte Becker that the transformation portion of the test will not be met by mere transforming of data alone and that the transformation of data without a machine is insufficient to establish patent eligibility.

It is important that the Bilski judgment be understood correctly, and not misinterpreted as meaning the end of software patents in the US. However, there is a lack of clarity as to which kinds of patent claim will satisfy the Bilski test, and it is therefore good news that the US Supreme Court has agreed, on 1 June 2009, to hear arguments in Bilski v Doll to review the Federal Circuit decision. The Supreme Court will deal with two questions: firstly, does the Federal Circuit's decision conflict with the Supreme Court's decision in Diamond v Diehr where the court held that the only non-patentable subject matter is “laws of nature, physical phenomena and abstract ideas”; and secondly, does the “machine-or-transformation” test conflict with the US Congress's intent that business methods are patentable?

The Supreme Court may uphold the “machine-or-transformation” test, may alter how the test is administered, or may adopt another test altogether. Oral hearings will commence in October 2009, so it will be some time before a decision is issued.

* Chris de Villiers is a partner at Spoor & Fisher.