This Interim Bilski Guidance is said to be used “as a supplement” to the previously published Memorandum to Patent Examining Corp Regarding the Supreme Court Decision in Bilski v. Kappos issued on June 28, 2010 and its Interim Examination Instructions originally issued on August 24, 2009.

Public comments are requested by September 27, 2010, and more specifically, answers to the following questions are requested:

1. What are examples of claims that do not meet the machine-or-transformation test but nevertheless remain patent-eligible because they do not recite an abstract idea?

2. What are examples of claims that meet the machine-or-transformation test but nevertheless are not patent-eligible because they recite an abstract idea?

3. The decision in Bilski suggested that it might be possible to ‘‘defin[e] a narrower category or class of patent applications that claim to instruct how business should be conducted,’’ such that the category itself would be unpatentable as ‘‘an attempt to patent abstract ideas.’’ Bilski slip op. at 12. Do any such ‘‘categories’’ exist? If so, how
does the category itself represent an ‘‘attempt to patent abstract ideas?’’

As usual, links to these materials and “all things Bilski” are available at http://AwakenIP.com/Bilski.

First, while many 101 cases pending before the Federal Circuit were stayed or are not as far along (CyberSource, Fort Properties, DealerTrack, FuzzySharp, and Every Penny Counts), RCT was not stayed. Second, the Prometheus and Classen cases may need additional briefing or oral arguments after the grant-vacate-remands (GVRs) from the Supreme Court. Third, the oral arguments for RCT were held on June 9, 2010, and the judges were Chief Judge Rader, Judge Newman, and Judge Plager. One important thing about the identity of this panel is that both Chief Judge Rader and Judge Newman dissented in the Federal Circuit’s Bilski decision, and more particularly, Judge Rader essentially argued for what the Supreme Court ultimately decided, i.e., that the Bilski claims should simply have been rejected as an abstract idea.

Fourth, while my prediction about the explansion/clarification of the standard is based in part on the composition of the panel, it is also based on the oral arguments in the case. More particularly, Judge Rader’s questions suggested that the “subject matter” of the specification is important to consider, regardless of whether a patent attorney happened to remember to stick a “computer” in the claims or not. To illustrate, it is important to know a few more details about the the RCT case.

Five (5) patents were examined by the District Court, three of which satisfied 101 because of the claimed production of an “image,” in keeping with the In re Abele case. However, two of the patents failed to claim patent eligible subject matter. One representative claim is as follows:

1. A method for the halftoning of gray scale images by utilizing a pixel-by-pixel comparison of the image against a blue noise mask in which the blue noise mask is comprised of a random non-deterministic, non-white noise single valued function which is designed to produce visually pleasing dot profiles when thresholded at any level of said gray scale images.

Questions by Judge Rader during oral argument seemed to suggest that since the general subject matter of the specification was clearly limited to the computer arts, the failure to mention a “computer” in the claim will not result in the claims being classified as abstract ideas. In other words, even though the District Court suggested that the invalid claimed methods could theoretically be performed by hand, the Federal Circuit may hold that if such performance is not practical as described, there is little risk of abstract idea preemption since the subject matter is accordingly limited to the computer art. Such a conclusion would be very useful since the “display” step of the In re Abele case is not always present in otherwise innovative software advances, such as with transmission instead of displaying or printing.

The rejected independent claims were as follows:

1. A method of controlling processing of data in a computer apparatus, wherein the data comprises a plurality of usage rules for a plurality of data items stored by said computer apparatus, and comprising:
applying individualised usage rules to each of the data items based on a measurement of integrity of a computing entity to which the data items are to be made available, said data items being logically grouped together as a set of data items, and
instantiating the set of data items at the computing entity depending upon the integrity of the computing entity and the usage rule applicable to each data item in said set.

33. A method of controlling processing of data, wherein the data comprises a plurality of rules associated with a plurality of data items comprising a set of logically related data items, each data item in the set having a rule associated therewith, said rules acting to individually define usage and/or security to be observed when processing each of the data items in the set of data items, and in which forwarding of the set of data items is performed in accordance with mask means provided in association with the rules.

43. A computer program stored on computer readable media for instructing a programmable computer to implement a method of controlling the processing of data, wherein the data comprises a plurality of usage rules for a plurality of data items, the programmable computer being programmed to apply individualized usage rules to each of the data items based on a measurement of integrity of a computing entity to which the data items are to be made available, the computer program permitting instantiation of the data items at the computing entity only if the integrity of the computing entity complies with the individualised usage rules associated with said data items.

50. A computer apparatus for controlling processing of data, wherein the data comprises a plurality of usage rules for a plurality of data items stored by said computer apparatus, said computer apparatus controlling instantiation of the data at a computing entity, said computer apparatus including:
programming for applying individualised usage rules to each of the data items based on a measurement of integrity of the computing entity to which the data items are to be made available, said data items being logically grouped together as a set of data items, and
programming for individually instantiating data items in the set of data items at the computing entity as a function of the integrity of the computing entity and the usage rule applicable to each data item in said set.

Thanks to All Things Pros for noticing the publication of the decision. In addition, I am going to try to continue keeping a list of all decisions citing Bilski v. Kappos at http://www.AwakenIP.com/Bilski, so please let me know of any additional cases.

Inventors Bernie Bilski and Rand Warsaw commented on the decision. According to Bernie Bilski, “We are personally disappointed that the Supreme Court ruled against our claims. However, we are very pleased that the Court maintained the patentability of business methods and other new areas of development.” Rand Warsaw added, “We are happy that the Court agreed with our arguments that the machine-or-transformation test is too narrow, but it would also have been nice to receive a patent after more than 10 years.”

While it was somewhat surprising that the Supreme Court did not seize this opportunity to create a new test for patent eligibility by clarifying the “abstract idea” exception, this was the resulted advocated by AwakenIP in its Amicus Brief. More particularly, AwakenIP urged the Court to avoid further “abstractions of abstractions,” recognizing the danger of fashioning additional tests that use the abstractions of words to define “abstract ideas.” Nonetheless, in characterizing its prior decisions in Benson, Flook & Diehr, the Court did offer some guidance that will surely be the subject of intense discussion among patent attorneys and commentators for many months.

What happens next for Bilski & Warsaw? Attorneys will now work within the guidance provided by the Court to revise the Bilski/Warsaw claims and obtain patent protection. According to Mike Jakes, the attorney at Finnegan Henderson who argued the case to the Court, “In reaffirming that section 101 of the Patent Act should be interpreted broadly, the Court’s decision will encourage continued innovation in today’s information economy.”

Note: AwakenIP is attempting to maintain the most comprehensive online resource of all information related to the Bilski case at http://AwakenIP.com/Bilski. Please forward any additional information to Jeff@AwakenIP.com.

Question: What was the origin of the invention at issue in the Bilski-Warsaw patent application?

Bernie: The idea grew out of an effort to determine how to gain a competitive edge during energy deregulation. To use a residential mortgage analogy, energy consumers typically only receive the equivalent of an adjustable rate mortgage (ARM), but many of them prefer a fixed rate mortgage, so we set out to determine how to provide that product. But the problem was dealing with the volumetric risk and, in particular, the weather risk. After a lot of hard work, we figured out how energy companies could manage that risk, and based on our new idea, we started a company with an energy management product being the key product offering. Our business strategy was to quickly gain market share and related economies of scale by offering the new product in a deregulating energy market, and we were making good progress. Unfortunately, the slow pace and other aspects of deregulation severely limited market access. In addition, we faced the dilemma of working with bigger companies and providing them enough details to prove to them that the idea worked without enabling them to take the idea from us.

Rand: A number of patent blogs have said that our invention is obvious, but when we started, nothing like our invention was known. Volumetric energy hedging had never been done, but now some utilities are doing it, so the writers of the blogs are way off. Bernie and I went through agony trying to explain the concept to industry people who did not believe the idea would work.

Bernie: In a number of instances, it took up to 6 months with some of the largest energy companies for them to even understand the idea, and in the end, they took the idea themselves. Having had a patent would definitely have made a big difference. However, we actually never wanted to depend on the patent but had hoped to launch quickly to be able to depend on a timing lead and on economies of scale. Unfortunately, the large companies that took the idea for themselves and the slow pace of deregulation prevented this from happening. In addition, there were miscues that took place with some of the eventual implementations that might have been prevented with the leverage of a patent.

Question: What is it like to not have a patent after over 12 years?

Bernie: We ended up simply not thinking about it because our timeframe was so much shorter than that of the current patent system, unfortunately, so the slow timing and uncertainty dampened all enthusiasm that we might have had. Those very factors often prevent other people from relying on the patent system too.

Rand: I am frankly so soured on the patent system that I may never file another patent application in my entire life. It’s not just this application, but the whole patent process is stilted toward large companies as a big money game. First, it costs $10-20K to do a really nice job with a patent application, and then it costs much more as patent attorneys fight for the broadest scope against patent examiners who often do very poor searches and then negotiate with each other to a point that any resulting patent only protects a very specific and narrow aspect of an invention. After that, as in my case, I’ve had large corporations do an end run around my inventions, and I simply cannot spend $1-2M each fighting them through litigation. As an entrepreneur/inventor/person who raises money for my companies, the patent system is a rich man’s game, and as I learned not to play poker with millionaires because they will simply raise the stakes until I can’t keep up, large corporations will eventually raise the litigation stakes until I lose.

Question: If you decide not to play the patent game, what would you rely on to protect yourself?

Rand: Our company is now almost paranoid with respect to protecting trade secrets. Not one person understands all of our mathematics, for example. In the future, I will be going with low technology turnarounds, regional marketing advantages, installed capital bases, etc. I’m throwing away a huge amount of investment in my background, but in my opinion, you can only work for a large company in this area because there is nothing you can own on your own.

Bernie: Any time there is uncertainty in the law, it works to the favor of those with deep pockets. Looking at it from the other side, there are probably also disadvantages that go with deep pockets too, but the unfortunate thing about Federal Circuit decision in our case is that the court had an opportunity to reduce uncertainty, and it is truly a shame they did not reduce it. Going forward, I would simply not start a business ever counting on getting patent protection. Of course, having patent protection could still be useful, but no one should factor that into their decision process.

Rand: Small entrepreneurs can’t invest enough to cure cancer or engineer new types of telecom systems with new space satellites, which speaks to the necessity of big money investments in patents. However, we also need to create a level playing field between large and small. Apple and Microsoft first started very small, and it’s important to protect those opportunities, so we need certainty in the rules up front. We also need more of a presumption that a patent is valid until it is truly proved invalid. Using new obviousness attacks, large companies are now too easily and inexpensively able to invalidate patents owned by small companies. Courts or Congress should make it more expensive to challenge the validity of a patent, especially if the challenger loses.

Question: What was it like at the Supreme Court?

Bernie: It was really awesome. I recognize that a lot of coincidences got me there, but the questions from the Court truly outlined the dilemma that they have. On one hand, they need to exclude things that should not be patented, but on the other hand, they must keep the gate open for worthwhile inventions in new areas. In general, everything went well, but I was unfortunately chewing gum in the gallery and was embarrassingly admonished by a rather serious looking courtroom official for doing so. Of course, I immediately swallowed it, but then I remembered what my mother told me about it staying there forever.

Rand: I was actually afraid the Marshall was coming after me. Of course, I thought all of the attorneys at Finnegan did a great job, and Jeff Kuester also did a great job preparing us, so I was very pleased. The biggest surprise to me was that even though I do not philosophically agree with about half of the Court, I was amazed at how fast and quick witted they all are. This does not come across in the news coverage of them. I was actually floored by the quality of questions and the even handed treatment of both sides of the argument was impressive.

Question: Have you tried to get protection outside the U.S., and what do you think of the patent systems of other countries?

Rand: We have filed some in Canada, but we are not well healed enough to file in the EU.

Bernie: Business processes should be patentable, so I would not prefer the EU system here.

Rand: If you don’t protect business processes, you don’t get a lot of investment in them. It takes less than 1/10 of the cost to steal rather than to develop. Unless you can exercise an extreme first mover advantage, why bother? Betamax was 10 times the technology VHS was, but VHS pushed them out real fast.

For more comprehensive information on Bilski v. Kappos, see the continuously updated resource at http://AwakenIP.com/Bilski.

I. Section 101 protects industrial and technological processes, and it excludes methods directed to organizing human activity

A. Section 101 sweeps broadly but imposes meaningful limits on the scope of patent protection

B.The term “process” in Section 101 encompasses technological and industrial processes but excludes methods of organizing human activity

1. The historical meaning of the terms “process” and useful “art” demonstrates that only technological and industrial processes are patent-eligible

2. The statutory context confirms that only technological and industrial methods are patent-eligible “processes”

C. A patent eligible “process” under Section 101 is one that concerns the operation of a particular machine or apparatus or effects a transformation of matter into a different state or thing

1. This Court has consistently used the machine-or-transformation test to identify patent-eligible processes

2. A process is patent-eligible if it concerns the operation of a machine or effects a transformation of matter into a different state or thing

3. The machine-or-transformation test accommodates evolving technology

4. The alternative tests for patent-eligibility proposed by petitioners and amici do not appropriately limit patent protection

II. Section 273 does not implicitly expand the categories of patent-eligible subject matter in Section 101

III. The court of appeals correctly rejected petitioners’ claimed method of hedging financial risk under Section 101
]]> http://www.awakenip.com/?feed=rss2&p=289 0 http://www.awakenip.com/?p=271 http://www.awakenip.com/?p=271#comments Mon, 07 Sep 2009 15:52:53 +0000 Jeff http://www.awakenip.com/?p=271 The Federal Trade Commission (FTC) recently completed a series of hearings that are discussed in my current article in IAM Magazine, entitled “Evolution of the IP Market.”  There were quite a few interesting statements from such people as:

• Peter Detkin of Intellectual Ventures,
• Paul Ryan of Acacia,
• Ken Massaroni of Seagate,
• Jim Malackowski of Ocean Tomo,
• Professor Mark Lemley of Stanford.

For example, Paul Ryan stated that they have generated $75 Million for their inventor partners, and Peter Detkin commented, “innovation is what drives this economy” and “innovators deserve to be paid.”

However, Professor Mark Lemley noted that the current market for IP is “thin” because there is a lack of transactional transparency, difficulty in distinguishing good from lousy IP, and uncertainty throughout the entire range of the patent system.

In addition, while the Federal Circuit is to be commended for attempting to bring clarity to the analysis, the current test excludes from protection too many areas of developing technology. Furthermore, as words are themselves “abstractions” of reality, we should be careful when trying to apply additional abstract words to define lines between abstract ideas and applications of abstract ideas. Abstractions of abstractions should be avoided when possible, and we should stick very close to the statutory language of “useful process” and allow the remaining statutory tests for patentability in 102, 103 and 112 to filter patentable from unpatentable, especially in the unpredictable arts. Of course, the Petitioner’s Brief is excellent, so it is hoped that the AwakenIP brief adds something useful to the analysis, and I certainly hope to make it to the oral hearings in December.

I would also like to publicly thank the following people for their invaluable assistance in preparation of this Brief: Steve Perkins, Brett Bartel, David Kincaid, Pete Mehravari, and Joel Thornton. Thanks guys!

When I met Phelps, I asked him to identify for me the one thing that he felt was most important to glean from the book. His answer, echoed in his plenary session presentation today, was that intellectual property strategy should be determined by business strategy, and not the reverse. One size does not fit all. We have heard much about “aligning” IP strategy with business strategy, and his point is that differing business strategies demand differing IP strategies. This message from the book is exemplified by his own contrasting experiences leading the intellectual property efforts of IBM and Microsoft.

In the early 1990’s, IBM was on the verge of bankruptcy and desperately needing cash. Consequently, Phelps’ IP strategy was to generate cash, so he quickly built an organization that in 1993 obtained more U.S. patents than any company in the world (a title that IBM has held every year since then) and eventually generated $1.9 billion in 2000. However, since Microsoft had billions of dollars in the bank when Phelps joined them in 2003, cash was not the strategic need of the company. Instead, Microsoft needed to transform its relations with the rest of the industry, and IP was going to be the legal framework, or scaffolding, for building those relationships.

Phelps realized that Microsoft could not itself invent everything it needed to succeed in the future, despite its massive R&D budget. Technological collaboration with others outside Microsoft was going to be vital. More importantly, rather than viewing intellectual property in its traditional role as a “fence,” Phelps viewed intellectual property as a “bridge” to creating relationships with other companies, both at home and abroad. From my perspective, this was perhaps the most surprising and important message in this book. Viewing intellectual property as a bridge is an important paradigm shift that should not be overlooked.

There are also several sections of the book that are so instructive that they are worth quoting verbatim. For example,

If there are lessons in this book for executives in every industry, we hope the one most taken to heart by readers is the role that intellectual property can play in liberating previously untapped value in a company and opening up powerful new business opportunities. Intellectual property is not just for the technologist or lawyer anymore, nor even simply an asset of high-tech companies alone. Now accounting for up to 80 percent of the market value of all publicly traded companies in the world, IP ought rightfully to command the interest and attention of all serious business leaders today. It is, after all, the single greatest wealth-creating asset of the modern corporation.

In addition, the book reveals that Bill Gates is extremely engaged with the details of Microsoft’s patenting efforts. In his words, the intellectual property leadership at Microsoft really does start at the top,

Indeed, what other chairman or CEO conducts regular patent reviews with senior staff to discuss the firm’s IP assets and patenting efforts – and comes to such meetings armed with a fluent understanding of everything from the competitive landscape of patenting in the industry to key patent numbers and claim language? What other senior corporate leader takes such a hands-on role in the utilization of IP assets in financial and market strategy? And what other top executive meets regularly with a cross-disciplinary team of technologists, IP attorneys and business strategists to conduct “forward invention” sessions that try to anticipate the direction of innovation not just in the current or the next product cycle, but 10 years in the future?

The book challenges other companies by pointing out the “dirty little secret” of corporate governance today that “the overwhelming majority of CEO’s, chairmen, and corporate board members devote literally zero thought and effort to the management of their firm’s intellectual property assets.” He then asks, “Can you imagine the commanding general of an army not knowing how to deploy 80 percent of his military assets to achieve his objectives – not even knowing, in fact, what those assets are – and instead leaving that task solely to a staff officer? I daresay any such general would be relieved of his command.”

How does Microsoft “align” its IP strategy with its business strategy? The book further explains,

In every business unit, whenever there is a discussion of product or market strategy, there is a related IP discussion about what sort of IP is needed to enable that business to compete successfully, about how to allocate the resources to get the IP needed, and about what sort of IP landscape exists in which they will be competing – a map, essentially, of the IP challenges ahead. What patents are lurking out there among competitors that can cause problems? Does it make more sense to try to combine forces with a rival or to compete against it? What sort of licensing agreements, or patent cross-licensing agreements, or patent acquisitions, might be wise for the company to undertake?

The final chapter in the book looks to the future, arguing that while the last 75 years has witnessed marginalization of the iconic independent inventor, we need to remember history and be careful not to destroy innovation,

…what is indisputable is that the world’s first democratized patent system bequeathed to us by our Founders was the crucial engine that powered our industrial growth in the nineteenth century and made us the preeminent economic superpower that we are today. So effective was the U.S. patent system in spurring economic growth, in fact, that Europe and Japan reformed their own IP regimes along similar lines. The result is that today, the global intellectual property system has become the most effective spur to innovation and economic growth ever designed by man…. But let’s make sure we don’t eat our own seed corn in the process. Don’t cut back on innovation spending – the lifeblood of business growth and future national prosperity – and don’t take a hatchet to the intellectual property system when more modest surgical corrections would produce a far better result.

Furthermore, the book makes an important point by referencing to the following quote: “The quality of patents has suffered, many are neither novel nor useful. And the courts are overwhelmed by patent infringement and validity suits,” and then notes that it is not a recent quote, but from 1836. Apparently, according to the book, “whenever the United States has undergone a major industrial renaissance – such as occurred during the nineteenth century when first steam and then later the telegraph, telephone, and electric power industries emerged – the number of new patents have skyrocketed, as have concerns about a resulting decline in patent quality and an increase in patent litigation.”

With regard to other countries, the book notes,

Overall throughout the world, patenting produces an average increase in R&D investment of around 6 percent. And the trade in ideas made possible through international patent licensing is now growing at twice the rate of the trade in goods. Indeed, in every country studied – whether rich or poor – economists have found that it is not capital resources or infrastructure or education, but rather the strength of a country’s intellectual property system, that is the primary spur to technology development and economic growth.

Finally, the book concludes by predicting that as investors increasingly realize the centrality of intellectual property to corporate performance, “companies will inevitably begin to develop some form of IP reporting to accompany their traditional financial disclosures.” In that regard, the book suggested the following:

• A narrative summary that describes the company’s basic business model, plan and strategy, and then shows how IP contributes to the bottom line of the enterprise.
• What were the returns from IP-protected business segments?
• Does your IP portfolio help you secure or bolster your market share and profits, and if so, by how much?
• Does the company have in place a systematic process for managing and exploiting its IP assets?
• Is it leveraging its IP portfolio to develop partnerships and product- or market-development collaborations with other firms, and how are those contributing to overall performance?
• Does the IP of competitors pose a threat to any of the firm’s lines of business?

The phrase “burning the ships” referred originally to Cortez burning his ships at the shores of the New World, and it now signifies a decision that prevents others from turning back. In the book, it referred to the decision made by Microsoft to abandon its non-assertion-of-patents clause in favor of cross-licensing in order to create collaborative relationships. So, where are the ships we can burn to prevent us from turning back and abandoning our appreciation of our collective need for strong intellectual property protection? Please let me know if you find them.

Of course, I heartily recommend this book, and I would love to know your comments regarding the book and/or my thoughts expressed in this review.

While it is (and always will be to some degree) “under construction,” this website is an attempt to help reignite broader recognition of the full value of intellectual property. Much criticism has been levied against the usefulness of intellectual property and its place in our new economy, but there are those among us who continue to recognize the wisdom of maintaining strong intellectual property protection for worthwhile contributions that “promote the progress of science and useful arts.”

While there has always been a need to distinguish and properly limit the scope of protection for worthwhile contributions, the pendulum of protection has been swinging in the direction of weaker protection for a number of years. It is time for the pendulum to begin swinging in the other direction, or the value of innovation and creativity will eventually disappear. It is time for intellectual property and those who recognize our vital need for it to wake up.

This website is also an awakened KuesterLaw. In March of 1995, Jeff Kuester launched www.KuesterLaw.com, and while it won several awards, was highly acclaimed, and assisted thousands of people in finding intellectual property information across the Internet for many years, updates to that website were forced to slow down, and the website effectively went to sleep.  KuesterLaw is now waking up in the form of AwakenIP.

In the original spirit of KuesterLaw, please contact us with suggestions for links to useful IP information on the Internet.