• Software Patentability Threshold:  The existence of a link of the software to a physical and tangible object            
  • Physical Links a la Diehr:  The threshold in Diehr was satisfied by software that was linked to a physical and tangible object physically (e.g., the electrical signals generated by software instructions actually reached out and touched the physical and tangible objects)
  • Virtual Links a la AT&T and Morse sans State Street:  Threshold may be satisfied by software linked to physical and tangible objects virtually (e.g., the  electrical signals generated by software instructions are representations of physical and tangible objects; i.e., the software virtually touches those physical and tangible objects)

In In re Bilski[i], a decision handed down on June 28, 2010, the U.S. Supreme Court was asked to decide whether a claim on a business method is patentable subject matter under 35 U.S.C. § 101.  The business method in question pertained to a series of steps regarding how buyers and sellers of commodities in the energy market can protect, or hedge, against the risk of price changes. The Federal Circuit had affirmed the Patent Office rejection of the Bilski patent business method claims as non-patentable subject matter under a newly formulated “machine or transformation” test.  The Supreme Court affirmed the judgment of the Federal Circuit in rejecting the Bilski patent claims but under the Court’s precedents on the unpatentability of abstract ideas and not on the machine-or-transformation test adopted by the Federal Circuit.[ii]

For guidance on the patentability of business method patents, the Supreme Court pointed to the trilogy of Benson-Flook-Diehr precedent.[iii]  From the Benson-Flook-Diehr spectrum of software can be gleaned the threshold for software patentability; to wit, the existence of a link of the software to a physical and tangible object.  The software in Diehr was held patentable because it connected (more specifically, the electrical signals generated by the software connected) to the physical and tangible objects of a “mold” and a “press” through the steps of “loading of the mold” and “opening of the press”.  Patentability in Flook failed since the claims were without any such link.

In the context of this threshold, the dicta of the Court in Bilski explaining that “nothing in today’s opinion should be read as endorsing interpretations of §101 that the Court of Appeals for the Federal Circuit has used in the past. See, e.g., State Street, 149 F. 3d, at 1373; AT&T Corp., 172 F. 3d, at 1357,”[iv] may take on even greater importance.  The dicta may be more than a tacit statement that State Street and AT&T were judged patentable on an erroneous standard – one based on practical application by producing ‘a useful, concrete and tangible result’ – as opposed to the Bilski standard that a claim should be narrow enough to encompass only a particular application of a fundamental principle rather than to pre-empt the principle itself.  The dicta may call into question the very patentability of the State Street and AT&T subject matter.

The manipulation of objects like dollar amounts and other financial items in State Street is starting to look more like the manipulation of commodity contracts in Bilski, which the Bilski Court found to be the manipulation of abstract objects preempting a fundamental idea and so unpatentable.  On the other hand, the manipulation of a “message record” as recited in AT&T including primary interexchange carrier (PIC) indicator information arguably represents physical and tangible objects (e.g., interexchange carriers).   Consistent with the teachings in Bilski, AT&T software would appear to be manipulating non-abstract objects encompassing only a particular application of a fundamental principle rather than pre-empting the principle itself and so patentable.

The lesson from State Street and AT&T through the prism of Bilski may be that electronic transformation of data representing physical and tangible objects is likely patentable even if the software link to the physical and tangible object is virtual as in AT&T (i.e., the electrical signals generated by the software are only a representation of physical and tangible objects) and not simply physical as in Diehr (i.e., the electrical signals generated by software physically touch the physical and tangible objects).  It may matter less how the signals generated by the software reach out and touch the physical and tangible objects only that they do (i.e., they reach out and touch the physical and tangible objects physically or virtually).  The Supreme Court may have suggested as much in The Morse Case, one of the bedrock cases in American patent jurisprudence, when upholding the patentability of Morse’s fifth claim which recited “the system of signs, consisting of dots and spaces, and of dots, spaces, and horizontal lines, for numerals, letters, words, or sentences, substantially as herein set forth and illustrated, for telegraphic purposes”.[v] The Morse system claim was patentable arguably because the recited system represented physical and tangible objects (e.g., opening or closing of a telegraphic switch) despite arguably recited without any physical link to a physical and tangible object.  The clue to the patentability of software may thus lie in the “reaching out and touching” by the electrical signals generated by the software of physical and tangible objects whether physically as in Diehr or virtually, that is to say, by electrical signals generated by the software instructions representing physical and tangible objects.

The Juhasz Burge PC Firm can help you to better understand the effect of Bilski on your patents. For more information regarding Bilski and advice on how this decision may affect your patents, please contact The Juhasz Burge PC Firm.

Your patents may be your most important asset. To help you protect your patents contact Juhasz Burge PC, the firm committed to Positioning Your Patent Beyond The Horizon℠.

For an in-depth analysis on the State Street and AT&T lessons post-Bilski and for more on the effect of Bilski on Software Patents, including claim drafting tips for protecting software go to the Juhasz Burge Blog.  Also watch for a series of articles by Paul R. Juhasz in the June, September, November, and Next-January issues of IP Litigator magazine, with the January 2011 Edition of the IP Litigator exploring the effects of the Supreme Court’s Bilski decision on biotechnological diagnostic subject matter.

[i] In re Bilski, No. 08-964, slip op. (S.Ct. Jun. 10, 2010);  __ U.S. __ (2010).

[ii] Id., at 16.

[iii] Gottschalk v. Benson, 409 U.S. 63, 67 (1972); Parker v. Flook, 437 U.S. 584 (1978); Diamond v. Diehr, 450 U. S. 175, 193 (1981).

[iv] Bilski, supra, at 16

[v] O’Reilly v. Morse, 56 U.S. 62, 82 (1853).