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Federal Circuit Limits Patentable Processes

Posted in Patent Law

By Audrey A. Millemann

The Court of Appeals for the Federal Circuit recently addressed the issue of the patentability of process (method) claims in one of the first cases decided since the Supreme Court’s 2010 decision in Bilski v. Kappos, 130 S. Ct. 3218 (2010). The case is CyberSource Corp. v. Retail Decisions, Inc., 2011 U.S. App. LEXIS 16871 (Fed. Cir. Aug. 16, 2011).

The plaintiff, CyberSource, owned a patent for a method and system of detecting fraud in a credit card transaction between a purchaser and a merchant over the Internet. According to the patent’s specification, the prior art systems for detecting credit card fraud worked well in face-to-face transactions, but did not work in transactions for the sale of downloadable content over the Internet. The invention, as described in the patent, overcame the problems of the prior art by using Internet address information (e.g., IP addresses, email addresses, etc.) to analyze whether the purchaser’s Internet address was the same as the Internet address previously used with the same credit card number. 

CyberSource sued the defendant, Retail Decisions, for infringement of the patent. The defendant moved for summary judgment of invalidity shortly after the Federal Circuit decided In re Bilski, 545 F. 3d 943 (Fed. Cir. 2008), which set forth the “machine-or-transformation” test as the proper test for determining the patentability of a process under 35 U.S.C. section 101. Retail Decisions argued that CyberSource’s patent was unpatentable under that test. The district court for the for Northern District of California granted the defendant’s motion, holding that CyberSource’s claims were directed to an unpatentable mental process that did “not become patentable by tossing in references to Internet commerce.” 

CyberSource appealed to the Federal Circuit. Because the Bilski case was pending before the Supreme Court, however, the Federal Circuit stayed the appeal, and decided the case after the Supreme Court had issued its decision in Bilski

The court explained the history of the Bilski case. On appeal to the Federal Circuit, the court had held that the proper test for patentability of a process claim was the machine-or-transformation test: a process was patentable if it (1) was tied to a particular machine or apparatus; or (2) transformed an article into a different state or thing. The court applied the test to Bilski’s method of hedging in commodities trading and found the method unpatentable. The Bilski case then went on to the Supreme Court, who affirmed the Federal Circuit’s decision but held that although the machine-or-transformation test was “a useful and important clue,” it was not the sole test for determining whether a claimed process is patentable. The Supreme Court did not specify what the proper test is, but noted that its prior decisions had identified three categories of inventions that are not patentable under section 101: laws of nature, physical phenomena, and abstract ideas. The Court had invited the Federal Circuit to develop further tests for determining the patentability of processes. 

The Federal Circuit analyzed CyberSource’s claim to a method for verifying the validity of an Internet credit card transaction. The claim required: (1) obtaining information about other transactions that used the same Internet address as the one used in the transaction in question; (2) constructing a map of credit card numbers based on other transactions; and (3) utilizing the map to decide if the transaction was valid. 

The court held that the district court had correctly concluded that the claim did not satisfy the machine-or-transformation test. The court stated: “the mere collection and organization of data regarding credit card numbers and Internet addresses is insufficient to meet the transformation prong of the test, and the plain language of claim 3 does not require the method to be performed by a particular machine, or even a machine at all. “ Id. at *10. The court stated that this finding was not dispositive, however, based on the Supreme Court’s holding in Bilski that the machine-or-transformation test was not the sole test to be applied. The court went on to find that the claim was a mental process, a type of abstract idea, and thus not patentable under section 101. The court quoted the Supreme Court in Gottschalk v. Benson, 409 U.S. 63 (1972): “phenomena of nature, though just discovered, mental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work.” 

The court also noted that its holding in In re Bilski explained why mental processes are unpatentable. “The application of only human intelligence to the solution of practical problems is no more than a claim for a fundamental principle.” Id. at *14. The court’s subsequent holding in In re Comiskey, 554 F.3d 967 (Fed. Cir. 2009) further confirmed the court’s position:  “the patent statue does not allow patents on particular systems that depend for their operation on human intelligence alone, a field of endeavor that both the framers and congress intended to be beyond the reach of patentable subject matter…it is established that the application of human intelligence to the solution of practical problems is not in and of itself patentable.” Id. at *14-*15.

The court found that CyberSource’s claim would cover any method of detecting credit card fraud, including processes that could be performed in the mind, and was therefore unpatentable. 

The court next analyzed CyberSource’s other claim, which was essentially the same, as it was directed to a computer readable medium containing instructions to perform the steps of the method claim. The court held that this claim was not made patentable just because it was directed to a computer readable medium; the underlying invention was the same process that had been held unpatentable. The court explained that claims to methods based on abstract ideas do not become patentable simply because they require a computer to perform the steps of the method. 

In conclusion the court found that:

“It is clear in the present case that one could mentally perform the fraud detection method that underlies both claims 2 and 3 of the ‘154 patent, as the method consists of only the general approach of obtaining information about credit card transactions utilizing an Internet address and then using that information in some undefined manner to determine if the credit card transactions is valid. Because claims 2 and 3 attempt to capture unpatentable mental processes (i.e., abstract ideas) they are invalid under section 101.”

Thus, in addressing the issue left open by the Supreme Court in Bilski, the Federal Circuit did not create a new test or expand the machine-or-transformation test. The court clearly began its analysis with a strict interpretation of that test, but then relied on the established exceptions to section 101 to strike down the claimed process.