The Board of Appeals and Interferences of the U.S. Patent and Trademark Office (the Board) established a new precedent essentially invalidating examiners’ "technological arts" rejections. In re Lundgren BPAI Case Nos. 2003-2088 (Sept. 28, 2005) (Per Curium, Smith, APJ., dissenting; Barrett, APJ., concurring).
The 1998 the U.S. Court of Appeals for the Federal Circuit’s decision in State Street Bank held that a mutual fund data processing system (apparatus claim) that transformed discrete dollar amounts into a final share price constituted a patentable practical application of a mathematical algorithm because it produced a "useful, concrete and tangible result"—the final share price. The following year, in AT&T v. Excel Communications, the Federal Circuit held the same standard applied to method claims when it found that a method of generating a message record for an interexchange call, without specific claim recitations of the system that generated the message, was a practical application and produced a useful result.
A tidal wave of business method patent filings flooded into the U.S. Patent and Trademark Office (USPTO) following these court decisions. Typically, the method claims recited no structure, even though many if not all practical applications of the methods required computer processing. In an effort to stem the tide, the USPTO began routinely rejecting business method claims that lacked structural recitations under 35 U.S.C. § 101 on a theory that such claims lacked a relationship to "the technological arts." Essentially, the USPTO attempted to create its own new test, which in many cases forced applicants to add machine or computer processing limitations to their method claims.
Lundgren’s claims related to a method of compensating a manager of a firm based on comparison of firm performance to performance of competing firms. The compensation algorithm, designed to reduce incentives for industry collusion, involved computing a managerial compensation amount and transferring compensation of a value related to the computed amount to the manager.
The Board has now twice considered the patentability of the claimed subject matter. In an earlier decision, a three judge panel reversed an examiner’s rejection and specifically held that the claim requirement of transfer of physical assets to the manager as compensation was a "practical application" of the recited algorithm. However, after the first reversal, the examiner entered yet another rejection under § 101 on the new ground that Lundgren’s claims lacked a relationship to "the technological arts" because they did not require machine implementation.
In the most recent appeal to the Board, the case was heard by an expanded five judge panel. A three judge majority and a concurring opinion reversed the examiner’s rejection and expressly held there was no separate "technological arts" test for patentable subject matter, either under the U.S. Constitution or the applicable case law.
Administrative Patent Judge Smith dissented, taking the position that the clause of the Constitution giving Congress the power to "promote the progress of … useful arts" limited the government’s power to grant patent rights to subject matter that was within the "technological arts."
Although concurring with the majority that there was no separate "technological arts" test for patentable subject matter, Administrative Patent Judge Barrett instead would enter a new ground of rejection. From a review of Supreme Court and Federal Circuit precedents, his concurrence posits three possible tests for patentability of a nonmachine implemented process: whether the process achieves a transformation of physical subject matter (matter or energy); whether the process avoids all three of the categories of court-defined exceptions, law of nature, physical phenomena and abstract ideas; and under State Street, whether the process achieves a useful, concrete and tangible result.
Practice Note
The practical result of this 4-1 case is that the USPTO can no longer reject business method application claims for lack of a relationship to the "technological arts." However, the Board’s decision in Lundgren is not binding on the courts in infringement litigations, it is only binding precedent at the USPTO. For now, the decision wipes out the examiners’ theory of "technological arts" rejections and appears to open the door for broader method claim strategies without the need to limit protection to computer-implemented steps.
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