Patentable Subject Matter
by Glenn R. Smith
The scope of patentable subject matter has recently broadened dramatically. The official epoch of this change was the July 1998 Court of Appeal for the Federal Circuit opinion in State Street Bank & Trust Company v. Signature Financial Group. In that opinion, the Federal Circuit signaled the demise of two limits to patentability, the so-called "business method exception" and the "Freeman-Walter-Abele test" for unpatentable algorithms. Thus, seemingly all novel and nonobvious business methods and useful algorithms now fall under the scope of patent protection. Wall Street and the Fortune 500 perhaps are only now beginning to realize the far-reaching implications of this result.
Business Methods
Federal law has long allowed patents to issue for a "process." Specifically, "whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter . . . may obtain a patent." 35 U.S.C. section 101. Until the State Street opinion, however, the Patent and Trademark Office and various federal courts were historically less than receptive to patents for business methods, i.e. a processes for doing business. Examples of issued business method patents are:
Pat. No. 5,794,207 issued Aug. 11, 1998 to Walker, et al. entitled "Method and Apparatus for a Cryptographically Assisted Commercial Network System Designed to Facilitate Buyer-Driven Conditional Purchase Offers." This patent covers a system for letting travelers post bids on airline tickets and hotel rooms, which is the "reverse auction" basis for priceline.com.
Pat. No. 5,983,199 issued Nov. 9, 1999 entitled "On-Line Shopping System."
Pat. No. 5,983,202 issued Nov. 9, 1999 entitled "Office-Supplies Management Systems."
Pat. No. 5,987,438 issued Nov. 16, 1999 entitled "Electronic Wallet System."
Useful Algorithms
The opinion in AT&T Corp. v. Excel Communications Inc., 50 USPQ2d 1447 (Fed. Cir. 1999) summaries the current law regarding unpatentable algorithms since the State Street opinion.
Background AT&T obtained a method patent for billing telephone subscribers depending on whether the subscriber calls someone with the same or a different long-distance carrier. The claims asserted against Excel included the steps of generating a message record for a long distance call and adding a "primary interexchange carrier" (PIC) indicator to the message record whose value depends on the call recipient's carrier. The trial court concluded that these claims implicitly recite a mathematical algorithm and that the only physical step in the claims involved data-gathering for the algorithm. As a result, the court granted Excel's motion for summary judgment of patent invalidity for failure to claim statutory subject matter.
Holding Summary judgment overturned and case remanded for further proceedings. The Supreme Court has specifically identified three categories of unpatentable subject matter: laws of nature, natural phenomena and abstract ideas. Unpatentable mathematical algorithms are narrowly limited to disembodied mathematical concepts representing laws of nature or abstract ideas. In this case, AT&T claims a process that uses a simple Boolean algebra principle in order to determine the PIC indicator value. The result, however, facilitates differential billing of long-distance calls. The claimed process falls comfortably within the scope of statutory subject matter because it applies the Boolean principle to produce a useful, concrete, tangible result without pre-empting other uses of the mathematical principle.