Part II: See Part I #AliceStorm: July is Hot, Hot, Hot…and Versata is Not, Not, Not
The other part of the CBM definition at issue in Versata is the exclusion of a technological invention from the scope of CBM review. Correctly, the Court noted that the USPTO's circular definition of technological invention as "essentially one having a “technological” feature that solves a “technical” problem using a “technical” solution," "does not offer much help." But instead of defining what was technological, the Court looked to what PTAB said was not technological, that is "certain characteristics which, if present, did not help support a finding" that an invention was technological. Here are PTAB's exclusionary factors:
1) mere “recitation of known technologies”; 2) “reciting the use of known prior art technology”; and 3) “combining prior art structures to achieve the normal, expected, or predictable result of that combination.”
As a general rule you do not define a word by what it is not: the definition of mammal is not creatures that do not have scales, cold blood, and lay eggs. Similarly, the use of exclusions does not effectively differentiate between technological inventions and non-technological inventions.
Assume I invent a machine to crack nuts:
I apply mechanical engineering principles and equations to ensure that the machine will do exactly what it's supposed to do ("the normal, expected, or predictable result of that combination"). I claim the combination of a motors and gears and so forth ("known technologies"). If we apply the PTAB's exclusionary rules, then my nut cracker is not a technological invention. And if I happen to mention in my patent application that my nutcracker reduces the costs of cracking nuts and thus makes the sale of bulk nuts more profitable, then suddenly I have invented a financial product. The problem with this approach is that every invention is made with some existing technologies, which are used precisely for their known purpose, and operate according to the laws of physics and engineering to produce a predictable result. This is certainly true of every invention in mechanical engineering, electrical engineering, chemical engineering, as well as software, telecommunications, networking, and so forth. The reality of how inventions are made by humans--using prior technologies in new combinations--can be said to the second law of patent-dynamics. And just as a scientific theory that violates the second law of thermodynamics is wrong, if a definition of technology violates that rule, then it's wrong as well. (The first law of patent-dynamics is Diehr.) This exclusionary approach improperly imports novelty and non-obviousness into the definition of technology. The problem is that In other words, something is technological only if it inventive. That my nut cracker uses known technologies and operates according to known principles to provide predictable results may make my machine obvious, but it is still a machine--it's still technology. The Court then turns to Alice to justify the PTAB's definition of technological:
As the PTAB correctly noted, even if the invention required the use of a computer, the claim did not constitute a technological invention. As we are now instructed, the presence of a general purpose computer to facilitate operations through uninventive steps does not change the fundamental character of an invention. See Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014).
Using Alice in this way is reasoning backward. Alice decided that merely using a general purpose computer did not provide for eligibility. But that does not mean using a general purpose computer to implement any invention is not technological—unless you solely equate eligible inventions with technological inventions. However, in Bilski, the Supreme Court refused to impose a technological arts test in Section 101, as requested by the government. Further, by the Federal Circuit's reasoning, no software-based invention that makes use of a standard computer would be a technological invention. That's an absurd result—and certainly not what Congress intended when it created CBM reviews.
Let's accept then the USPTO's definition of financial product and the Federal Circuit's endorsement of that definition. According to the USPTO, financial means "pertaining or relating to money matters." The Court held that this definition "readily embraces the ’350 patent which expressly claims a “method for determining a price of a product” in Versata's claim 17. Since a product includes a machine, the following are financial products since they are used determine prices:
On the left, we have a state of the art bar code scanning system as you find in many grocery stores and retail outlets. In the middle, we also have what was the state of the art in 1853, a cash register that totaled prices. But these are nothing compared to the technology on the right. These wax tablets were the state of the art 800 years before the time of Christ, and they were reliable enough to be used for another 2,600 years! "Wax tablets were used for high-volume business records of transient importance until the 19th century. For instance, the salt mining authority at Schwabisch Hall employed wax records until 1812." If the unknown Roman inventor of the wax tablet mentioned in his patent application that the tablets could be used to determined prices, then according to PTAB and the Federal Circuit, they are financial products as well. For your consideration, here are some more financial products:
These products definitely relate to "money matters," particularly the administration of money.
Similarly, the change machine is a certainly an "apparatus" for "management" of "money matters."
This price computing scale automatically determines the price of a bulk item based on its weight and price per pound. Pure financial product. And finally, arguably the financial product that forever altered the landscape of the modern gas station, and eliminated the first job that many teenage males held:
This apparatus is a financial product in spades. Not only does it determine the price in real time as you pump the gas, it also conducts the financial transaction with your financial card. Further, these machines are linked to back-end systems that calculate the remaining inventories of gasoline. And if you are unlucky enough to use one of the fancy new pumps with a display monitor, those devices selectively present advertisements based on your location. Moreover, once it's determined that these are financial products eligible for CBM review, it takes only a few steps to find such inventions patent ineligible. As for the price determination and the payment? A gas station attendant used to do that by mental steps (back in the day, teenage males could do math in their heads, since they had to). Inventory management was done by accountants with pencils. And the customized advertisements based on location--that's just like putting ad inserts into newspapers (see the Federal Circuit's recent Intellectual Ventures decision). All of this is abstract, implemented with conventional computers, and thus utterly ineligible subject matter. I do not believe that Congress really intended all these machines and systems, and the methods they implement, to be considered financial products and services. Nor do I think the USPTO, in its expertise, considered these technologies when it crafted the CBM definitions. The USPTO's commitment to such broad definitions, along with the Federal Circuit's endorsement, will certainly result in patents being invalidated that were never part of the problem Congress was trying to solve.
On the merits, the Federal Circuit decided that Versata's patent claim was an abstract idea (method of determining a price) and did not claim substantially more than the concept itself (conventional to do all of the claimed steps in a computer; where else?). The analysis was itself conventional—the Court again relied on the mental steps doctrine that a person could do the calculations by pencil and paper. At this point I think the Court is willfully ignoring the trenchant analysis of Judge Pfaelzer of the Central District of California who has shown that the "pencil-and-paper analysis can mislead courts into ignoring a key fact: although a computer performs the same math as a human, a human cannot always achieve the same results as a computer." California Inst. of Tech. v. Hughes Comm'ns Inc. What's really striking though is the Court's brusque treatment of Versata's argument that its invention improved the performance of the computer system. Versata presented evidence that its method reduced the number of database tables and run-time queries, leading to improvements in computer performance and ease of maintenance. The Federal Circuit finessed this evidence:
Versata argues that its claims recite “a specific approach to determining the price of a product on a computer, using hierarchies so as to enable the desired benefit for the computing environment: fewer software tables and searches, leading to improvements in computer performance and ease of maintenance.” Appellant’s Br. at 43– 44. However, all of the parties—including Versata— recognize that these supposed benefits are not recited in the claims at issue. Versata contends that the benefits are relevant under Genetics Inst., LLC v. Novartis Vaccines & Diagnostics, Inc., 655 F.3d 1291 (Fed. Cir. 2011), but this case is inapposite since it does not concern section 101. Examination of the claims—as a whole and in terms of each claim’s limitations—reveals that the claims are not directed to improving computer performance and do not recite any such benefit. The claims are directed to price determination and merely use a computer to improve the performance of that determination—not the performance of a computer.
As a general rule, patent claims do not recite benefits; they recite the structure and function that provide the benefits. To be sure, there are circumstances in the biological, therapeutic, and related arts, where claiming a benefit is an acceptable practice, but in the mechanical, electrical, and software arts, claims are focused on the invention's direct features, not the benefits of the invention—those are described, if at all, in the specification. A claimed benefit becomes an express limitation, and thus anyone who does not provide the claimed benefit avoids infringement, even if they otherwise copy the structure or method. If my inventive nutcracker cracks nuts ten times faster than the prior art, I don't claim "…wherein said nutcracking machine cracks nuts at least ten times faster than the cited references," or other hortatory statement. Similarly, I would not claim this functionally, such as "wherein said nutcracking machine cracks at least 100 nuts per minute." Either way, I did claim this benefit, then someone can copy the structure, but just adjust the machine so it operates a bit more slowly. Benefits are typically not claimed because in most cases the patent examiner will not give them any patentable weight in distinguishing over the prior art--they are excess baggage. This is because an apparatus claim must distinguish over the structure of the prior art. "A claim containing a “recitation with respect to the manner in which a claimed apparatus is intended to be employed does not differentiate the claimed apparatus from a prior art apparatus” if the prior art apparatus teaches all the structural limitations of the claim." MPEP 2114 Thus, when every word in a patent claim can and will be used against the patentee in a court of law, claiming benefits is likely to do more harm than good. When it come to methods (like Versata), claiming a benefit often does little to distinguish over the art. The Federal Circuit should know this. Indeed, its rulings suggest prosecutors should avoid reciting objects of the invention and lauding features as superior, lest such objects or features limit the claim construction. Dismissing Versata's argument without any consideration at all because it did not claim the benefits punishes it for adhering to long-standing practices of claim drafting—practices which the Court itself has molded in precisely this way over the years. Further, nothing in Alice, Bilski, Benson, Diehr, or Flook suggests, let alone imposes, a rule that only benefits that are claimed can satisfy the safe harbors of improving the functioning of the computer or improving another technology. At least the Supreme Court got that right. In properly dismissing Versata's argument that Section 101 cannot be raised in a CBM, the Court notes:
It would require a hyper-technical adherence to form rather than an understanding of substance to arrive at a conclusion that § 101 is not a ground available to test patents under either the PGR or § 18 processes.
But a hyper-technical adherence to the form of the claim, rather than an understanding of the substance of the invention, is precisely what the Court is doing with its rule requiring benefits to be claimed. The Federal Circuit has created a very damaging rule, because it lets the courts disregard any evidence of improvements in technology if the benefits are not claimed--which will be the case 99% of the time (at least in the mechanical, electrical, and software arts). Thus, what the Supreme Court gave with one hand, the Federal Circuit has taken away with a formalist meat cleaver.
The USPTO has adopted definitions of a covered business method patent that conflict with the underlying context of the patent statute, the rules of English grammar, and the basic logic of how inventions are made. The Federal Circuit has approved these definitions, without consideration of how they play out in real life. The CBM definitions should instead be based on the widely accepted definitions of financial products and services. That would comport with the background of the CBM legislation and a correct reading of the statute. When it comes to defining what is technology, that may not be easy, but the USPTO's "way of negation" is simply the wrong approach. Even starting with a dictionary definition would have been better:
If the standard dictionary was the correct resource for the meaning of financial, why did PTAB and the Federal Circuit ignore it when defining technological?
But I would not stop at the dictionary. There is an entire literature on technology that can and should be considered. If nothing else, the USPTO and the Federal Circuit can start with Wikipedia--at least there they will find a history of technology, and explanation and analysis that is missing from the dictionary. Better yet, they can dive into the philosophy of technology. Or if philosophy is too messy, they can use the more commercial approach of the United Nations Conference on Trade and Development, which defines technology as the "systematic knowledge for the manufacture of a product, for the application of a process or for the rendering of a service." (UNCTAD, Transfer of Technology, 2001). This knowledge includes 1) the technical knowledge on which the end product is based, 2) the organizational capacity to convert the relevant productive inputs into the finished item or service, 3) knowledge or methods that are necessary to carry on or to improve the existing production and distribution of goods and services, 4) the ability develop entire new products or processes as needed, and 5) entrepreneurial expertise and professional know-how.
If the USPTO and the judges have time to read only one book on technology and the nature of invention, then this is it: Subrata Dasgupta, Technology and Creativity, (New York: Oxford University Press, 1996). This is by far the best I've read on the subject. Dasgupta provides a deeply reasoned analysis of how technology is developed and lays out a theory that explains creative developments--essentially how to identify whether something is a technologically inventive concept.
*The perspectives expressed in the Bilski Blog, as well as in various sources cited therein from time to time, are those of the respective authors and do not necessarily represent the views of Fenwick & West LLP or its clients.