By Kevin E. Noonan --
The Court of Appeals for the Federal Circuit occupies a unique place in the Federal appellate system. Like the D.C. Circuit and unlike the other circuits, it is not regional and its jurisdiction is not limited to Federal District Courts in a particular geographical area. Instead, its subject matter jurisdiction is limited to patent infringement decisions from district courts, appeals from the Board of Patent Appeals and Interferences, the Trademark Trial and Appeal Board, the Merit Systems Protection Board, the Court of International Trade, the International Trade Commission, the Court of Appeals for Veterans Claims, the Court of Federal Claims, the Boards of Contract Appeals, the U.S. Government Accountability Office, and arbitrator's decisions in employment disputes for various federal departments and agencies. But despite this variety, the Court's purpose is not as a catch-all for appellate review but rather is defined by its mandate to harmonize U.S. patent law. As described on the Federal Judicial Center page regarding the Act establishing the Court (Federal Courts Improvement Act of 1982, Pub. L. No. 97-164, 96 Stat. 25):
In an effort to promote greater uniformity in certain areas of federal jurisdiction and relieve the pressure on the dockets of the Supreme Court and the courts of appeals for the regional circuits, the Congress in 1982 established what is now the only U.S. court of appeals defined exclusively by its jurisdiction rather than geographical boundaries. The U.S. Court of Appeals for the Federal Circuit assumed the jurisdiction of the U.S. Court of Customs and Patent Appeals and the appellate jurisdiction of the U.S. Court of Claims. The new court was authorized to hear appeals from several federal administrative boards as well. Congress abolished the Court of Customs and Patent Appeals and the Court of Claims, reassigning those courts' 12 judges to serve on the Federal Circuit court.
These considerations of the Court's origins make even more curious the colloquy, contained almost entirely in footnotes, to be found between Judges Mayer and Gajarsa, writing for the majority, and Judge Newman, writing in a curious concurrence reading more like a dissent, on the proper role in federal patent policy for the Court. The case is In re Ferguson, the latest (perhaps deserved) victim to the Court's In re Bilski decision, and would be otherwise thoroughly not notable absent the judges sub rosa institutional debate.
The case involved rejection by the U.S. Patent and Trademark Office's Board of Patent Appeals and Interferences of the claims in U.S. Serial No. 09/387,823, filed September 1, 1999 by Lewis Ferguson, Darryl Costin, and Scott C. Harris (a patent attorney who argued before the Court). The claims are almost prima facie patent ineligible under Bilski, claiming a "process" as well as a "paradigm":
A method of marketing a product, comprising:
developing a shared marketing force, said shared marketing force including at least marketing channels, which enable marketing a number of related products;
using said shared marketing force to market a plurality of different products that are made by a plurality of different autonomous producing company, so that different autonomous companies, having different ownerships, respectively produce said related products;
obtaining a share of total profits from each of said plurality of different autonomous producing companies in return for said using; and
obtaining an exclusive right to market each of said plurality of products in return for said using.
And:
A paradigm for marketing software, comprising:
a marketing company that markets software from a plurality of different independent and autonomous software companies, and carries out and pays for operations associated with marketing of software for all of said different independent and autonomous software companies, in return for a contingent share of a total income stream from marketing of the software from all of said software companies, while allowing all of said software companies to retain their autonomy.
Procedurally, the Examiner rejected the claims based on 35 U.S.C. §§ 102, 103, and 112; these grounds of rejection were not upheld by the Board. Instead, the Board sua sponte entered a new ground of rejection based on 35 U.S.C. § 101, saying (in a decision rendered in 2004) that "[o]ur interpretation of these claims is that they do not expressly or implicitly require performance of any of the steps by a machine, such as a general purpose digital computer." On rehearing (in a decision rendered in 2006), the Board entered a new ground of rejection under 35 U.S.C. § 101, in view of the intervening Interim Guidelines for Examination of Patent Applications for Subject Matter Eligibility. The Board held that the method claims were not patent eligible for being directed to an abstract idea, and that the "paradigm" claims were not within the statutory categories because a "marketing company" was not a machine, manufacture or composition of matter.
The Federal Circuit majority made short work (albeit not as short as the panel in Classen Immunotherapeutics) of the substantive issue of patentability. Applying the Bilski "machine-or-transformation" test, the Court held that while reciting a patent-eligible category of invention, the method claims were clearly neither tied to a particular machine (citing In re Nuitjen for the required degree of tangibility to qualify as a machine) nor effected a transformation of any article into a different state or thing. Citing Bilski, practice of the claims at issue did not qualify as a "transformation" because "'[p]urported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances.'"
The majority was also crystal clear about its unwillingness (absent Supreme Court command) to consider any other test, calling the Bilski test the "'sole,' 'definitive,' 'applicable,' 'governing,' and 'proper' test for a process claim under § 101 . . . ." And with regard to the applicability of the Court's State Street decision (which this panel agrees was not overturned by Bilski), the Court reminded appellants, and us, that the claims in State Street were directed to a machine, and that "[t]he claim at issue in State Street was thus drawn to a patent-eligible machine implementation of what may have otherwise been a non–patent-eligible abstract idea" (emphasis added).
As for the paradigm claims, the opinion cites both the Nuitjen and Bilski cases for the proposition that inclusion in one of the categories enumerated in the statute is a necessary prerequisite for patent eligibility. Here, appellants' paradigm claims did not fit into a category, and hence were patent-ineligible.
Judge Newman (at left) continues to evince her displeasure with the substance of the Bilski decision in her concurrence, where she concurs with the majority's decision but little else. She begins by reminding everyone that, as she reads it, the Supreme Court's Gottschalk v. Benson opinion does not support the reading of it adopted by the en banc Bilski majority. Citing footnote 3 of the majority opinion:
Contrary to the concurrence's assertion, we do not contend that this court has overturned State Street Bank & Trust Co. v. Signature Financial Group, 149 F.3d 1373 (1998), but merely note that the "useful, concrete and tangible result test" "is insufficient to determine whether a claim is patent-eligible under § 101," Bilski, 545 F.3d at 959, and "is inadequate," id. at 960 (reaffirming that "the machine-or-transformation test outlined by the Supreme Court is the proper test to apply" (emphasis added)), and that "those portions of our opinions in State Street and AT&T [Corp. v. Excel Commc'ns, Inc., 172 F.3d 1352 (Fed. Cir. 1999),] relying on a 'useful, concrete and tangible result' analysis should not longer be relied on," id. at 960 n.19.
She asserts that the majority suggests that the Bilski decision overturned not only State Street but other precedent (including the Freeman-Walter-Abele test, the "technological arts" test and the "physical steps" test), constituting a "sweeping rejection of precedent [that] simply enlarges the taint on the thousands of patents that were granted in application of these tests." She also disagrees with the scope of the majority's rationale for deciding the method claims at issue constitute an "abstract idea":
[T]he court disposes of the Ferguson method on the ground that it is an "abstract idea," although it is definite and concrete and limited, and not at all abstract. The court resolves this dilemma by defining "abstract idea" as anything that does not meet the Bilski machine-or-transformation test. However, the Ferguson marketing method is not an abstraction, even in Bilski terms. The Ferguson method "does not pre-empt all uses of a fundamental principle in any field but is limited to a particular use, a specific application. Therefore, it is not drawn to the principle in the abstract". Bilski, 545 F.3d at 957.
The court's circular definition of "abstraction" as anything that is not patent-eligible under Bilski can impact the many new methods flowing from the new information technologies. These methods have enhanced human capabilities, blurring the traditional line between machine and human; their patentability warrants at least consideration in appropriate cases, not disposition in dictum.
At base, Judge Newman is concerned about the consequences of extending Bilski as far as the majority of the Court seem to desire:
Until we are confident in understanding the consequences of our rulings, let us not forget that today's "knowledge economy" arose and thrived under the past law of patent eligibility. Although I agree that new thinking is warranted, this court's broadside assault on patent-eligible subject matter is unsupported by any stated policy or benefit to either society or commerce. We are ignorant of whether competitive activity, creative energies, and entrepreneurial initiatives, will founder or be facilitated by this court's dramatic change in the legal framework. I take note that scholarship is starting to appear, as economists recognize "the new economy." See, e.g., Richard G. Anderson, The New Economy: How the United States is Adapting to the Knowledge-Based Economy of the Twenty-First Century, Southern Illinois Economic Development Conference 21 (Sept. 21, 2006) (discussing intellectual property rights and the creation of knowledge). But much more needs to be understood, as this court undertakes to change the legal framework of this economy.
Today's new capabilities of acquiring and using knowledge are producing myriad creative advances. This court has offered no explanation of the interests and policy that we intend to serve by removing such advances from the legal framework of the patent system. See, e.g., Milton Katz, The Role of the Legal System in Technological Innovation and Economic Growth, The Positive Sum Strategy 169 (1986) (explaining that the legal system plays a part in facilitating and promoting "business enterprise, technological innovation, and economic thought").
This court's retreat into the methods of the past is unworthy of our responsibility to support innovation in the future. Major adjustment in established law should be based on changing industrial or intellectual or equitable needs -- of which no evidence is before this court. The only need of which I am aware is that of the current harsh economic times, when the need is of enhanced incentives to innovation and investment in new things and new industries, not reduction in the existing incentives.
At the end of this passage, Judge Newman drops a footnote in response to a footnote in the majority opinion; a comparison of these notes illustrates the most interesting philosophical question raised in this case:
Majority note 7:
The essence of the concurrence is an argument premised on policy and philosophical grounds. We disagree with this approach, as it is not the role of courts to make such arguments but rather the responsibility of Congress to consider amending the patent laws as necessary to recognize and allow for innovation in the future.
Judge Newman note 1:
I take note of the panel majority's criticism of my views as "policy" related. Indeed, the major concern with my colleagues' aggressive elimination of patent access in areas of modern commerce is their failure to consider the policy effects. The success of the common law derives from its relation to the policy that it implements. As Justice Holmes stated:
The very considerations which judges most rarely mention, and always with an apology, are the secret root from which the law draws all the justices of life. I mean, of course, considerations of what is expedient for the community concerned. Every important principle which is developed by litigation is in fact and at bottom the result of more or less definitely understood views of public policy; most generally, to be sure, under our practice and traditions, the unconscious result of instinctive preferences and inarticulate convictions, but nonetheless traceable to views of public policy in the last analysis.
It is stunning, in a way, that Judges Gajarsa and Mayer question the Court's role in considering patent policy in making their decisions. The majority's footnote 7 properly recognizes Congress as the ultimate arbiter of how it will exercise its Article I power to grant patents (provided, of course, that the Supreme Court does not conclude that its Acts are outside Constitutional boundaries). But the Federal Circuit's role, as the only specialized appellate court in the federal judicial system, has always been to consider the policy implications of its decisions; even the Supreme Court has recognized the Federal Circuit's "special expertise" in this area. Congress created the Court expressly with the aim of harmonizing U.S. patent law, a goal made difficult if not impossible without some consideration of the policy implications of its decisions. Now it seems that at least two members of the Court believe this is not their role and eschew any suggestion that "policy" is a valid factor for their deliberations. If the Federal Circuit is not to be involved in patent policy, then it can fairly be asked: "What good is the Federal Circuit?"
March 23-24, 2009 - 3rd Annual Patent Law Institute (Practising Law Institute) - San Francisco, CA
