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In September, the Board of Patent Appeals and Interferences, in the U.S. Patent and Trademark Office, issued a precedential decision, Ex parte Carl A. Lundgren, Appeal No. 2003-2088 (Bd. Pat. App. & Interf. 2005), that eliminated the PTO’s policy of rejecting patent claims under �101 of the Patent Act, simply because the patent claims did not include a computer or other electronic device. The Lundgren decision swings the door wide open for businesses to apply for patent protection for any novel business method. As a result, businesses should now seek U.S. patent rights for any unique business method covering every conceivable business operation, such as methods of billing clients; hiring employees; marketing products or services, such as financial services and banking products; or simply obtaining funding. This article will provide a brief background leading up to this decision; detail the Lundgren decision and the resulting PTO Interim Guidelines; discuss the potential for the U.S. Supreme Court to weigh in on this issue; and enumerate the “real-life” implications of the Lundgren decision as it affects a business’ strategy. First, in order to understand how we got here, a brief background is required. Section 101 of the Patent Act states that “whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor; subject to the conditions and requirements of this title.” In 1980, the U.S. Supreme Court held that under �101, “anything under the sun that is made by man” may qualify for patent protection. Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980). However broad and sweeping this interpretation of the Patent Act may be, the Supreme Court has also made clear that “every discovery is not embraced within the statutory terms.” Diamond v. Diehr, 450 U.S. 175, 185 (1981). Specifically, the Supreme Court has held that excluded from patent protection are “laws of nature, physical phenomena and abstract ideas.” Id.; Chakrabarty, 447 U.S. at 309. Then, in 1998, the business-method patent landscape dramatically changed with the U.S. Court of Appeals for the Federal Circuit’s decision in State Street Bank and Trust Co. v. Signature Financial Group Inc., 149 F.3d 1368 (Fed. Cir. 1998). The State Street decision recognized that a data-processing system utilizing an algorithm for administering a new form of mutual fund was patentable under �101. Citing Diehr, the State Street court held that, in order to be patentable subject matter under �101, business-method patent claims must be evaluated to determine whether the claimed method could be applied to produce a “useful, concrete and tangible result.” The State Street court concluded that so long as the claimed subject matter produced a “useful, concrete, and tangible result … the useful result [could be] expressed in numbers, such as price, profit, percentage, cost, or loss.” Id. at 1375. After the State Street decision, the PTO adopted a policy requiring patent claims directed to business methods to be narrowed in scope by including a limitation to some form of “technological basis.” Consequently, the PTO routinely rejected patent claims under �101 as lacking a “technological basis” when the claim did not directly tie the business process to a computer or other electronic devices. As a result, patent claims were required to be limited to methods that used a computer, electronic communications or databases in performing the method, even when such business processes did not necessarily require the use of this structure. In September, the PTO’s Board of Patent Appeals and Interferences, in Ex parte Carl A. Lundgren, issued a precedential decision that eliminated the PTO’s policy of rejecting patent applications under �101 for lacking a “technological basis” when the patent claims did not directly tie the business process to a computer or other electronic device. In Lundgren, the patentee, Carl A. Lundgren, had claimed a “method of compensating a manager” that involved several steps of calculating a proper compensation based on performance criteria and then transferring payment to the manager. Relying on In re Musgrave, 431 F.2d 882 (CCPA 1970); In re Toma, 575 F.2d 872 (CCPA 1978); and Ex parte Bowman, 61 U.S.P.Q.2d 1669 (Bd. Pat. Apps. & Int. 2001), the PTO rejected the claims on the basis that they were “outside the technical arts.” The PTO characterized the claims as “namely an economic theory expressed as a mathematical algorithm without the disclosure or suggestion of a computer, automated means, apparatus of any kind, the invention as claimed is found non-statutory.” Again, the PTO emphasized that these claims were merely directed to “[a]n economic theory expressed as a mathematical algorithm without the disclosure or suggestion of computer, automated means, apparatus of any kind.” Accordingly, under the pre- Lundgren PTO policy, these business-method claims were directed to nonstatutory subject matter. On appeal by the patentee, the Board of Patent Appeals found no basis for a “technological arts” test applied by the PTO in either In re Musgrave or In re Toma and noted that Ex parte Bowman was nonprecedential and thus not binding. The Lundgren board interpreted the Musgrave decision as holding that “[a]ll that is necessary, in our view, to make a sequence of operational steps a statutory ‘process’ within 35 U.S.C. �101 is that it be in the technological arts so as to be in consonance with the Constitutional purpose to promote the progress of ‘useful arts.’ Const. Art. 1, sec. 8,” without the need for a separate “technological arts” test. The Lundgren board also found that the decision in Toma was consistent with Musgrave. The Lundgren board then held that a process claim that applies a mathematical algorithm to “produce a useful, concrete, tangible result without pre-empting other uses of the mathematical principle, on its face the claimed process comfortably falls within the scope of �101.” The Lundgren board concluded that there is no separate “technological arts” test to determine patentable subject matter under �101. However, the Lundgren decision still required that the claims produce a “useful, concrete, tangible result.” INTERIM GUIDELINES ISSUED Based on the Lundgren decision, on Oct. 26, 2005, the U.S. commissioner for patents issued “ Interim Guidelines for Examination of Patent Applications for Patent Subject Matter Eligibility.” These interim guidelines are binding on the U.S. patent examiners and expressly state that business-method processes that contain no disclosure of computer or other machine implementations will no longer be rejected as unpatentable subject matter under �101 on that basis. For example, the interim guidelines state that “these Examination Guidelines are based on the USPTO’s current understanding of the law and are believed to be fully consistent with binding precedent of the Supreme Court, the Federal Circuit and the Federal Circuit’s predecessor courts. These Interim Guidelines do not constitute substantive rulemaking and hence do not have the force and effect of law. These Interim Guidelines have been designed to assist USPTO personnel in analyzing claimed subject matter for compliance with substantive law.” Oct. 26, 2005, Interim Guidelines at 2. Specifically, Annex III lists improper tests that U.S. patent examiners are prohibited from using when determining subject-matter eligibility, including “not in the technological arts” tests; “mental step or human step” tests; the “machine implemented” test; or the “per se data transformation” test. Id. at 42; tests discussed id. at 42-49. Annex IV discusses computer-related nonstatutory subject matter, such as data structures representing descriptive material, computer listings and electromagnetic signals. Id. at 50-57. In this section, for example, the interim guidelines state that “[m]erely claiming nonfunctional descriptive material, i.e., abstract ideas, stored in a computer-readable medium, in a computer, on an electromagnetic carrier signal does not make it statutory.” Id. at 51. The interim guidelines further state that “for claims including such excluded subject matter to be eligible, the claim must be for a practical application of the abstract idea, law of nature, or natural phenomenon.” They also provide: “To satisfy �101 requirements, the claim must be for a practical application of the �101 judicial exception, which can be identified in various ways: the claimed invention ‘transforms’ an article or physical object to a different state or thing;” or “the claimed invention otherwise produces a useful, concrete and tangible result.” The effect of the Lundgren decision should be of great benefit for business-related processes by expanding the scope of patent coverage. By removing the “technological arts” test, the U.S. Patent Board has eliminated many outstanding �101 rejections. However, it should finally be noted that it is unclear at this point whether the U.S. patent solicitor will ask the Federal Circuit to review this case. Another factor that may potentially affect this issue is that the U.S. Supreme Court on Oct. 31 granted the petition for certiorari to review the decision in Laboratory Corp. of America Holdings v. Metabolite Laboratories Inc., 2005 WL 2838583 (No. 04-607, Oct. 31, 2005). The U.S. Supreme Court granted review only with respect to question three in the petition: “Whether a method patent setting forth an indefinite, undescribed, and non-enabling step directing a party simply to ‘correlat[e]‘ results can validly claim a monopoly over a basic scientific relationship used in medical treatment such that any doctor necessarily infringes the patent merely by thinking about the relationship after looking at a test result.” Briefly, the patent in question is directed to a method of detecting a vitamin B deficiency, claiming two steps: assay a body fluid for an elevated level of total homocysteine; and correlate an elevated level with the vitamin deficiency. In its petition for review to the Supreme Court, Laboratory Corp. argued that the standard of intent to induce applied by the Federal Circuit is so low that a defendant becomes an inducer by merely delivering to doctors factual information about the correlation of elevated homocysteine levels and vitamin deficiency. In its review of the underlying question presented, there is a potential that U.S. Supreme Court could address the Lundgren “technological arts” issue. BROADER SCOPE OF SUBJECT MATTER As a result of the Lundgren decision and the subsequent interim guidelines, the PTO has broadened the scope of the eligible subject matter for patents directed to business methods. Applicants for business-method patents no longer need to draft business-method patent applications and claims to recite limitations within the “technological arts” — tied to a computer or other electronic devices. Consequently, businesses should now consider seeking U.S. patent rights for any unique business method covering every conceivable business operation. In addition, business-method patent owners and applicants should review existing portfolios of pending patent applications and issued patents (issued within the last two years) to determine if any of the pending claims should be amended and, in the case of the issued patents, if the patentee should seek reissue to delete unnecessary limitations such as a computer, database or other electronic devices. Finally, the following should also be considered when seeking patent protection for business processes. First, U.S. courts are not bound by the PTO’s decisions and thus are not required to follow them absent a conclusive U.S. Supreme Court ruling on the “technological arts” issue. Second, businesses that seek foreign patent protection, in addition to U.S. patent protection, should be aware that, unlike the U.S. standards for business methods, foreign countries have a more stringent requirement on patentable subject matter. For example, Europe has a specific “technical effect” requirement on patent applications claiming business methods and thus requires patent claims directed toward a software process for performing the invention. Consequently, when filing a patent application directed to a business method, one should consider the following. First, the patent specification should contain at least one example that describes a software process for performing the invention using computers, servers, routers along with algorithmic diagrams so that, in the future, claims that are filed in a foreign country to a software process for performing the invention will have support. Second, U.S. patent applications should include claims of varying scope — some narrower claims including “technological art” limitations and other broader claims not having such limitations. This approach should provide businesses, seeking to patent-protect their business methods, with a flexible strategy that covers both the restrictive pre-Lundgren and now more liberal Lundgren approach to patentability.Barry Schindler is a shareholder in the New York office of Greenberg Traurig and is co-chairman of the firm’s patent-prosecution practice. He specializes in helping companies build and manage patent portfolios. His clients include leading financial institutions, financial trading organizations and search engine organizations.

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