1. Patent Eligibility 101:
Business Method Patents after Bilski
Cybersource, Hulu, and RFT
Timothy Hadlock
Corporate IP Counsel Forum
New York, NY
May 16, 2012

2. Business Methods
• Software-based Inventions
• Medical Processes and Diagnostics
• Business Management
• Signal Processing

3. Bilski Supreme Court Decision
by Numbers
• Number of Amicus Briefs: 22
• Cited by:
• Supreme Court – 3
• Federal Circuit – 13
• District Court - 17
• Law Reviews - 137

4. Bilski Holding
“In disapproving an exclusive machine-ortransformation test, we by no means foreclose the
Federal Circuit's development of other limiting
criteria that further the purposes of the Patent Act
and are not inconsistent with its text.”
Majority opinion, 130 S.Ct. at 3231

5. CyberSource Corp. v. Retail Decisions Inc.
2011 U.S. App. LEXIS 16871 (August 16, 2011)
“As we've reported, the Supreme Court's decision in
Bilski v. Kappos left many in the patent bar unsatisfied.
Rather than resolving the hotly contested question of
whether ‘business methods’ are patentable, the justices
issued a narrow opinion. Those hoping for a more
forceful ruling than Bilski got their wish on Tuesday, in
the form of a unanimous Federal Circuit decision that
could be used to invalidate both method patents and
patents for related software.”
Excerpted from: Jan Wolfe, Greenberg Traurig Wins
Key Method Patent Ruling at Federal Circuit,The
American Lawyer (August 17, 2011)

6. CyberSource
Method Claim
3. A method for verifying the validity of a credit
card
transaction over the Internet comprising the steps of:
a) obtaining information about other transactions that have
utilized an Internet address that is identified with the [ ]
credit card transaction;
b) constructing a map of credit card numbers based upon the
other transactions and;
c) utilizing the map of credit card numbers to determine if the
credit card transaction is valid.

7. CyberSource
Manufacture Claim
2. A computer readable medium containing program instructions for
detecting fraud in a credit card transaction between a consumer and a
merchant over the Internet, wherein execution of the program
instructions by one or more processors of a computer system causes the
one or more processors to carry out the steps of:
a) obtaining credit card information relating to the
from the consumer; and
transactions
b) verifying the credit card information based upon
values of
plurality of parameters, in combination with information that
identifies the consumer, and
that may provide an indication whether
the credit
card transaction is fraudulent,

8. CyberSource
Manufacture Claim (continued)
wherein each value among the plurality of parameters is weighted in the
verifying step according to an importance, as determined by the
merchant, of that value to the credit card transaction, so as to provide
the merchant with a quantifiable indication of whether the credit card
transaction is fraudulent,
wherein execution of the program instructions by one or more
processors of a computer system causes that one or more processors to
carry out the further steps of . . . ;
[repeats 3 steps of method claim].

9. CyberSource
District Court Holding
Method Claim 3 – "an unpatentable mental process for
collecting data and weighing values," which did "not
become patentable by tossing in references to [I]nternet
commerce."
Manufacture Claim 2 – "simply appending 'A computer
readable media including program instructions . . .' to an
otherwise non-statutory process claim is insufficient to
make it statutory."

10. CyberSource
Analysis
Bilski “Test/Clue”
(1)
it is tied to a particular machine or
apparatus; or
(2) it transforms a particular article into a
different state or thing."

11. CyberSource
Analysis (continued)
“ ‘We further held that, to satisfy the
machine prong of the test, the use of a
machine "must impose meaningful limits
on the claim's scope.’ ”
(slip op. at 7)

12. CyberSource
Analysis (continued)
“"The Court's precedents provide
three specific exceptions to §
101's broad patent-eligibility
principles: 'laws of nature,
physical phenomena, and
abstract ideas.'"”
(slip op. at 8)

13. CyberSource
Analysis (continued)
“We are not persuaded by the appellant's
argument that the claimed method is tied to a
particular machine because it "would not be
necessary or possible without the Internet."
Appellant's Br. 42. Regardless of whether "the
Internet" can be viewed as a machine, it is clear
that the Internet cannot perform the fraud
detection steps of the claimed method.”
(slip op. at 10-11)

14. CyberSource
Analysis (continued)
“Claim 3 does not limit its scope to any
particular fraud detection algorithm, and no
algorithms are disclosed in the '154 patent's
specification. Rather, the broad scope of claim
3 extends to essentially any method of detecting
credit card fraud based on information relating
past transactions to a particular "Internet
address," even methods that can be performed
in the human mind.”
(slip op. at 16)

15. CyberSource
Analysis (continued)
New rule:
“Methods which can be performed entirely in the human mind
are unpatentable not because there is anything wrong with
claiming mental method steps as part of a process containing
non-mental steps, but rather because computational methods
which can be performed entirely in the human mind are the
types of methods that embody the "basic tools of scientific and
technological work" that are free to all men and reserved
exclusively to none.”
(slip op. at 18)

16. CyberSource
Analysis – Manufacture Claim
“CyberSource argues that claim 2 is patenteligible per se because it recites a "manufacture,"
rather than a "process," . . . cannot possibly fall
within any of the three patent-eligibility
exceptions the Supreme Court has recognized for
"laws of nature, physical phenomena, [or]
abstract ideas." Appellant's Br. 47-48 (quoting
Bilski, 130 S. Ct. at 3225). We disagree.”
(slip op. at 21)

17. CyberSource
Analysis – Manufacture Claim
“it is clear from the emphasized text that claim 2
recites nothing more than a computer readable
medium containing program instructions for
executing the method of claim 3.”
(slip op. at 20).

18. CyberSource
Analysis – Manufacture Claim (cont’d)
New analysis rule for Beauregard Claims:
“Regardless of what statutory category ("process, machine,
manufacture, or composition of matter," 35 U.S.C. § 101) a
claim's language is crafted to literally invoke, we look to
the underlying invention for patent-eligibility purposes.
Here, it is clear that the invention underlying both claims
2 and 3 is a method for detecting credit card fraud, not a
manufacture for storing computer-readable information.”
(slip op. at 21-22)

19. CyberSource
Analysis – Manufacture Claim (cont’d)
New analysis rule: Compare to Abele
“Accordingly, the court placed "the
burden ... on the applicant to demonstrate
that the claims [were] truly drawn to [a]
specific apparatus distinct from other
apparatus[es] capable of performing the
identical functions."
(slip op. at 23)

20. CyberSource
Analysis – Manufacture Claim (cont’d)
New analysis rule: Compare to Abele
“CyberSource has not met its burden to demonstrate that
claim 2 is "truly drawn to a specific" computer readable
medium, rather than to the underlying method of credit
card fraud detection. . . programming a general purpose
computer to perform an algorithm "creates a new machine,
. . . But we have never suggested that simply reciting the
use of a computer to execute an algorithm that can be
performed entirely in the human mind falls within the
Alappat rule.”
(slip op. at 23).

21. CyberSource
Analysis – Manufacture Claim (cont’d)
“it is clear that the invention
underlying both claims 2 and 3 is a
method for detecting credit card fraud,
not a manufacture for storing
computer-readable information.”
(slip op. at 22)

22. CyberSource
Analysis – Manufacture Claim (cont’d)
New Rule:
“In the present case, CyberSource has not
met its burden to demonstrate that claim 2
is "truly drawn to a specific" computer
readable medium, rather than to the
underlying method of credit card fraud
detection.”
(slip op. at 23)

23. CyberSource
Analysis – Manufacture Claim (cont’d)
Re. Particular Machine
Special Purpose Computer – In re Alappat:
“But we have never suggested that simply reciting
the use of a computer to execute an algorithm that
can be performed entirely in the human mind falls
within the Alappat rule.”
(slip. op. at 23).

24. CyberSource
Analysis – Manufacture Claim (cont’d)
Re. Particular Machine (cont.)
“to impart patent-eligibility to an otherwise
unpatentable process under the theory that the
process is linked to a machine, the use of the
machine "must impose meaningful limits on the
claim's scope." . . . In other words, the machine
"must play a significant part in permitting the
claimed method to be performed." . . .”
(slip. op. at 24).

25. CyberSource
Analysis – Manufacture Claim (cont’d)
“That purely mental processes can be unpatentable,
even when performed by a computer, was precisely
the holding of the Supreme Court in Gottschalk v.
Benson.”
(slip op. at 28)

26. CyberSource
Analysis – Manufacture Claim (cont’d)
Practical Matter Test
“This is entirely unlike cases where, as a
practical matter, the use of a computer is
required to perform the claimed method.
For example, in SiRF Tech…”
(slip op. at 28)

27. CyberSource
Analysis – Manufacture Claim (cont’d)
Re.: Transformation
“We agree with the district court that the claimed
process manipulates data to organize it in a logical
way such that additional fraud tests may be
performed. The mere manipulation or
reorganization of data, however, does not satisfy
the transformation prong. Thus, claim 2 fails to
meet the transformation test.”
(slip. op. at 24).

28. RCT v. Microsoft (Fed. Cir. 2010)
Holding: Claims are directed to patentable subject matter
Technology: Digital image halftoning
“Section 101 does not permit a court to reject subject matter
categorically because it finds that a claim is not worthy of a patent.”
“This court will not presume to define ‘abstract’ beyond the recognition
that this disqualifying characteristic should exhibit itself so manifestly
as to override the broad statutory categories of eligible subject matter
and the statutory context that directs primary attention on the
patentability criteria of the rest of the Patent Act.”
“Inventions with specific applications or improvements to technologies
in the marketplace are not likely to be so abstract that they override the
statutory language and framework of the Patent Act.”

29. Classen Immunotherapies v. Biogen
(Fed. Cir 2011)
Technology: Method of Immunization
Majority Holding: Representative claims were patent eligible under
section 101
Section 101 should only be used as a “coarse filter”
Judge Rader’s “Additional Views”
• Eligibility Restrictions have resulted in Claim Drafting
Gamesmanship
• Focus Instead on the Substantive Conditions of Patentability:
Sections 102, 103 and 112

30. Ultramercial v. Hulu (C.D. Cal. Aug. 13,
2010)
•
•
•
•
•
“Method for allowing Internet users to view copyrighted material free
of charge in exchange for watching certain advertisements.”
Fails both prongs of Machine or Transformation test
• Use of Internet is not a tie to a specific machine (CyberSource)
• Any “transformation” of data is incidental and not a meaningful
limitation
Claim is directed to an Abstract Idea – using advertising to offset the
cost of media to the viewers
Oral Argument at the Federal Circuit was held in August 2011
Judge Rader’s admonishes defendant for not using 102/103 to
dispose of the case; finds nothing “abstract” about the claim.

31. DealerTrack v. Huber - C.D. Cal. (July 7,
2009)
•
•
•
•
Technology: Computer-aided method of managing a credit
application
Holding: Claims ineligible - fail machine prong
• No “particular machines” claimed
• Claimed central processor “is nothing more than a general
purpose computer that has been programmed in some
unspecified manner.”
SJ motion for invalidity granted.
Federal Circuit Oral Argument held in May 2011

32. USPTO Efforts – 101 Guidance:
Factors Weighing Towards Eligibility
•
Recitation of a machine or transformation (either express
or inherent).
•
The claim is directed toward applying a law of nature.
•
The claim is more than a mere statement of a concept.

33. USPTO Efforts – 101 Guidance:
Factors Weighing Against Eligibility
1.
No recitation of a machine or transformation
(either express or inherent).
2.
Insufficient recitation of a machine or
transformation.
The claim is not directed to an application of
a law of nature.
4. The claim is a mere statement of a general
concept
3.

34. Q and A