Federal Judge: The Bell Tolls for Business Method Patents

By Alexander Smolenski, Jr..

April 2009 IP Update

A federal judge has provoked much commentary by expanding the Bilski test to invalidate not only a business method claim, but also a computer-program product claim.  In doing so, the judge made the foreboding observation that “[t]he closing bell may be ringing for business method patents.”

Cybersource Corp. v. Retail Decisons, Inc.involved two patent claims directed to detecting fraud in credit card transactions over the internet. One is a method claim, the other a so-called “Beauregard claim,” directed to a computer-readable medium that includes program code for performing the steps recited in that claim. After a stay pending an ex parte reexamination, Retail Decision sought summary judgment of invalidity, contending that the claims are not drawn to patent-eligible subject matter as required by 35 U.S.C. § 101.

Surprisingly, Judge Marilyn Patel of the Northern District of California used the test laid out in Bilski to invalidate both the method claim and the Beauregard product claim. In the Bilski decision, the Federal Circuit held that, to be eligible for a patent, a process must either be tied to a particular machine or apparatus, or involve a transformation of a particular article into a different state or thing. Further, the machine or transformation in the claimed process (a) must impose meaningful limits on the claims scope, and (b) must not merely be insignificant extra-solution activity.

Judge Patel first analyzed whether the claims of the Cybersource patent met the transformation prong of the Bilski test. Cybersource contended that the fraud verification defined by the claims manipulates credit card numbers by using them to construct and utilize a “map of credit card numbers.” In rejecting Cybersource’s argument, Judge Patel stated that ““manipulation” did not amount to a “transformation,” as transformation suggests a fundamental change, whereas manipulation does not. “Simply collecting data into a vague sort of map does not amount to a transformation.”

Judge Patel also found that the claimed invention did not transform an article, e.g.,a physical object or an electronic signal representative of a physical object.  While Cybersource asserted that the manipulated credit card numbers represent physical objects, namely, credit cards, Judge Patel retorted that a credit card no more represents a physical credit card than a card represents a number. “Both the number and the card represent a common underlying abstraction – a credit card account, which is a series of rights and obligations existing between an account holder and a card issuer.”

Cybersource further claimed that references in its patent claims to an “Internet address” refer exclusively to an “Internet Protocol (IP) address,” thereby denoting a hardware device connected to the internet. An IP address, Cybersource reasoned, represents a physical object and could potentially meet the transformation prong.  Judge Patel pointed out that “[t]he problem with this argument is that the claimed method does not transform or even manipulate the IP address itself.”

Judge Patel next considered the other prong of the Bilski test, that is, whether the claims at issue were tied to a machine or apparatus.  Cybersource argued that both claims recite “fraud detection over the Internet” and thus are implemented in the myriad “general and special  computers, routers, hubs, switches and other specialized hardware.”

For three reasons, recitation of “over the Internet” fails to tie the claims to a particular machine.  First, said the judge, the internet is not a particular machine but an abstraction. “One can touch a computer or a network cable, but one cannot touch ’the internet.’

Secondly, the role of the internet is an “insignificant extra-solution activity,” within the meaning of Bilski. “An unpatentable mental process for collecting data and weighing values does not become patentable by tossing in references to internet commerce.”

Lastly, Judge Patel stated that “the use of the internet does not impose meaningful limits on the scope of the claims.” The Cybersource patent claims would “broadly preempt the fundamental process of fraud detection using associations between credit card numbers. A limitation to ‘only’ the vast area of online credit card transactions is not meaningful.” The court thereby concluded that the process claims are invalid as failing to meet either prong of Bilski’s machine or transformation test.

At some length, Judge Patel addressed Cybersource’s contention that its computer product claim is not a process claim subject to the Bilski test, but rather a  “specialized apparatus” or Beauregard claim directed to a computer-readable medium containing program instruction. In justifying the application of Bilski, the court explained that the product claim is actually a process implemented though unspecified program instructions. “Indeed, the patent teaches nothing more than the idea of using a programmed computer to implement the process in some way. . .  Simply appending ‘A computer readable media including program instructions …’ to an otherwise non-statutory process is insufficient to make it statutory.”

In finding the Cybersource patent claims ineligible for patent protection and granting summary judgment in favor of Retail Decisions, Judge Patel made a dire prediction. The Federal Circuit’s decision in Bilski suggests to her that “[t]he closing bell may be ringing for business method patents, and their patentees may find they have become bagholders.” The judge further anticipated that the viability of business patents will receive serious consideration by the Supreme Court in the near future.

Many other judges will feel similarly compelled by the Bilski opinion to strike down process inventions as unprotectable. Fearing Bilski’s unfairly sweeping effects,  Sunstein filed an amicus brief last month, asking the Supreme Court to review, and overturn, the Federal Circuit’s decision in that case.