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IP Alert
IP Alert: Federal Circuit Issues Major Ruling Regarding Software Patents

August 19, 2011

On August 16, 2011, the Court of Appeals for the Federal Circuit issued a decision that impacts one popular way to claim software-based inventions. In a unanimous three-judge panel decision in CyberSource Corp. v. Retail Decisions, Inc., the court held that the test for patentable subject matter for methods set forth in the Supreme Court in Bilski v. Kappos can be applied to so-called “Beauregard” claims to find such claims invalid as pertaining to unpatentable subject matter.

Bilski Test Invalidates Method Claim

In Bilski, the Supreme Court upheld the “machine-or-transformation” test as one approach for courts to use to determine whether method claims recite statutory subject matter. In short, the method as claimed should be performed by a particular machine or result in the transformation of a particular article into a different state or thing, otherwise the method fails to recite patentable subject matter and is invalid under 35 U.S.C. 101.

In CyberSource, the Federal Circuit first evaluated a method claim directed toward verifying the validity of a credit card transaction over the Internet using Internet-based addresses. The claim (claim 3 of U.S. Patent No. 6,029,154 (“the ‘154 patent”)) in its entirety recites:

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.

The Federal Circuit held that obtaining and ordering information or data could not amount to a “transformation” under the law. The court also held that the claim did not recite a structure that executes the claimed method. More specifically, although the claim mentions a “transaction over the Internet,” the court found that the Internet could not perform the recited steps of the claim, and the claim mentions no other structure or particular algorithm for performing the recited steps. Accordingly, the claim fails the machine prong of the machine-or-transformation test.

The Federal Circuit then held that the method claim also failed to recite eligible subject matter because it covers a purely mental process. In other words, a person using a pen and paper could practice every step of the method, and therefore, the method claim is unpatentable as a mental process.

Bilski Test Invalidates Other Claim Type Based on the Invalidly Claimed Method

Turning to claim 2 of the ‘154 patent, the Federal Circuit looked to the underlying invention of claim 2 instead of the stated subject matter of the claim for determining whether the claim recited patentable subject matter. Claim 2 is written in what is called a “Beauregard” style, so named after In re Beauregard, which held that claims directed to a computer readable medium that stores programming instructions for execution by a computer or processing device is a proper claim style. In the ‘154 patent, claim 2 essentially recited a “computer readable medium containing program instructions for” carrying out the method of claim 3.

Although on its face claim 2 is directed to an apparatus (“a computer readable medium”), which is patentable subject matter, and the machine-or-transformation test of Bilski was explicitly applied only to method claims, the Federal Circuit stated that “we look to the underlying invention for patent-eligibility purposes.” Accordingly, because the court found that the underlying invention of claim 2 is merely that of the method recited by claim 3, which did not recite patentable subject matter, claim 2 also fails to recite patentable subject matter.

Practice Tips

In view of this case, any “Beauregard”-style computer-readable-medium-type claims should be written to comply with the Bilski test for patentable subject matter instead of relying solely on the claim type to establish patentability in these regards. Should a patent have already issued with Beauregard-style claims not otherwise in compliance with the Bilski test, options are available for correcting those claims, such as through filing a reissue application with the U.S. Patent and Trademark Office.

If you have questions or would like to discuss your options with regard to this style of claims in view of CyberSource, please contact your Fitch Even attorney or Nicholas Peters, the author of this alert. Going forward, Fitch Even will monitor this case for any rehearing or certiorari petition and will report on any future developments.

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