Sunstein, Kann, Murphy & Timbers LLP

September 2011 IP Update

Substance Over Form – An Eligibility Test For Evaluating the “Abstractness” Of Process Claims

By Jeffrey T. Klayman, a member of our Patent Practice Group

he U.S. Court of Appeals for the Federal Circuit has taken aim at the “claim-drafting ingenuity” through which, the court suggests, patent lawyers sometimes obtain patents for otherwise unpatentable abstract ideas. This is particularly true for process claims in the business method, software, and medical diagnostic/treatment arts.

In reaction, the Federal Circuit, which hears appeals of all patent cases, posits a framework for evaluating patent subject matter eligibility that seeks to elevate the substance of the invention over the form of the patent claims.

Influential court opinions have established that patents may not be obtained for laws of nature, physical phenomena, and abstract ideas. In two recent decisions, the Federal Circuit explored the “abstract ideas” exception to patent eligibility. And in a related opinion ¹, the court’s chief judge notably railed against the “gamesmanship” that can reward clever claim drafters and “cheat naïve inventors out of their inventions due to poor claim drafting.”

CyberSource Corp. v. Retail Decisions, Inc. relates to online credit card fraud detection. Two claims, a method claim and a “Beauregard” claim (a claim directed to a computer-readable medium on which a computer program is stored), are at issue. The method claim reads as follows:

3. A method for verifying the validity of a credit card transaction over the Internet comprising the steps of:

obtaining information about other transactions that have utilized an Internet address that is identified with the credit card transaction;

constructing a map of credit card numbers based upon the other trans-actions and;

utilizing the map of credit card numbers to determine if the credit card transaction is valid.

Although the claim makes reference to “the Internet” and is written in the context of a computer-implemented invention, the court looked to the underlying invention as opposed to the form of the claim. It found that the claim is directed to purely mental steps (a sub-category of abstract ideas) and hence does not meet patent eligibility requirements.

The court noted that all three steps can be achieved by the human mind or by a human with pencil and paper; that none of the steps is specifically tied to the Internet or other machine such as a computer; and that the Internet does not implement any of the steps.

Indeed, the first step can be performed by a human who simply reads records of Internet credit card transactions from a preexisting database, the second step can be performed by writing down a list of credit card transactions made from a particular IP address, and the third step is so broadly worded that it encompasses literally any method for detecting fraud based on the gathered transaction and Internet address data.

For these reasons, the court held that the claim was not meaningfully tied to a machine or apparatus and hence did not meet the machine-or-transformation test for patent eligibility². Going further, the court suggested that any incidental use of a computer to perform the mental processes of the claim would not have imposed a meaningful limit on the claim’s scope.

Thus, even if the claim had been drafted expressly as a computer-implemented method so as to literally be tied to a machine, the claim still would not have been patentable because, by the court’s “substance over form” analysis, performing the equivalent of mental steps on a computer would not have imparted patent-eligibility to what it considered an unpatentable invention.

On top of these deficiencies, the claim is not limited to any specific fraud-detection formula or mathematical algorithm. The court did not expressly state that this omission doomed the claim, although, as discussed below, implementational complexity is a factor that the court may consider in determining patent eligibility. In CyberSource, the court simply could not make such an evaluation because no implementation was described.

Importantly, the court recognized that the eligibility exclusion for purely mental steps is very narrow. While this claim failed because all steps were mental steps, the court stressed that a claim having mental steps in combination with non-mental steps may be patent-eligible.

In contrast to its decision in CyberSource, the Federal Circuit panel that decided Ultramercial, LLC v. Hulu, LLC found that a similar claim directed to distribution of products over the Internet met patent eligibility requirements.³ A major factor, not present in the CyberSource claim, that tipped the scales in favor of patent-eligibility for the Ultramercial claim, was its specific application to the Internet and a cyber-market environment.

For example, one step requires actual use of a website, and others involve controlling access to the media product. It was easy for the court to conclude that the Ultramercial claim taught a method for collecting revenue from the distribution of media products over the Internet, as opposed to claiming a mathematical algorithm, a series of purely mental steps, or any similarly abstract concept.

The court also credited the Ultramercial method’s level of complexity, finding
it likely to require intricate computer programming. The invention involves an extensive computer interface including controlled interaction with a consumer via an Internet website, something far removed from purely mental steps. The Ultramercial claim was sufficiently tied to a machine (i.e., a computer) to warrant patent eligibility.

The court did not define how much use of an Internet website to practice a method is sufficient to satisfy patent eligibility requirements. It also stopped short of marking out the level of programming complexity required before a computer-implemented method can be patent-eligible. The court simply found the Ultramercial claim to be patent-eligible, in part because of these factors.

As a result, the Court provides a modicum of guidance regarding the types of process-claim limitations that will meet patent eligibility requirements, although it is clear that eligibility will be evaluated on a case-by-case basis. A limitation that works in one particular claim in one patent might not work for claims in other patents. Thus, patent eligibility will continue to be a subjective exercise that will depend in large part on the form of the claims.

The CyberSource decision is also notable for its treatment of the “Beauregard” claim^.4 Even though the claim technically recites a “manufacture” (i.e., a computer-readable medium) rather than a “process,” the court again looked to the substance of the invention rather than to the form of the claim and determined that the claim was not directed to patent-eligible subject matter. CyberSource argued that this claim could not be blocked by the “abstract ideas” exception to patent eligibility because it is directed to a tangible product.

The court, however, perhaps taking some liberty, read the claim as reciting nothing more than a computer-readable medium containing program instructions for executing the method of a prior claim, which is drawn to a mental process, i.e., an abstract idea. Specifically, the court said:

"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."

In the end, even though the Federal Circuit states a “substance over form” policy for evaluating patent-eligibility of process claims, the “substance” of the invention often will be based on whether the claim is meaningfully tied to a machine or apparatus so as to impose meaningful limits on the claim’s scope.

In essence, then, “substance over form” tests whether the form of the claim is sufficient to overcome the “abstract idea” exception to patent eligibility. By the same token, it tests the breadth of the claim, with overbroad claims that are not meaningfully tied to a machine likely to be considered “abstract,” and narrow claims that are meaningfully tied to a machine more likely to be considered patent-eligible.

It is ironic, then, that even as it seems bothered by “form over substance” claim drafting, the Federal Circuit itself will determine patent eligibility based on the form of the claim, which in turn is driven in large part by the court’s own examples of what is and what is not patent-eligible subject matter.

_____________________________

¹ Classen Immunotherapies, Inc. v. Biogen IDEC

² The Federal Circuit had proposed a “machine or transformation” test to determine patent eligibility. Under that test, a process would be patent-eligible if either (1) it is meaningfully tied to a particular machine or apparatus so as to impose meaningful limits on the claim’s scope or (2) it transforms a particular article into a different state or thing. The Supreme Court, in its review of that test in Bilski v. Kappos, 130 S.Ct. 3218 (2010), made clear that the test is “a useful and important clue” but not the ultimate test for determining patent eligibility.

³ The Ultramercial method claim reads as follows:

1. A method for distribution of products over the Internet via a facilitator, said method comprising the steps of:
a first step of receiving, from a content provider, media products that are covered by intellectual-property rights protection and are available for purchase, wherein each said media product being comprised of at least one of text data, music data, and video data;
a second step of selecting a sponsor message to be associated with the media product, said sponsor message being selected from a plurality of sponsor messages, said second step including accessing an activity log to verify that the total number of times which the sponsor message has been previously presented is less than the number of transaction cycles contracted by the sponsor of the sponsor message;
a third step of providing the media product for sale at an Internet website;
a fourth step of restricting general public access to said media product;
a fifth step of offering to a consumer access to the media product without charge to the consumer on the precondition that the consumer views the sponsor message;
a sixth step of receiving from the consumer a request to view the sponsor message, wherein the consumer submits said request in response to being offered access to the media product;
a seventh step of, in response to receiving the request from the consumer, facilitating the display of a sponsor message to the consumer;
an eighth step of, if the sponsor message is not an interactive message, allowing said consumer access to said media product after said step of facilitating the display of said sponsor message;
a ninth step of, if the sponsor message is an interactive message, presenting at least one query to the consumer and allowing said consumer access to said media product after receiving a response to said at least one query;
a tenth step of recording the transaction event to the activity log, said tenth step including updating the total number of times the sponsor message has been presented; and
an eleventh step of receiving payment from the sponsor of the sponsor message displayed.

⁴ The Beauregard claim in CyberSource reads as follows:

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:
obtaining credit card information relating to the transactions from the consumer; and
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,
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;
[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.

	Articles Our Newsletters Speaking/Press Other Useful IP Links	September 2011 IP Update Substance Over Form – An Eligibility Test For Evaluating the “Abstractness” Of Process Claims By Jeffrey T. Klayman, a member of our Patent Practice Group T he U.S. Court of Appeals for the Federal Circuit has taken aim at the “claim-drafting ingenuity” through which, the court suggests, patent lawyers sometimes obtain patents for otherwise unpatentable abstract ideas. This is particularly true for process claims in the business method, software, and medical diagnostic/treatment arts. In reaction, the Federal Circuit, which hears appeals of all patent cases, posits a framework for evaluating patent subject matter eligibility that seeks to elevate the substance of the invention over the form of the patent claims. Influential court opinions have established that patents may not be obtained for laws of nature, physical phenomena, and abstract ideas. In two recent decisions, the Federal Circuit explored the “abstract ideas” exception to patent eligibility. And in a related opinion ¹, the court’s chief judge notably railed against the “gamesmanship” that can reward clever claim drafters and “cheat naïve inventors out of their inventions due to poor claim drafting.” CyberSource Corp. v. Retail Decisions, Inc. relates to online credit card fraud detection. Two claims, a method claim and a “Beauregard” claim (a claim directed to a computer-readable medium on which a computer program is stored), are at issue. The method claim reads as follows: 3. A method for verifying the validity of a credit card transaction over the Internet comprising the steps of: obtaining information about other transactions that have utilized an Internet address that is identified with the credit card transaction; constructing a map of credit card numbers based upon the other trans-actions and; utilizing the map of credit card numbers to determine if the credit card transaction is valid. Although the claim makes reference to “the Internet” and is written in the context of a computer-implemented invention, the court looked to the underlying invention as opposed to the form of the claim. It found that the claim is directed to purely mental steps (a sub-category of abstract ideas) and hence does not meet patent eligibility requirements. The court noted that all three steps can be achieved by the human mind or by a human with pencil and paper; that none of the steps is specifically tied to the Internet or other machine such as a computer; and that the Internet does not implement any of the steps. Indeed, the first step can be performed by a human who simply reads records of Internet credit card transactions from a preexisting database, the second step can be performed by writing down a list of credit card transactions made from a particular IP address, and the third step is so broadly worded that it encompasses literally any method for detecting fraud based on the gathered transaction and Internet address data. For these reasons, the court held that the claim was not meaningfully tied to a machine or apparatus and hence did not meet the machine-or-transformation test for patent eligibility². Going further, the court suggested that any incidental use of a computer to perform the mental processes of the claim would not have imposed a meaningful limit on the claim’s scope. Thus, even if the claim had been drafted expressly as a computer-implemented method so as to literally be tied to a machine, the claim still would not have been patentable because, by the court’s “substance over form” analysis, performing the equivalent of mental steps on a computer would not have imparted patent-eligibility to what it considered an unpatentable invention. On top of these deficiencies, the claim is not limited to any specific fraud-detection formula or mathematical algorithm. The court did not expressly state that this omission doomed the claim, although, as discussed below, implementational complexity is a factor that the court may consider in determining patent eligibility. In CyberSource, the court simply could not make such an evaluation because no implementation was described. Importantly, the court recognized that the eligibility exclusion for purely mental steps is very narrow. While this claim failed because all steps were mental steps, the court stressed that a claim having mental steps in combination with non-mental steps may be patent-eligible. In contrast to its decision in CyberSource, the Federal Circuit panel that decided Ultramercial, LLC v. Hulu, LLC found that a similar claim directed to distribution of products over the Internet met patent eligibility requirements.³ A major factor, not present in the CyberSource claim, that tipped the scales in favor of patent-eligibility for the Ultramercial claim, was its specific application to the Internet and a cyber-market environment. For example, one step requires actual use of a website, and others involve controlling access to the media product. It was easy for the court to conclude that the Ultramercial claim taught a method for collecting revenue from the distribution of media products over the Internet, as opposed to claiming a mathematical algorithm, a series of purely mental steps, or any similarly abstract concept. The court also credited the Ultramercial method’s level of complexity, finding it likely to require intricate computer programming. The invention involves an extensive computer interface including controlled interaction with a consumer via an Internet website, something far removed from purely mental steps. The Ultramercial claim was sufficiently tied to a machine (i.e., a computer) to warrant patent eligibility. The court did not define how much use of an Internet website to practice a method is sufficient to satisfy patent eligibility requirements. It also stopped short of marking out the level of programming complexity required before a computer-implemented method can be patent-eligible. The court simply found the Ultramercial claim to be patent-eligible, in part because of these factors. As a result, the Court provides a modicum of guidance regarding the types of process-claim limitations that will meet patent eligibility requirements, although it is clear that eligibility will be evaluated on a case-by-case basis. A limitation that works in one particular claim in one patent might not work for claims in other patents. Thus, patent eligibility will continue to be a subjective exercise that will depend in large part on the form of the claims. The CyberSource decision is also notable for its treatment of the “Beauregard” claim^.4 Even though the claim technically recites a “manufacture” (i.e., a computer-readable medium) rather than a “process,” the court again looked to the substance of the invention rather than to the form of the claim and determined that the claim was not directed to patent-eligible subject matter. CyberSource argued that this claim could not be blocked by the “abstract ideas” exception to patent eligibility because it is directed to a tangible product. The court, however, perhaps taking some liberty, read the claim as reciting nothing more than a computer-readable medium containing program instructions for executing the method of a prior claim, which is drawn to a mental process, i.e., an abstract idea. Specifically, the court said: "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." In the end, even though the Federal Circuit states a “substance over form” policy for evaluating patent-eligibility of process claims, the “substance” of the invention often will be based on whether the claim is meaningfully tied to a machine or apparatus so as to impose meaningful limits on the claim’s scope. In essence, then, “substance over form” tests whether the form of the claim is sufficient to overcome the “abstract idea” exception to patent eligibility. By the same token, it tests the breadth of the claim, with overbroad claims that are not meaningfully tied to a machine likely to be considered “abstract,” and narrow claims that are meaningfully tied to a machine more likely to be considered patent-eligible. It is ironic, then, that even as it seems bothered by “form over substance” claim drafting, the Federal Circuit itself will determine patent eligibility based on the form of the claim, which in turn is driven in large part by the court’s own examples of what is and what is not patent-eligible subject matter. _____________________________ ¹ Classen Immunotherapies, Inc. v. Biogen IDEC ² The Federal Circuit had proposed a “machine or transformation” test to determine patent eligibility. Under that test, a process would be patent-eligible if either (1) it is meaningfully tied to a particular machine or apparatus so as to impose meaningful limits on the claim’s scope or (2) it transforms a particular article into a different state or thing. The Supreme Court, in its review of that test in Bilski v. Kappos, 130 S.Ct. 3218 (2010), made clear that the test is “a useful and important clue” but not the ultimate test for determining patent eligibility. ³ The Ultramercial method claim reads as follows: 1. A method for distribution of products over the Internet via a facilitator, said method comprising the steps of: a first step of receiving, from a content provider, media products that are covered by intellectual-property rights protection and are available for purchase, wherein each said media product being comprised of at least one of text data, music data, and video data; a second step of selecting a sponsor message to be associated with the media product, said sponsor message being selected from a plurality of sponsor messages, said second step including accessing an activity log to verify that the total number of times which the sponsor message has been previously presented is less than the number of transaction cycles contracted by the sponsor of the sponsor message; a third step of providing the media product for sale at an Internet website; a fourth step of restricting general public access to said media product; a fifth step of offering to a consumer access to the media product without charge to the consumer on the precondition that the consumer views the sponsor message; a sixth step of receiving from the consumer a request to view the sponsor message, wherein the consumer submits said request in response to being offered access to the media product; a seventh step of, in response to receiving the request from the consumer, facilitating the display of a sponsor message to the consumer; an eighth step of, if the sponsor message is not an interactive message, allowing said consumer access to said media product after said step of facilitating the display of said sponsor message; a ninth step of, if the sponsor message is an interactive message, presenting at least one query to the consumer and allowing said consumer access to said media product after receiving a response to said at least one query; a tenth step of recording the transaction event to the activity log, said tenth step including updating the total number of times the sponsor message has been presented; and an eleventh step of receiving payment from the sponsor of the sponsor message displayed. ⁴ The Beauregard claim in CyberSource reads as follows: 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: obtaining credit card information relating to the transactions from the consumer; and 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, 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; [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.