Sarnoff: The Patent Act’s Mention of Business Method Patents Does Not Mean that Section 101 Should Extend to Cover Business Methods

Section 273 of the Patent Act mentions the possibility of a patent covering “a method of doing or conducting business.” Part of Bilski’s petition for certiorari relies on that section as an argument that Congress intended for Section 101 to cover business methods. That argument is a red herring — The Federal Circuit's Bilski decision did not eliminate business method patents. Rather, the decision only requires that any claimed process meet the machine-or-transformation test.

In his Federal Circuit amicus brief, professor Joshua Sarnoff wholly rejected the implication that Section 273 proves that Congress intended the Patent Act to extend coverage to novel business methods. He argues as follows:

Sarnoff: … [T]he State Street Bank decision did not motivate the enactment of Section 273’s prior user rights provision. Rather, it motivated restriction of that provision to business methods from an earlier and broader proposal.[2] Congress did not approve of this Court’s decision, but focused on business methods because it felt that the strongest fairness arguments for a prior user defense existed in regard to the newly patentable subject matter.[3] As stated by Senator Schumer, Section 273 “should be viewed as just the first step in defining the appropriate limits and boundaries of the State Street decision…. I believe that it is time for Congress to take a closer look at the potentially broad and, perhaps, adverse consequences of the State Street decision.”[4]

Ratification should not be found here, given that Congress did not amend Section 101 or otherwise specifically address patent eligibility.[5] Instead, Congress created only an isolated change to the law that responded to specific concerns raised by this Court’s changed interpretation of Section 101. See, e.g., Alexander v. Sandoval, 532 U.S. 275, 292 (2001) (“when, as here, Congress has not comprehensively revised a statutory scheme but has made only isolated amendments, we have spoken more bluntly: ‘It is “impossible to assert with any degree of assurance that congressional failure to act represents” affirmative congressional approval of the Court's statutory interpretation.’”) (citations omitted). Similarly, ratification should not be found here, given that the State Street Bank holding was a significant change to the law and conflicted with binding Supreme Court precedent. See, e.g., Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 185 (1994) (ratification is implied when Congress “reenact[s] statutory language that has been given a consistent judicial construction”).[6] Had Congress thought that adopting a new defense to liability might affect subsequent interpretation of Section 101, it could have expressed its intent either to alter or to preserve earlier law – as it did with regard to Sections 102 and 103. See 35 U.S.C. § 273(b)(9) (2000).[7]

Moreover, ratification of the “useful, concrete, and tangible result” test as applied in State Street Bank would pose serious constitutional concerns by authorizing patents for claims reflecting only insignificant post-solution activity. The test would thereby encroach on permissible public uses of categorically excluded public domain information, potentially extending protection beyond any inventive concept properly attributable to the applicant and retarding rather than promoting sequential innovation. It would require patents for non-technological inventive concepts, extending protection to activities that may not be within the useful arts (however broadly or narrowly that category is construed).

Given the reasonable alternative interpretation discussed above, this Court should not construe Section 273 to have ratified the “useful, concrete, and tangible result” test as applied in State Street Bank. See, e.g., Gomez v. United States, 490 U.S. 858, 864 (1989) (describing “settled policy to avoid an interpretation of a federal statute that engenders constitutional issues if a reasonable alternative interpretation poses no constitutional question”); Ashwander v. Tennessee Valley Auth., 297 U.S. 288, 346-48 (Brandeis, J., concurring) (establishing the policy). Finding such ratification would force the Court to decide whether Section 101 (at least since 1999) is constitutional. Cf. Richardson v. United States, 526 U.S. 813, 820 (1999) (“We have no reason to believe that Congress intended to come close to, or to test, those constitutional limits when it wrote this statute”). Without ratification, the binding Diehr-Flook precedent remains the law and avoids any such constitutional concerns.


[1] See, e.g., H.R. Rep. 106-464, 121 (1999) (Conf. Rep.) (“business methods and processes, many of which until recently were thought not to be patentable”); id. at 122 (the “1998 opinion … in State Street Bank … which held that methods of doing business are patentable, has added urgency to the issue.… [T]housands of methods and processes used internally are now being patented.”). See also H.R. Rep. 106-287, 45-46 (1999) (“many businesses … thought secrecy was the only protection available,” and such methods “previously had been thought to be unpatentable”); Cong. Rec. E1789 (Aug. 5, 1999) (speech of Rep. Coble) (same); Cong. Rec. S13259 (Oct. 27, 1999) (statement of Sen. Hatch) (same).

[2] See, e.g., Cong. Rec. H6944 (Aug. 3, 1999) (statement of Rep. Rohrbacher). Cf. H.R. Rep. 106-464, 121 (noting importance of the “earlier-invention defense” to “any business that relies on innovative business processes and methods”).

[3] See, e.g., Cong. Rec. S14836 (Nov. 18, 1999) (statement of Sen. Schumer) (the “decision has raised questions about what types of business methods may now be eligible for patent protection…. It has created doubt regarding whether or not particular business methods … might now suddenly become subject to new claims under the patent law.”); Cong. Rec. H6947 (Aug. 3, 1999) (statement of Rep. Manzullo) (Congress “felt that those who kept their business practices secret had an equitable cause not to be stopped by someone who subsequently reinvented the method”). Congress limited the defense to business methods because it believed that the law had been changed only in regard to such methods. See id.

[4] Cong. Rec. S14836 (Nov. 18, 1999) (statement of Sen. Schumer)

[5] Congress expressly acknowledged that State Street Bank altered the law in regard both to “the business method exception” and to “the essential question of whether the invention produced a ‘useful, concrete, and tangible result.’” H.R. Rep. 106-464, 122.   However, Congress did not approve of that result. Rather, it noted only that the new defense applied to systems as well as to processes. See id. at 123.

[6] Cf. Food and Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 157 (2000) (finding effective ratification from enactment of a specific set of separate regulatory provisions, at a time when the agency’s interpretation had historic “consistency”); Brown v. Gardner, 513 U.S. 115, 121 (1994) (“‘[w]here the law is plain, subsequent reenactment does not constitute an adoption of a previous administrative construction.’”) (citation omitted); Fogerty v. Fantasy, 510 U.S. 517, 532 (1994) (rejecting effective ratification and noting that “this is hardly the sort of uniform construction that Congress might have endorsed.”).

[7] See also H.R. Rep. 106-464, 124-25; H.R. Rep. 106-287, 49.

39 thoughts on “Sarnoff: The Patent Act’s Mention of Business Method Patents Does Not Mean that Section 101 Should Extend to Cover Business Methods

  1. What is a “field of use” limitation?

    Any limitation not tied to a particular machine, or apparatus, or transforming a particular article to a different state or thing.

    See? Its still simple.

  2. What is a “field of use” limitation?

    Is “field of use” the same as “art”, as in the art of electronics, of chemicals, or of cat walking (how about cat feeding Garfield?)

    I see more than one meaning for this term in the post-Bilski BPAI decisions.

  3. Mr. Malcolm Wrote:

    “Unless it’s a method for exercising a cat while shopping, according to your stoopit definition.”

    Mr. Malcolm:

    A method for exercising a cat while shopping may very well be a business method/industrial process, eligible for patent examination.

    Providing the application of the method/process does not pre-empt all uses of exercising a cat, nor all uses within a particular field.

    And, until the Supreme court says different, the method/process must be tied to a particular machine or apparatus, or transform a particular article to a different state or thing.

    ( This is to prevent mere field of use limitations.)

    And thats it!

    You see Mr. Malcolm? Its all very simple really.

  4. “So a method for exercising a cat would not be an industrial process or business method.”

    Hey, I take offense at that – my cat walking business is doing great.

    Posted by: Garfield | Feb 02, 2009 at 08:07 PM

    Mr. Garfield:

    No offense intended. While your concept of a “cat walking business” may very well be a business method or industrial process. Such a concept/business “may” not be eligible for patent examination under the 101 statue and according to the Deihr case.

  5. “So a method for exercising a cat would not be an industrial process or business method.”

    Unless it’s a method for exercising a cat while shopping, according to your stoopit definition.

    “Nether the less …”

    Cleanup, aisle 1!

  6. “So a method for exercising a cat would not be an industrial process or business method.”

    Hey, I take offense at that – my cat walking business is doing great.

  7. What is a “Business Method? ”

    A business method is simply an industrial process. What is an industrial process? Any process used for or within industry.

    So a method for exercising a cat would not be an industrial process or business method.

    Remember the Deihr case was all about an invention for a “process” for operating a particular industrial machine. Not for a machine itself. In fact there was nothing new about the machine in Deihr.

    Need more examples?

    Clarence Saunders Super Market was a business method. Although that term was not used. Nether the less having grocery store aisles where customers could walk up and down and pick out grocery items and take them to a check out was an industrial process. The machines used in the store (cash registers, shopping baskets/carts) were not new. It was simply a new business method.

    Business methods have always been patentable and always will be.

    Got it now?

    Leave it to an “Actual Inventor” to straighten this out.

  8. Not sure why, but I posted this morning and that post disappeared into the ether.

    More about Sen. Gregg from an article on Bloomberg’s website: link to bloomberg.com

    From the article:
    “Last fall, then-candidate Obama, 47, spoke with Gregg during negotiations over the Treasury’s financial-rescue plan and the two talked before the Senate’s vote last month to release the second half of the $700 billion Troubled Asset Relief Program fund. Gregg was one of six Senate Republicans who voted to release the money.”

    and later,

    “Gregg was a pivotal figure in negotiations over the $700 billion financial-rescue plan that passed the Senate late last year. After Alabama senator Richard Shelby, the top Republican on the Senate Banking Committee, declined to take part in the negotiations, Gregg was selected by McConnell to represent Senate Republicans at the bargaining table.”

    Pretty much all we need to know about this guy. He pretends to be a “fiscal conservative,” but when push comes to shove, he carries the water for the bankster-plutocracy. I sincerely hope he doesn’t get selected, or if he is selected, I hope he doesn’t get confirmed. But I’m not holding my breath waiting for anyone in the political elites to be held to account for the monstrous taxpayer ripoff called the “Emergency Economic Stabilization Act of 2008.”

  9. As to the original subject of this thread, I think Professor Sarnoff has a weak argument. Whether you believe in Scalia’s textual interpretation theory or the purposive theories of some of the other Justices (e.g., Breyer, Stevens), I think section 273 makes zero sense unless Congress acquiesced in State Street. I think the post of Alun Palmer sums it up best. I don’t think business method patents should have been allowed in the first place, but by now they are statutory.

  10. au revoir gopher asked:
    “Anyone know what Senator Gregg feels about business method patents?”

    Here are the only clues I found on his senatorial website:

    “AdvaMed – Recognized for work on behalf of patents and innovators for improving patient access to advanced medical technologies. Awarded: December 2002″

    “Foundation for the National Institutes of Health – NIH recognized Senator Gregg for his ‘unwavering commitment to the success of the Human Genome Project’. Awarded: December 2003″

    Here’s something from AdvaMed’s website:
    link to advamed.org

    I would expect he supports subsidies for well-connected big businesses (just like 99% of all politicians), but whether he’s pro or anti-patent, I’ll leave to other posters who know more than I do. And BTW, I suspect in many cases pro or anti-patent turns out to be whether the special interest in question is the plaintiff or defendant in an infringement case.

  11. Alun, EG:

    I argee with you.

    273 (b)(1) reads:”It shall be a defense to an action for INFRINGEMENT…infringe one or more claims for a METHOD IN THE PATENT…”

    It is obvious that “infringment” is an issue here. If a claim in a Business Method is not a patentable subject matter, where is “infringement”?

  12. “Prof. Sarnoff’s argument is nonsense.”

    Alun,

    I couldn’t agree more with you that 35 USC 273 is meaningless unless “business methods” are potentially patentable subject matter under 35 USC 101. Sarnoff’s argument is as bad as the district court which ruled that the suit against Peterlin should be tossed because the meaning of “professional background and experience
    in patent or trademark law” in 35 USC 3 was too vague to be enforceable. If we don’t give force to what these statutes say, we’re on a very slippery slope.

  13. Prof. Sarnoff’s argument is nonsense.

    Adding a provision that deals only with business methods is an acknowledgement that they are patentable. Others have said this already, but it is correct because of the principle of statutory construction that every clause must be interpreted in such a way that it has some effect. If business methods were not patentable, then 35 USC 273 would have no effect, hence business methods are patentable as a matter of statute, regardless of State Street. QED.

    That Congress did this in response to State Street is the real red herring here, as changes in statutes trump court precedents. Generally the courts try to stay as close to pre-existing precedent as they can, but not if it would go against the new statute.

    OTOH, it is hard to see any way that a business method claim could be drafted to meet Bilski’s ‘machine or transformation’ test. This is in fact a strong indication that Bilski was wrongly decided, i.e. the test excludes subject matter that is statutory due to 273.

    I am not even in favour of business methods being patentable as a matter of policy (although I do favour software patents, which is entirely different), but I find these conclusions inescapable. If the intent of congress was to overturn the patentability of business methods, then they would have done so instead of drafting 273.

  14. “Bilski will be granted cert, and the Supremes will (again) tell the Fed. Cir. that there is no bright line test.”

    what’s bright about the “particular machine” line or the “transformation” line???

  15. Bilski will be granted cert, and the Supremes will (again) tell the Fed. Cir. that there is no bright line test.

    Bilski will read much like KSR. TSM is a test, but not the test. Machine or transformation is a test, but not the test. Failure of these tests tell you nothing.

  16. This professor doth protest too much.
    Which tells us the 273 argument is a good one and therefore has the anti-patent coalition worried.

  17. ” “it’s up to Congress, not the courts, to adjust the boundaries of infringement. It seems to me that the same principle applies to 101.”

    I agree, which is why Bilski should be (and will be) denied cert. The petitioner is attempting to expand the boundaries of what is allowable under 101 and that should not be permitted. ”

    There is no logic here. Because the Fed. Cir. decision improperly limited the scope of subject matter beyond the clear meaning of the statute (based on a rather arbitrary test) is precisely the reason why cert WILL be granted.

    You’ve been smoking too much crack Mooney, I think your brain was ruined somewhere along the way.

  18. jk wrote:

    “Can anyone tell me waht is exactly a “Business Method Patent”?

    Snarky answer: Anything that doesn’t include a “particular machine” or relate to a “physical article.”

    Real-world answer: It’s every single method claim that has ever been filed. No one patents anything if it doesn’t somehow relate to the someone’s business (the applicant’s, the inventor’s, or an accused infringer’s.)

    Legal answer: [this space intentionally left blank]

    - David Stein

  19. Congress failed to include in 35 USC 273 any language that said marriage is just between one man and one woman, when they clearly could have. Congress implicitly approves of gay marriage.

  20. Sarnoff’s point is that merely because a claimed method is described as “a business method” does not mean that it is statutory subject matter. There are no magic words that guarantee a claim will pass muster under Section 101.

  21. EG “what State Street addresses is that there is no “business method” exception to what is potential subject matter under 35 USC 101.”

    And the Federal Circuit has never questioned this conclusion. That is why Bilski’s argument is a red herring, as Dennis points out.

  22. “Congress did not approve of this Court’s decision, but focused on business methods because it felt that the strongest fairness arguments for a prior user defense existed in regard to the newly patentable subject matter.”

    This is rhetorical nonsense. If Congress didn’t ratify “business methods” as potential subject matter under 35 USC 101, then the enactment of 35 USC 273 makes no sense.

    “Moreover, ratification of the “useful, concrete, and tangible result” test as applied in State Street Bank would pose serious constitutional concerns by authorizing patents for claims reflecting only insignificant post-solution activity.”

    More rhetorical nonsense that’s as filmsy as what SCOTUS said in Graham about the Patent Clause creating some sort of overiding (but nebulous) consitutional standard for patentability. In fact, what State Street addresses is that there is no “business method” exception to what is potential subject matter under 35 USC 101. State Street does not address the merits of “business methods” under 35 USC 102 or 103.

    Frankly, Professor Sarnoff shows the all too typical lack of understanding of many academics (Lemley and Rai) about what the patent statutes mean in the real world.

  23. “it’s up to Congress, not the courts, to adjust the boundaries of infringement. It seems to me that the same principle applies to 101.”

    I agree, which is why Bilski should be (and will be) denied cert. The petitioner is attempting to expand the boundaries of what is allowable under 101 and that should not be permitted.

  24. “One of the underlying principles for stare decisis is that Congress, if it disagreed with the Court’s decision, could have acted to change it by now.”

    While it’s true that Congress can always act, provided it stays within constitutional limits, I don’t think that has anything to do with stare decisis. I certainly don’t think its an “underlying principle” of stare decisis. What exactly do you mean?

    “How is it possible to view it differently?”
    Is this a legitimate question, or an attempt to foreclose any other views? If the former, I’d suggest that Mr. Sarnoff has already explained how that might be possible. Some legislative actions are easier than others. The fact that Congress has been reluctant to initiate the tumult that serious tinkering with Section 101 is likely to provoke says very little about whether it “approves” of State Street, or of business method patents. The fact that Congress took the much more politically expedient route of cutting off the possibility of some of the more abusive (and less defensible) results doesn’t add much. Sarnoff is right – it’s a red herring.

    That said, Deepsouth still stands as good law. In that case the Supreme Court was pretty clear – it’s up to Congress, not the courts, to adjust the boundaries of infringement. It seems to me that the same principle applies to 101.

  25. One of the underlying principles for stare decisis is that Congress, if it disagreed with the Court’s decision, could have acted to change it by now. Congress did act in response to State Street by creating an immuninity to damages for prior inventors of business methods. By the fact that action was taken, and by the limit of action taken, it would seem clear to me that Congress tacitly approved of the State Street decision, and took special care to create an exception to accomodate it by ameliorating certain adverse effects that might occur as a result of recognizing business methods as being patentable subject matter. How is it possible to view it differently?

  26. “Section 273 of the Patent Act mentions the possibility of a patent covering “a method of doing or conducting business.” Part of Bilski’s petition for certiorari relies on that section as an argument that Congress intended for Section 101 to cover business methods. That argument is a red herring — The Federal Circuit’s Bilski decision did not eliminate business method patents. Rather, the decision only requires that any claimed process meet the machine-or-transformation test.”

    No doubt. See my previous comment:

    link to patentlyo.com

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