1. Metabolite and In Re Bilski: The Pendulum Swings Back Mark Chadurjian Senior Counsel, IBM Software Group 11 April 2008

2. Background State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998) State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998) Computer-implemented method of allocating costs amongst a family of mutual funds found patentable. Computer-implemented method of allocating costs amongst a family of mutual funds found patentable. The oft-quoted phrase: any business method that produces a "useful, concrete and tangible result" can be patented as a "process" under Section 101. The oft-quoted phrase: any business method that produces a "useful, concrete and tangible result" can be patented as a "process" under Section 101.

3. Background…. AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999) AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999) A process for generating and using a message record for long-distance telephone calls that is enhanced by adding a primary interchange carrier (PIC) indicator. A process for generating and using a message record for long-distance telephone calls that is enhanced by adding a primary interchange carrier (PIC) indicator. The oft-quoted discussion: any useful process is patentable subject matter, even if it doesn't convert matter or energy from one state to another. The oft-quoted discussion: any useful process is patentable subject matter, even if it doesn't convert matter or energy from one state to another.

4. But Wait a Second…. Any useful, concrete, and tangible result is patentable? Any useful, concrete, and tangible result is patentable? Isnt the utility requirement separate from the classes of statutory subject matter? Isnt the utility requirement separate from the classes of statutory subject matter? Couldnt results oriented claiming remove the invention itself from the focus of the inquiry? Couldnt results oriented claiming remove the invention itself from the focus of the inquiry? Couldnt broad claims to a useful process without a teaching of a significant advance in the art preclude subsequent real advancements in that technology? Couldnt broad claims to a useful process without a teaching of a significant advance in the art preclude subsequent real advancements in that technology? Couldnt this result in claims based on straightforward applications of laws of nature? Couldnt this result in claims based on straightforward applications of laws of nature? Guess so….which is how we ended up with the claims in Metabolite Guess so….which is how we ended up with the claims in Metabolite

5. Metabolite Labs Metabolite Labs., Inc. v. Laboratory Corporation of America, 370 F.3 rd 1354 (Fed Cir 2004) Metabolite Labs., Inc. v. Laboratory Corporation of America, 370 F.3 rd 1354 (Fed Cir 2004) University Patents Inc. (UPI) discovered a relationship between elevated levels of the amino acid homocysteine and the deficiency of two B vitamins, folate and cobalamin. University Patents Inc. (UPI) discovered a relationship between elevated levels of the amino acid homocysteine and the deficiency of two B vitamins, folate and cobalamin. Unusually high homocysteine levels have been connected with a variety of health problems, including Alzheimer's disease. Unusually high homocysteine levels have been connected with a variety of health problems, including Alzheimer's disease. UPI licensed Metabolite, which sublicensed Laboratory Corporation of America Holdings (LabCorp), to use the patent. UPI licensed Metabolite, which sublicensed Laboratory Corporation of America Holdings (LabCorp), to use the patent. After 1998, LabCorp began using a test developed by another company and Metabolite sued LabCorp for patent infringement. After 1998, LabCorp began using a test developed by another company and Metabolite sued LabCorp for patent infringement.

6. Metabolite Labs…. 13. A method for detecting a deficiency of cobalamin or folate in warm-blooded animals comprising the steps of: 13. A method for detecting a deficiency of cobalamin or folate in warm-blooded animals comprising the steps of: assaying a body fluid for an elevated level of total homocysteine; and assaying a body fluid for an elevated level of total homocysteine; and correlating an elevated level of total homocysteine in said body fluid with a deficiency of cobalamin or folate. correlating an elevated level of total homocysteine in said body fluid with a deficiency of cobalamin or folate.

7. Metabolite Labs….. District Court: patent valid, awarded $6M in damages to Metabolite for breach of contract and patent infringement. District Court: patent valid, awarded $6M in damages to Metabolite for breach of contract and patent infringement. Federal Circuit: affirmed validity, infringement "only requires association of homocysteine levels with vitamin deficiencies. Federal Circuit: affirmed validity, infringement "only requires association of homocysteine levels with vitamin deficiencies. Writ of Certiorari to Supreme Court (granted): should a claim to "correlate test results…validly claim a monopoly over a basic scientific relationship used in medical treatment.. Supreme Cou Writ of Certiorari to Supreme Court (granted): should a claim to "correlate test results…validly claim a monopoly over a basic scientific relationship used in medical treatment.. Supreme Cou

8. Metabolite Labs… The Supreme Court dismissed the writ of certiorari as improvidently granted. Metabolite Labs., 126 S. Ct. at 2928 The Supreme Court dismissed the writ of certiorari as improvidently granted. Metabolite Labs., 126 S. Ct. at 2928 In a 14 page dissent, three Supreme Court justices (Breyer, J., joined by Stevens and Souter, JJ.), noted their disagreement with State Street: In a 14 page dissent, three Supreme Court justices (Breyer, J., joined by Stevens and Souter, JJ.), noted their disagreement with State Street: That case does say that a process is patentable if it produces a "useful, concrete, and tangible result." But this Court has never made such a statement and, if taken literally, the statement would cover instances where this Court has held the contrary. Id. (citing Morse, Flook, and Benson). That case does say that a process is patentable if it produces a "useful, concrete, and tangible result." But this Court has never made such a statement and, if taken literally, the statement would cover instances where this Court has held the contrary. Id. (citing Morse, Flook, and Benson).

9. In re Bilski Claims pertain to a method of using hedge contracts to reduce the risk that a commoditys wholesale price might change. When a commodity seller makes a sale to a consumer at one fixed price, he or she then makes a second set of hedging transactions at a second price. Claims pertain to a method of using hedge contracts to reduce the risk that a commoditys wholesale price might change. When a commodity seller makes a sale to a consumer at one fixed price, he or she then makes a second set of hedging transactions at a second price. No particular calculations No particular calculations No use of a computer No use of a computer The U.S. Patent and Trademark Office ruled in September 2006 that this method is merely an abstract idea, not patentable subject matter. A patentable process, the agency declared, must either transform matter or energy or use a machine to carry out specified steps. The U.S. Patent and Trademark Office ruled in September 2006 that this method is merely an abstract idea, not patentable subject matter. A patentable process, the agency declared, must either transform matter or energy or use a machine to carry out specified steps. According to many experts, the PTO is using this as a test case to narrow the type of business methods eligible for patents. According to many experts, the PTO is using this as a test case to narrow the type of business methods eligible for patents.

10. Bilski Claim 1 1. A method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of: (a) initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said consumer; (b) identifying market participants for said commodity having a counter-risk position to said consumers; and (c) initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions. 1. A method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of: (a) initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said consumer; (b) identifying market participants for said commodity having a counter-risk position to said consumers; and (c) initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions.

11. Federal Circuit Rulings Federal Circuit panel decision upheld the USPTO rejection Federal Circuit panel decision upheld the USPTO rejection Sua sponte, the Federal Circuit decided to rehear the case en banc, and asked the parties to brief the following points: Sua sponte, the Federal Circuit decided to rehear the case en banc, and asked the parties to brief the following points: (1) Whether claim 1 of the 08/833,892 patent application claims patent- eligible subject matter under 35 U.S.C. § 101? (1) Whether claim 1 of the 08/833,892 patent application claims patent- eligible subject matter under 35 U.S.C. § 101? (2) What standard should govern in determining whether a process is patent-eligible subject matter under section 101? (2) What standard should govern in determining whether a process is patent-eligible subject matter under section 101?

12. Federal Circuit En Banc Order… (3) Whether the claimed subject matter is not patent-eligible because it constitutes an abstract idea or mental process; when does a claim that contains both mental and physical steps create patent-eligible subject matter? (3) Whether the claimed subject matter is not patent-eligible because it constitutes an abstract idea or mental process; when does a claim that contains both mental and physical steps create patent-eligible subject matter? (4) Whether a method or process must result in a physical transformation of an article or be tied to a machine to be patent-eligible subject matter under section 101? (4) Whether a method or process must result in a physical transformation of an article or be tied to a machine to be patent-eligible subject matter under section 101? (5) Whether it is appropriate to reconsider State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999), in this case and, if so, whether those cases should be overruled in any respect? (5) Whether it is appropriate to reconsider State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999), in this case and, if so, whether those cases should be overruled in any respect?

13. Argument for Patentability The underlying argument really seems to focus on State Street. Bilski argues that the useful, concrete, and tangible result test is supported by Supreme Court precedent that upholds patentability for applied algorithms…and that modulating comsumptive risk cost of a commodity is useful, concrete, and tangible. The underlying argument really seems to focus on State Street. Bilski argues that the useful, concrete, and tangible result test is supported by Supreme Court precedent that upholds patentability for applied algorithms…and that modulating comsumptive risk cost of a commodity is useful, concrete, and tangible.

14. Argument Against…. Others argue that the applicable Supreme Court precedent requires a patentable process to transform any article to a different state or thing. Others argue that the applicable Supreme Court precedent requires a patentable process to transform any article to a different state or thing. In our amicus brief, IBM further argues that the gravamen of applicable precedent is a patentable process is one that In our amicus brief, IBM further argues that the gravamen of applicable precedent is a patentable process is one that (i) is tied to a particular machine or apparatus, or (i) is tied to a particular machine or apparatus, or (ii) causes transformation or reduction of an article to a different state or thing, (ii) causes transformation or reduction of an article to a different state or thing, and in either instance produces technologically beneficial results. and in either instance produces technologically beneficial results.