What is really patentable? PTO sheds light in recent guidance

Whether or not something is patentable is foundational to any patent system because that is the first question that gets asked -- what is it protectable as a patent? Why does this matter? It matters because having a predictable and consistent intellectual property system is a key component of any successful economic system. Stakeholders need to know upfront the categories of technology, or science, or human activity that a government will protect as patents. Without clear knowledge, it is difficult for stakeholders to determine whether efforts in research and development will be worth their investment. Drug companies, for example, often expend hundreds of millions of dollars into a new formulation and they count on patents to protect that investment. Not being able to ascertain what is patentable can have tremendous effects on investments into technology and life science companies.

Under the U.S. Constitution, patents protect what is considered as "useful arts." Useful arts, as defined in 35 U.S.C. Section 101, include four categories: process, machine, manufacture and composition of matter. While the language of the statute has not changed since 1952, technology has changed significantly. Our courts have been trying to interpret just exactly how new technology fits into these four categories. The courts came up with three judicial exceptions -- laws of nature, natural phenomenon, and abstract ideas, have been ruled as exceptions to these four categories, and are thus not patent eligible.

These exceptions were left largely undisputed until almost a decade ago when the U.S. Supreme Court ruled on a series of cases on patent eligibility. In Bilski v. Kappos, 561 U.S. 593 (2010), the Supreme Court ruled that business methods for hedging risk is an abstract idea and thus unpatentable. In Mayo v. Prometheus, 566 U.S. 66 (2012), the court held that a method related to administering a specific drug dosage was directed to a law of nature and thus unpatentable. In AMP v. Myriad Genetics, 569 U.S. 576 (2013), the court held that isolated genes for breast cancer were unpatentable because such genes would already occur in nature. Then the final nail in the coffin was the Alice Corp. v. CLS Bank International, 573 U.S. 208 (2014) case in which the court unanimously held that a computer-implemented process for mitigating settlement risk is unpatentable because it was an abstract idea. These cases raised great concerns to stakeholders as they were dubbed the end of software and nature based product patents. The lower courts tried their best to interpret what is patent eligible, and often created conflicting results and causing more confusion. As a result, the U.S. Patent and Trademark Office rejected significant numbers of patent applications under Section 101 as lacking patentable subject matter.

More recently the pendulum has begun to swing back. The PTO along with its power to review and grant patents also provides administrative guidelines which are essential for patent prosecutors to determine what is patentable. Under the leadership of Director Andrei Iancu, the PTO has issued several key guidelines to help with that front. The PTO's Jan. 7 memo was particularly helpful on patentability. Here, the PTO clarified that abstract ideas can be grouped into three categories -- mathematical concepts, certain methods of organizing human activity, and mental processes. The guidance further explained that, while a patent claim towards a judicial exception when recited on its own or per se is patent ineligible, it can be allowed if the claim also recites a practical application of that judicial exception. For example, if a claim relates to digitally processing and archiving files in a digital asset management system, but has the practical application of improving system operation efficiency and reducing storage costs, then such a claim should be patentable. This makes sense, because ultimately that's what the patent system is all about -- practical applications, or, useful arts.

Specifically, the January memo illustrated the requirements for a claim to pass muster under Section 101. First, if a claim does not recite a judicial exception, then it is patentable. Second, if a claim does recite a judicial exception (laws of nature, natural phenomenon, or abstract ideas), it should integrate the judicial exception into a practical application to be patent eligible. Third, if a claim recites a judicial exception and does not integrate that exception into a practical application, then that claim is patent eligible only if it adds a limitation beyond what is well understood, routine or conventional in the field.

To determine whether something is "well-understood, routine, and conventional," the PTO refers the Federal Circuit's opinion in Berkheimer v. HP Inc., 881 F.3d 1360 (Fed. Cir. 2018), based on which the PTO issued a memorandum for its examiners. In this Berkheimer memo, the PTO instructed its examiners that an element is "well understood, routine, or conventional," if the examiner can support the rejection with one of the following: (1) A citation to an express statement in the specification or to a statement made by an applicant during prosecution that demonstrates the well-understood, routine, conventional nature of the additional element(s); (2) a citation to one or more court decisions discussed in Manuel of Patent Examination Procedure Section 2106.05(d)(II) as noting the well-understood, routine, conventional nature of the additional element(s); (3) a citation to a publication that demonstrates the well-understood, routine, conventional nature of the additional element(s); or (4) a statement that the examiner is taking official notice of the well-understood, routine, conventional nature of the additional element(s).

While this new guideline provides more understanding as to what the PTO is looking for, it creates some new set of headaches for patent prosecutors. Two of them in particular will need future case law or guidance for clarification.

The first issue creates instances of inconsistency from the examiner on patentability with regard to novelty and nonobviousness. Generally a patent application can be rejected under 35 U.S.C. Section 102 for lack of novelty or Section 103 as being obvious over prior art. Currently, there are patent applications where the examiner is submitting that the claims are novel and nonobvious (no rejection under Section 102 or Section 103); yet rejecting the claims under Section 101 for being "well-understood, routine and conventional." This is inconsistent, because it is difficult to reconcile how something can be new and nonobvious, while at the same time be well-understood, routine or conventional.

The second issue the guideline creates is in the area of computer arts. Examiners are rejecting claims if there is no improvement in the functionality of the computer. However, improved computer functionality is not the only way to have a non-abstract claim in the computer arts, and improved computer functionality should not be a requirement for every claim in the computer arts. Thus, while there are more guidelines and directions on patentable subject matter, we can expect more case law and PTO memos and examples for further clarification. In the meantime, however, patent stakeholders can at least carve out claims that have a great chance of success at the PTO over Section 101 rejections. 