Reflections on patentable subject matter in United States 
and Australian patent law

1	In Whitman v American Trucking Assns., Inc. 531 U.S. 457 (2001) at 468 , the United States Supreme Court observed that Congress “does not, one might say, hide elephants in mouseholes”.  In the recent decision in Bilski et al v Kappos 561 U.S. (28 June 2010), the elephant was the “well‑understood historical conception” of what is “patent‑eligible” subject matter under the US 1952 Patent Act (35 U.S.C., s 101) and that conception, according to the minority of four Justices, Justice Stevens (with Justice Ginsburg, Breyer and Sotomayor concurring) does not include the notion that a method of doing or conducting business is a “process”.  The minority said that the Court of Appeal’s decision for the Federal Circuit in State Street Bank & Trust Co. v Signature Financial Group, Inc. 149 F. 3d 1368 (1998) suggesting that methods of doing or conducting business constitute patentable subject matter if the method produces a “useful, concrete, and tangible result” should be “repudiated” as a “grave mistake”:  Stevens J at 37 and 2 (fn 1).  
2	By reasserting that “business methods are not patentable arts” (Stevens J at 26), that is, business methods are not patent‑eligible processes having regard to the “long accumulated distinctive meaning [of] the term ‘process’” (at 11), the minority considered that “patent law [would be] restore[d] to its historical and constitutional moorings” (at 1), from which it is adrift having regard to the decisions in State Street and AT&T Corp. v Exel Communications Inc. 172 F. 3d 1352 (1999).  
3	In response to these decisions, Congress urgently enacted in 1999 a limited defence to claims of patent infringement regarding certain methods of doing or conducting business.  The minority held that by enacting that protective defence in response to criticisms of State Street (and AT&T) at the urging of the business chambers on the footing that business method patents had been thought to be unsound, Congress had not established nor accepted that methods of doing or conducting business constitute patent‑eligible subject matter.  
4	In other words, Congress had not sought to hide the “well‑understood historical conception” of what is patent‑eligible subject matter in the mousehole of a legislative amendment to deal with a transactional decision.  
5	The majority constituting the Opinion of the Court (Justice Kennedy; Roberts CJ, Thomas and Alito JJ joining, and Scalia J joining subject to particular exceptions), however, considered that nothing in the language of s 101 governing the scope of patent‑eligible subject matter “categorically excludes business methods” (CI, 10) and, rather than adopting “categorical rules that might have wide‑ranging and unforseen impacts” (III, 13), the case ought to be resolved on the “narrow” (III, 13) basis that the process the subject of the patent application is not a patentable process because it seeks to claim a monopoly for simply an “abstract idea”.  
6	Bilski and Warsaw’s patent application described a series of steps for managing risk amongst buyers and sellers of commodities.  It described a general method as a means of enabling suppliers and consumers to minimise the risks resulting from fluctuations in demand during specified time periods.  It set out a method of hedging risk applicable to any commodity but with particular application to the energy sector.  The method contemplated a series of transactions with consumers buying the commodity at a fixed rate based on historical averages taking account of the buyer’s risk position (the “consumer transaction”); identifying market participants who might act as counter‑parties or counter‑risk participants to lay off the risk; and implementing secondary transactions between the commodity supplier and the counter‑risk participants at a price that balanced the risk position under the consumer transaction.  
7	The method involved a series of steps including the evaluation of historical costs and the use of economic and statistical formulas to analyse data and predict outcomes.  
8	In Bilski, the question was:  Is a method of hedging risk by the sequence of commercial and analytical steps so described patentable subject matter?  
9	The United States Federal Patent Power derives from Article 1, Section 8, clause [8] of the Constitution which authorises Congress to legislate “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries”.  The constitutional clause is regarded as both a grant of power and a limitation conferring qualified authority “unlike the power often exercised in the 16th and 17th centuries by the English Crown” eventually prohibited by the Statute of Monopolies of 1623, subject to s 6 of that Act:  Graham v John Deere Co. 383 U.S. 1 (1966).  The grant of power is limited to the “useful arts” and the exercise of the patent power may not overreach the restraints imposed by the constitutional purpose of promoting advances in the useful arts.  
10	The first Congress enacted the Patent Act of 1790 conferring authority on the Secretary of State (and two others) to issue a patent for no greater than 14 years to any petitioner that “invented or discovered any useful art, manufacture or device or any improvement therein not before known or used … if sufficiently useful and important …”.  Thomas Jefferson was then the Secretary of State and is therefore regarded as the first administrator of the US patent system.  He wrote the Patent Act of 1793.  He disliked the notion of monopolies including, initially, a limited patent monopoly the benefit of which he thought “too doubtful to be opposed to that of [its] general suppression”.  In 1788, he wrote from France to Madison urging a Bill of Rights restricting monopoly rights but in 1789 he again wrote to Madison after the drafting of the Bill of Rights supporting a limited monopoly to persons “for their own productions in literature and their own inventions in the arts” for a term of years and “no other purpose”.  Jefferson’s views as to conditions of patentability under the statutory scheme he conceived are described by the Supreme Court as “worthy of note”:  Graham v John Deere Co. at 7.  According to Jefferson, only inventions and discoveries which would “further human knowledge and were new and useful, justified the special treatment of a limited private monopoly”:  Graham v John Deere Co. at 9.  Jefferson’s 1793 Act describes statutory subject matter as “any new and useful art, machine, manufacture, or composition of matter, or any new or useful improvement [therefor]”.  
11	As to the distinction between inventions and discoveries attracting such special treatment as compared with ideas, abstract or otherwise, Jefferson said this in a letter to Isaac McPherson in 1813 (6, Writings of Thomas Jefferson, Washington Ed., at 180 and 181):
“If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of everyone, and the receiver cannot dispossess himself of it.  Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it.  He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.  That idea should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature.  …  

Inventions then cannot, in nature, be a subject of property.  Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from anybody.”  

								[emphasis added]

12	In the letter to McPherson, Jefferson urged that the determination of what is new and useful justifying limited monopoly be “turned over to the judiciary to be matured into a system under which everyone might know when his actions were safe and lawful”.  Congress agreed that the Courts should develop the conditions of patentability and although the Patent Act was amended, revised or codified 50 times between 1790 and 1950 “Congress steered clear of a statutory set of requirements other than the bare novelty and utility tests reformulated in Jefferson’s draft of the 1793 Patent Act”:  Graham v John Deere Co. at 10.  
13	Importantly, in Hotchkiss v Greenwood 11 How 248, the Court in determining conditions of patentability spoke of “that degree of skill and ingenuity which constitute essential elements of every invention” giving birth to “invention” as a term of legal art signifying patentable inventions not as a “label” but as a description of a “functional approach to questions of patentability”:  Graham v John Deere Co. at 12 (emphasis added).  
14	Much in the same way, although different in content, the Commonwealth Parliament deliberately chose by s 18(1)(a) of the Patents Act 1990 to leave it to the Courts to expound the concept of “manner of manufacture” within the meaning of s 6 of the Statute of Monopolies, novelty and inventive steps being entirely distinct matters:  National Research Development Corporation v Commissioner of Patents (1959) 102 CLR 252; CCOM Pty Ltd v Jiejing Pty Ltd (1994) 51 FCR 260 at 289B‑C and 290 E‑F per Spender, Gummow and Heerey JJ.  Similarly, the Australian Courts have over time expounded the “distinct principles or doctrines” concerned with patentability contained within the phrase “any manner of new manufacture” within s 6 of the Statute of Monopolies, isolating the need for a manner of manufacture itself, novelty, and inventiveness.  The Courts, having isolated those distinct component parts, recognised that the phrase “manner of new manufacture” came to represent what the Federal Court in CCOM v Jiejing called the “residuum of the central concept with which NRDC was concerned, namely, what the High Court called the relevant concept of invention”:  CCOM v Jiejing at 290E‑F (emphasis added).  
15	In determining the “excitingly unpredictable” (NRDC v Commissioner of Patents, per the Court, Dixon CJ, Kitto and Windeyer JJ at 271) scope of the concept of invention constituting a patentable invention as a “manner of manufacture” for the purposes of s 18(1)(a), the word “manufacture” finds a place “in the present Act [which was a reference by the High Court to the 1952 Act but equally applies to the 1990 Act], not as a word intended to reduce a question of patentability to a question of verbal interpretation, but simply as the general title found in the Statute of Monopolies for the whole category under which all grants of patents which may be made in accordance with the developed principles of patent law, are to be subsumed”:  NRDC, by the Court, at 269.  
16	Accordingly, the United States Courts approached the notion of “invention” not simply as a word or label requiring definition but as a description of a functional approach to patentable subject matter deriving from judicial exposition of the constitutional purpose of promoting the useful arts, and Australian Courts expounded the concept of invention by recognising that the notion of “manufacture” also comprehended a broad functional or conceptual approach subsuming the whole category under which all grants of patents may be made consistent with principles developed by the Courts.  Any attempt to frame the ambit of s 6 of the Statute of Monopolies by precisely defining “manufacture” was “bound to fail” and “would be unsound to the point of folly” necessarily limiting the “broad sweep of the concept”:  NRDC v Commissioner of Patents at 271.  
17	Section 101 of the US Patent Act (1952), 35 USC provides:
“Whoever invents or discovers any new and useful process, machine, manufacture or composition of matter, or any new and useful improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of this title.”

18	The Supreme Court interprets those words according to their “ordinary, contemporary, common meaning” and cautions that courts “should not read into the patent laws limitations and conditions which Congress has not expressed”:  Diamond v Chakrabarty 447 U.S. 303 (1980).  “Manufacture” and “composition of matter” are “expansive terms” that warrant a “broad construction” to liberally encourage ingenuity particularly having regard to the “comprehensive” word “any”:  Diamond v Chakrabarty at 306.  The 1952 US Patent Act replaced the word “art” with “process” but otherwise left Jefferson’s language in tact.  The term “process” means “process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter or material”:  s 100(b).  
19	However, s 101 does contain recognised limitations.  The laws of nature, physical phenomena and abstract ideas have been held unpatentable:  Parker v Flook 437 U.S. 584 (1978); Gottschalk v Benson 409 U.S. 63 (1972).  Thus, a newly discovered mineral or a plant found in the wild is not patentable subject matter.  Likewise, “Einstein could not patent his celebrated law that E = mc²; nor could Newton have patented the law of gravity”:  Diamond v Chakrabarty at 309.  In that case a microbiologist, Chakrabarty, filed an application consisting of a process claim for the method of producing particular bacteria; claims for an inoculum comprised of carrier material; and a claim to the bacteria.  The human‑made genetically engineered bacterium was capable of breaking down multiple components of crude oil and was thought to have significant value for the treatment of oil spills.  Because the claim to the bacteria was not simply a claim to a previously unknown natural phenomenon but to a non‑naturally occurring manufacture or composition of matter, that is, a product of human ingenuity, the bacteria was found to be patentable subject matter.  
20	The re‑codification in 1952 of the patent laws replacing the word “art” with “process” recognised that a process historically enjoyed patent protection because it was considered a form of “art” as that term was used in the 1793 Act.  In Cochrane v Deener 94 U.S. 780 (1877) the Supreme Court said:
“That a process may be patentable irrespective of the particular form of the instrumentalities used, cannot be disputed … A process is a mode of treatment of certain materials to produce a given result.  It is an act, or a series of acts, performed upon the subject‑matter to be transformed and reduced to a different state or thing.  If new and useful, it is just as patentable as is a piece of machinery.  In the language of the patent law, it is an art.”

21	This view however seems to suggest that a patentable process must cause a physical transformation in the materials to which the process is applied.  
22	In Diamond v Diehr 450 US 175 (1981), the Supreme Court recognised that the analysis of the eligibility of a claim of patent protection for a process did not change with the adoption of that term in s 101 and said, reaffirming a view expressed in Gottschalk v Benson 409 US 63 (1972), that “transformation and reduction of an article to a different state or thing is the clue to the patentability of a process claim that does not include particular machines”.  
23	In Diamond v Diehr, the claimed invention was a process for or method of “operating a rubber‑moulding press for precision moulded compounds with the aid of a digital computer” utilising particular data processing techniques and algorithms.  The industry problem addressed by the claim was the difficulty of obtaining uniformly accurate cures because the internal temperature of the moulding press could not be precisely measured thus making it difficult to calculate cure times.  The contribution to the art was said to reside in the process of constantly measuring the actual temperature inside the mould and feeding that data into a computer which repeatedly re‑calculated the cure time by use of a well‑known equation called the “Arrhenius equation” causing the moulding press to open at the optimized cure time.  
24	In the opinion of the majority, the step‑by‑step method involved the transformation of an article, in this case raw uncured synthetic rubber, into a different state, and the process or method was not removed from patentable subject matter because the method used a well‑known mathematical equation and a computer.  In Gottschalk v Benson 409 U.S. 63 (1972) the Court had held unpatentable, claims for an algorithm used to convert binary code decimal numbers to equivalent pure binary numbers on the footing that the sole practical application of the algorithm was directed to the programming of a digital computer (that is, pure programming).  The Court held that an algorithm was simply a “procedure” for solving a particular type of mathematical problem and thus the Court concluded that an algorithm or mathematical formula, like a law of nature, could not be the subject of a patent.  The Court in Diamond v Diehr said that such a conclusion was entirely consistent with “long‑established principles” that “a principle, in the abstract, is a fundamental truth; an original cause; … [an] abstract idea … [and] these cannot be patented, as no one can claim in [any] of them an exclusive right”:  Diamond v Diehr at 185.  However, the Court in Gottschalk v Benson did not hold that a patent is precluded for any program servicing a computer.  The question of whether the patent makes a claim for protection beyond pure programming to an application engaging a computer in a new and useful way would need to be determined.  
25	The Supreme Court took a similar view in Parker v Flook 437 U.S. 584 (1978) on the footing that the application simply sought to protect a formula for computing a number called an “alarm limit” without explaining the chemical processes at work and the integration of the variables engaged by the process within the application.  In Diamond v Diehr, (Stevens J, Brennan, Marshall and Blackmun JJ joining) in dissent observed that lower court decisions had “trivialise[d] the holding in Flook and the principle that underlies Benson”.  Benson, they say, clearly held that new mathematical procedures, like mental processes and abstract intellectual concepts, are not patentable proceedings; and Flook, firstly, was not simply limited to claims which amounted to a patent on the algorithm itself and secondly, Flook makes it clear that “an improved method of calculation even when employed as part of a physical process, is not patentable subject matter”.   
26	As to the application in Diamond v Diehr, the Court’s Opinion was expressed in this way at 187:
“[The claimants’] process admittedly employs a well‑known mathematical equation, but they do not seek to pre‑empt the use of that equation.  Rather they seek only to foreclose from others the use of that equation in conjunction with all of the other steps in their claimed process.  …  Obviously, one does not need a “computer” to cure natural or synthetic rubber, but if the computer use incorporated in the process patent significantly lessens the possibility of “over‑curing” or “undercuring”, the process as a whole does not thereby become unpatentable subject matter.”  

27	Consistent with the above view, the Court in Parker v Flook had said at 590:
“… A process is not unpatentable simply because it contains a law of nature or a mathematical algorithm.  It is now commonplace that an application of a law of nature or mathematical formula to a known structure or process may well be deserving of patent protection.”

28	As to the correct approach to subject matter, the dissenting Justices characterise the patent claim in Diehr as simply a new method of programming a digital computer in order to calculate – promptly and repeatedly - the correct curing time in a familiar process and is thus unpatentable subject matter.  They do so because the majority, they say, “fail to understand” or “disregard” the important distinction between the “subject matter of what the inventor claims to have discovered – a threshold issue – and the question of whether the claimed discovery is in fact novel”.  They say that if there is not even a claim that anything constituting patentable subject matter has been discovered, no occasion to address novelty arises.  They concede that if the claim is characterised in the way adopted by the majority, the claim properly asserts patentable subject matter.  
29	The majority, however, accepted that subject matter and novelty are truly separate questions, although they see the claim as a sequence of process steps solving a problem not simply a new method of programming a computer giving rise simply to a claim to a mathematical formula or an abstract idea.  
30	When considering a process claim, the majority took this approach.  In determining the eligibility of a process claim for patent protection the claim must be considered as a whole and it is inappropriate to dissect the claims into old and new elements and then ignore the old elements in the analysis.  The Court said:
“This is particularly true in a process claim because a new combination of steps in a process may be patentable even though all the constituents of the combination are well‑known and in common use before the combination was made.”

31	The threshold question of whether the subject matter of the claim falls within patentable subject matter under s 101 is divorced from whether the claim is novel (s 102) or otherwise satisfies non‑obviousness (s 103).  The approach to patentable subject matter under s 101 is this:  
“The “novelty” of any element or steps in a process, or even the process itself, is of no relevance in determining whether the subject matter of a claim falls within [s 101] categories of possibly patentable subject matter.  

It has been urged that novelty is an appropriate consideration under [s 101].  Presumably, this argument results from the language in [s 101] referring to any ‘new and useful’ process, machine, etc.  Section 101, however, is a general statement of the type of subject matter that is eligible for patent protection ‘subject to the conditions and requirements of this title’.  Specific conditions for patentability follow and s 102 covers in detail the conditions relating to novelty.  The question therefore of whether a particular invention is novel is ‘wholly apart from whether the invention falls into a category of statutory subject matter’.”

32	The majority also noted that “a mathematical formula as such is not accorded the protection of our patent laws” and such a principle cannot be circumvented by attempting to limit the use of the formula to a particular technological environment and cloth it with an applied application attracting subject matter.  
33	In State Street Bank & Trust Co v Signature Financial Group Inc. 149 F.3d 1368 (1998) and AT&T Corp v Exel Communications Inc. 172 F.3d 1352 (1999) the Court of Appeals for the Federal Circuit held that the test for determining whether a claimed invention is patentable subject matter as a “process” under s 101 is whether the invention produces a “useful, concrete and tangible result”.
34	In applying that test to the application by Bilski and Warsaw, the examiner rejected it as a process not implemented on a specific apparatus; it merely manipulates an abstract idea; and seeks to solve a purely mathematical problem without any limitation to a practical application.  Thus, the invention was not directed to the “technical arts”.  The intermediate Board of Appeal determined that the application involved only mental steps that did not transform physical matter and was directed to an abstract idea.
35	The Federal Circuit Court of Appeals heard the case en Banc.  Chief Judge Michel wrote the opinion for the Court with eight Justices joining:  In re Bilski 545 F.3d 943.  The Court rejected its earlier “useful, concrete and tangible result” test and held at 954:
“… [a] claimed process is surely patent‑eligible under [s] 101 if:

(1)	it is tied to a particular machine or apparatus; or
(2)	it transforms a particular article into a different state or thing.”

36	The Court held at 955 that this “machine‑or‑transformation test” is the “sole test governing [s] 101 analyses” and is the test for determining the patent eligibility of a “process” under s 101:  at 956.  On that footing, the Bilski Warsaw application was not patent‑eligible.  Judge Mayer at 998 denied patent‑eligibility on the ground that the claim was directed to “a method of conducting business”.  Judge Rader at 1011 considered the claim an unpatentable abstract idea.  Judge Newman thought the proceeding should be remitted for the determination of related issues.  Against all of this background, the case came before the Supreme Court.  Leading the Opinion of the Court, Justice Kennedy accepted that four independent categories of inventions and discoveries are patent‑eligible under s 101:  processes, machines, manufactures and composition of matter.  Those terms are deliberately expansive (applying Chakrabarty) and Congress took a “permissive approach” to patent‑eligibility reflecting Jefferson’s desire to ensure that “ingenuity should receive a liberal encouragement” although, consistent with Jefferson’s views about the integrity of ideas and discourse, three exceptions to s 101’s broad patent‑eligibility principles subsist:  laws of nature, physical phenomena and abstract ideas.  These exceptions are “atextual” but consistent with the notion that a patent‑eligible process must be “new and useful”.  These atextual exceptions have subsisted for over 150 years.  
37	The subject‑matter or patent‑eligibility inquiry is a threshold test of qualification.  The second level inquiry is whether the claimed invention also satisfies the final limb of s 101 concerning “the conditions and requirements of this title” (novelty, s 102; non‑obviousness, s 103; and fully and particularly described, s 112).  
38	The majority noted that two limitations or categories of exclusion are said to remove a process claim from the broad scope of s 101.  The first, adopted by the Federal Circuit Court of Appeals is that if the claimed process does not engage a machine or apparatus or transform an article into something different, the process cannot qualify as subject matter within s 101.  The second is that if the process is a business method, it is excluded.  
39	As to the first limitation, Kennedy J applying Diamond v Diehr and Chakrabarty, cautioned against reading limitations into the patent laws not evident in the words of the statute construed according to their “ordinary, contemporary, common meaning”.  Departure by the Supreme Court from such a meaning has only occurred, in the majority’s view, as “an explanation” for the three exceptions from s 101 earlier mentioned.  It follows for Kennedy J at 6 and 7 that:
“Adopting the machine‑or‑transformation test as the sole test for what constitutes a process (as opposed to just an important and useful clue [consistent with Gottschalk v Benson] violates these statutory interpretation principles.”

40	Having regard to the definition of process in s 100(b) (see earlier, [16]), the Court was “unaware of any ordinary, contemporary, common meaning of the terms “process, art or method” that would require these terms to be tied to a machine or to transform an article”:  Kennedy J at 7.  
41	The Court of Appeals “incorrectly concluded” that the Supreme Court had endorsed the machine‑or‑transformation test as the exclusive test of patent‑eligible subject matter for process claims.  The majority said that although Cochrane v Deener (see earlier [18]) seems to suggest that a “process” engages an act or series of acts performed upon something to be transformed or reduced to a different state, such a notion is neither “an exclusive or exhaustive test”, nor a statement capable of supporting such “broad implications”.  Transformation or reduction of an article to a different state is properly regarded as a clue to a process within s 101 “that does not include particular machines”:  Kennedy J at 7 and 8 applying Gottschalk v Benson at 70.  The majority observe that Benson (at 71) “explicitly declined to hold that no process patent could ever qualify if it did not meet machine‑or‑transformation requirements” and Flook at 588 took a similar approach by “assum[ing] that a valid process patent may issue even if it does not meet the machine‑or‑transformation test.  It followed for the majority that:  
“This Court’s precedents establish that the machine‑or‑transformation test is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under s 101.  The machine‑or‑transformation test is not the sole test for deciding whether an invention is a patent‑eligible ‘process’.”

								[emphasis added]

42	The majority regard s 101 as a “dynamic provision” designed to encompass new and unforseen inventions and whilst the machine‑linked or transformation test may provide a “sufficient basis” for assessing whether processes grounded in physical or tangible form satisfy a threshold test of patent‑eligibility, “there are reasons to doubt whether the test should be the sole criterion for determining the patentability of inventions in the Information Age”:  Kennedy J at 9.  The majority observed that:
“As a result, in deciding whether previously unforseen inventions qualify as patentable ‘process[es]’, it may not make sense to require courts to continue … asking the questions posed by the machine‑or‑transformation test.  Section 101’s terms suggest that new technologies may call for new inquiries.  See Benson, … at 71 (to ‘freeze process patents to old technologies, leaving no room for the revelations of the new, on‑rushing technology, … is not our purpose’).”

43	As to the second limitation, the majority considered that “method” within the definition of process as a textual matter may include at least some methods of doing business.  Applying Diamond v Diehr, the Court said it was unaware of any argument that the ordinary, contemporary, common meaning of “method” excludes business methods.  Nor was it clear to the majority how far a prohibition on business method patents would reach and whether it would exclude technologies for conducting a business more efficiently.  Contrary to the dissenting opinion, the Court considered that the presence in the Patents Act of a defence of prior use (35 U.S.C., s 273(b)(1)) that might be asserted when a patent‑holder claims infringement based on “a method in a patent” where method is defined as “a method of doing or conducting business” undermined the notion that business methods are a category of processes or methods outside the scope of s 101.  
44	The majority thought that the introduction of that section into the Act in 1999 to provide prior users with a defence to State Street claims could not change the conception of the much earlier enactment of s 101 but “what s 273 does is clarify the understanding that a business method is simply one kind of method that is, at least in some circumstances, eligible for patenting”.  The Court recognised that some business method patents raise special problems of vagueness and suspect validity (eBay Inc. v MercExchange, L.C., 547 U.S. 388 (2006)) and said:
“The Information Age empowers people with new capacities to perform statistical analyses and mathematical calculations with a speed and sophistication that enable the design of protocols for more efficient performance of a vast number of business tasks.  If a high enough bar is not set when considering patent applications of this sort, patent examiners and courts could be flooded with claims that would put a chill on creative endeavour and dynamic change.  

In searching for a limiting principle, this Court’s precedents on the unpatentability of abstract ideas provide useful tools.”  

								[emphasis added]

45	However, beyond this useful tool or “some other limitation consistent with s 101”, the majority found that the Patent Act leaves open the possibility that there are at least some processes that can be fairly described as business methods within patentable subject matter under s 101.
46	Accordingly, the Court rejected the contention that two broad “atextual” categories of exclusion of process claims from the subject‑matter of s 101 exist; that is, the notion that a process claim is not patent‑eligible if it does not engage a machine or transform an article, and the notion that a process is not patent‑eligible if it is simply a business method.  
47	Notwithstanding that the Bilski Warsaw patent claim was not categorically excluded, it nevertheless claimed both the concept of hedging risk and the application of that concept to energy markets.  With a view to avoiding “wide‑ranging and unforseen impacts” the majority resolved the case “narrowly” based on Benson, Flook and Diehr on the footing that “the claims are not patentable processes because they are attempts to patent abstract ideas”:  Kennedy J at 13.  The majority explained contextually the significance of each of these decisions.  Although there is some difference of opinion between the majority and the minority judgments as to what these cases decided, the majority said this.  Benson was an example of an unpatentable abstract idea (filed as a process claim) as it was simply an algorithm to convert binary coded (that is, coded to 0 and 1) decimal numerals into pure binary code which would wholly pre‑empt the use of the formula, at large.  In Flook, the applicant’s process for monitoring catalytic conversion activity was reliant on a mathematical algorithm.  Although the claim was limited to use of the algorithm in the petro‑chemical industry so that it would be freely used otherwise, the subject matter fell outside s 101:
“… not because it contained a mathematical algorithm as one component but because once the algorithm was assumed to be within the prior art, the application contained no patentable invention considered as a whole”.  

48	Flook is explained as standing for the proposition that the prohibition against patenting abstract ideas cannot be circumvented by attempting to limit the use of the abstract idea (whether a formula, code, algorithm) to a particular environment thus limiting pre‑emption.  Diehr is explained as recognising that while an abstract idea, law of nature or mathematical formula cannot be patented, an application of such a law or formula to a known process may be patentable provided the invention is considered as a whole.  
49	Having regard to those statements of authority, the majority took the view that hedging is a fundamental economic practice long prevalent in America’s system of commerce and taught extensively in introductory finance classes.  The concept of hedging risk, reduced to a mathematical formula in claim 4 of the application, was found to be an unpatentable abstract idea just like the algorithms at issue in Benson and Flook.  Allowing the claimants to patent risk hedging would pre‑empt, in the majority’s view, the use of the hedging methodology in all fields and would effectively grant a monopoly over an abstract idea.  
50	Although the Supreme Court majority judgment emphasises the importance of disaggregating the assessment of patent‑eligible subject matter under s 101 from questions of novelty and non‑obviousness and other statutory questions going to the “conditions and requirements” of the Patent Act, the analysis of whether a claim satisfies s 101 seems to carry with it an inquiry into whether there is something new and useful within the claim which attracts functional satisfaction (Graham v John Deere Co.) as an invention.
51	In the minority opinion in Bilski, the Justices are critical of the majority’s failure to maintain the proper ground of distinction between s 101 and the other “conditions and requirements” of the US Patent Act.  
52	The approach of the dissenting Judges in this context is important.  
53	Their views are these.  
54	Although the machine‑or‑transformation test is reliable in most cases, it is not the exclusive test.  For centuries, it was considered well established that a series of steps for conducting business was not, in itself, patentable.  In the late 1990s in State Street and AT&T, the Federal Circuit called that proposition into question causing the Congress to respond with a limited defence to patent infringement claims based on methods of doing business.  Following several years of confusion, the Federal Circuit changed course and held that a series of steps may constitute a patentable process only if it is tied to a machine or transforms an article into a different state or thing.  This machine‑or‑transformation test excluded general methods of doing business.  The minority accept that the Court correctly holds that the machine‑or‑transformation test is not the sole test for a patentable “process” but is properly regarded as a “critical clue” to a patentable process.  The point of departure for the minority is that the Opinion of the Court is quite wrong to suggest that “any series of steps that is not itself an abstract idea or law of nature may constitute a “process” within the meaning of s 101.  Such a view can only create “mischief” and the wiser course would have been to hold that the claimant’s method is not a “process” because “it describes only a general method of engaging in business transactions – and business methods are not patentable”.  The minority formulated that notion more precisely by putting it this way:  “… although a process is not patent‑ineligible simply because it is useful for conducting business, a claim that merely describes a method of doing business does not qualify as a process under s 101” (for the reasons indicated shortly).  
55	The minority was critical of the references to construing the language of s 101 in the light of ordinary, contemporary, common meaning as the terms “process” and “method” have attracted a well‑understood technical meaning as terms of art.  Abandoning the meaning derived from those terms of art would lead to “absurd” results.  Further, the minority considered that the Court, in describing hedging as “long prevalent in our system of commerce” (thus denying the claim to patent eligibility), confused the issue of novelty under s 102 with the proper characterisation of a process for the purposes of s 101.  In summary, the minority said this:
“The Court, in sum, never provides a satisfying account of what constitutes an unpatentable abstract idea.  Indeed, the Court does not even explain if it is using the machine‑or‑transformation criteria.  The Court essentially asserts its conclusion that petitioners’ application claims an abstract idea.  This mode of analysis (or lack thereof) may have led to the correct outcome in this case, but it also means that the Court’s musings on this issue stand for very little.”
								[emphasis added]

56	The minority observe that no patent is available for a discovery, however useful, novel, and non‑obvious unless it falls within one of the express categories of patentable subject matter.  The term “process” has long accumulated a distinctive meaning in patent law and when that term was introduced into the 1952 Patent Act it was neither intended nor understood to encompass “any series of steps or any way to do any thing” (original emphasis):  Stevens J at 11.  Although construing language according to its ordinary common meaning is a “fine approach to statutory interpretation in general” it is a “deeply flawed” approach to a statute that relies on “complex terms of art developed against a particular historical background”.  Indeed, abandoning that historical understanding would render s 101 “almost comical” facilitating a process for training a dog or a series of dance steps or a method of shooting a basketball, all patent‑eligible.  
57	The minority understand the historical record as supporting the conclusion that a method of doing business is not a “process” under s 101 notwithstanding that s 101 is a dynamic provision and “one must therefore view historical conceptions of patent‑eligible subject matter at an appropriately high level of generality”.  However, when the Congress enacted the 1952 Patent Act, it did so against the background of a “well‑settled understanding” that a series of steps for conducting business cannot be patented and these considerations ought to guide the analysis, in the minority’s view.  They note the observation of Justice Holmes that sometimes “a page of history is worth a volume of logic”:  New York Trust Co. v Eisner, 256 U.S. 345 (1921).  
58	As to the historical background, the minority note that the Statute of Monopolies of 1623 permitted grants of exclusive rights to the “working or making of any manner of new manufacture” and that the early decisions seem to confine that notion to any mode, method or way of manufacture, manufacturing processes, the practice of making or to new results of principles carried into practice.  Although, in the minority’s view, it is difficult to derive a precise understanding of what sorts of methods were patentable under English law, no basis can be found in the text of the Statute of Monopolies or pre‑1790 English decisions to suggest that “business methods” could qualify.  It does not appear that “anyone seriously believed that one could patent a method for organising human activity”:  Stevens J at 17 adopting the observation of Dyk J in the Federal Circuit Court of Appeals.  The minority observed that there were a small number of patents issued between 1623 and 1790 relating to banking or lotteries and one for a method of life insurance and these patents were “probably viewed not as inventions or discoveries but rather as special state privileges that until the mid‑1800s were recorded alongside inventions in the patent records”.  The minority regard as noteworthy that which was not patented under the English system.  They observe that during the 17th and 18th centuries Great Britain saw innovations in business organisation, business models, management techniques and novel solutions to the challenges of operating global firms in which subordinate managers could be reached only by a long sea voyage.  Few methods reflected in these innovations in conducting business were patented.  
59	So far as the American experience is concerned, Congress passed the first Patent Act in 1790 to promote progress in the “useful Arts” slightly modifying the language of that Act with the passage of the Patent Act in 1793 written by Jefferson.  The constitutional object and the statutory authorisation for process patents was the relationship with the term “useful Arts”.  The minority observe that “we know that the term ‘useful arts’ was used in the founding era to refer to manufacturing and similar applied trades”.  The Framers of the Constitution, in the minority view, undoubtedly contemplated a distinction between the industrial, mechanical and manual arts of the late 18th century and the seven “liberal arts” and four “fine arts” of “classical learning”.  The term “useful arts” was widely understood to encompass the fields that “we would now describe as relating to technology or ‘technological arts’”.  Thus, fields such as “business and finance were not generally considered part of the ‘useful arts’ in the founding Era”.  Everyone knew that “manufactures and machines were at the core of the patent system” and against this background “it would have been seen as absurd for an entrepreneur to file a patent on methods of conducting business”.  For nearly 160 years, Congress retained the term “useful arts” leaving wide latitude for judicial construction to keep pace with industrial development.  Although the rationale for decisions over that time varied, the one “overarching theme, at least in dicta” was that “[b]usiness methods are not patentable arts”.  Between 1790 and 1952 the Supreme Court never addressed the patentability of business methods but, in the minority’s view, the Court consistently focused the inquiry on “whether an ‘art’ was connected to a machine or physical transformation, an inquiry that would have excluded methods of doing business”:  Stevens J at 27.  
60	By the mid 1900s many courts were construing the term “art” as synonymous with “method, process, system, or like terms”.  Thus, in 1952 when Congress re‑codified the patent laws, it replaced the term “art” with “process” and introduced a definition of “process” as a “process, art or method”.  This change was made for clarity and did not alter the scope of understanding of what constituted a patent‑eligible process.  The Act merely “codified” the prevailing judicial interpretation of that category of subject matter.  The Act did not expand the scope of patent‑eligible subject matter by suggesting that any series of steps may be patented as a process under s 101.  The minority note that the Supreme Court has cast “significant doubt” on the proposition that the Act authorises business methods by recognising that at least a clue to a process patent is whether the process satisfies the machine‑or‑transformation test as a general clue to patent subject matter which, necessarily excludes, business methods.  
61	The minority note that since at least the days of the Assyrian merchants, people have devised better and better ways to conduct business yet historically those methods, processes and innovations were not understood as being patent‑eligible subject matter.  For those reasons, the Bilski and Warsaw patents simply failed to satisfy s 101, in their view, and the minority view would restore s 101 to its “historical and constitutional moorings”.  
62	In NRDC v Commissioner of Patents (1959) 102 CLR 252, the High Court confronted the “central question” of whether a process or method for eradicating weeds from crop areas containing particular leguminous fodder crops, Lucerne (alfalfa) and clover through the use of particular compounds and selective herbicidal compositions operating upon the enzyme characteristics of the tissues of the plants and weeds, fell within the category of inventions to which the Patents Act 1952 (and equally the 1990 Act) is confined, by the phrase “any manner of new manufacture within s 6 of the Statute of Monopolies”.  Because “invention” is defined not by reference to the language of the period of the enactment of the various Commonwealth Patent Acts or usage from the period of 1623, all that falls within the word “invention” is comprehended by “new manufacture”, and “manufacture” commands a conceptual inquiry not a textual one.  A textual inquiry limits thinking by reference to the idea of making tangible goods by hand or machine.  The concept extends to any new results of principles carried into practice, new processes in any art producing effects useful to the public.  The term comprehends both a product (vendible article) and a process.  In NRDC, the High Court observed that for the purposes of Australian law, whether it is enough that a process produces a useful result without creating or transforming “some physical thing” was in 1959 undecided.  
63	In England, prior to the 1977 harmonisation legislation, a method or process was thought to be a manner of manufacture if it resulted in the production of some vendible product or if it improved or restored the product’s former condition or had the effect of preserving from deterioration some vendible product to which the process applied:  Re G.E.C.’s Application (1942) 60 R.P.C. 1, per Morton J.  A series of cases addressed the elasticity of the notion of “vendible product” which ultimately led the High Court to conclude, having regard to the authorities at that time, that “what is meant by a ‘product’ in relation to a process is only something in which the new and useful effect may be observed”.  The “something” need not be a “thing” in the sense of an article.  It may be any physical phenomenon in which the effect, be it creation or merely alteration, may be observed.  The Court said “it is, we think, only by understanding the word “vendible” as pointing only to the requirement of utility in practical affairs, that the language of [Re G.E.C.’s Application] “rule” may be accepted as wide enough to convey the broad idea which the long line of decisions on the subject has shown to be comprehended by the [Statute of Monopolies].  This observation is reminiscent of the machine‑or‑transformation test as a “clue” to a patent eligible process as applied by the United States Supreme Court.  
64	As to the claim in question, the Court observed that the newly discovered factor reflected in the claim was the relationship between the enzyme make‑up of the tissues of the plants and the particular type of hormone herbicide derived from straight‑chain aliphatic acids such that in the relevant plants the herbicide did not degrade to derivatives harmful to the plant although it did so degrade within the tissues of the nominated weeds normally found in association with the relevant plants.  Having so analysed the claim, the Court concluded that the method or process had as its end result an artificial effect falling squarely within the true concept of what must be produced by a process if it is to be held patentable.  The Court said:
“The effect produced by the [claimant’s] method exhibits the two essential qualities upon which ‘product’ and ‘vendible’ seemed designed to insist.  It is a ‘product’ because it consists in an artificially created state of affairs, discernible by observing over a period the growth of weeds and crops respectively on sown land on which the method has been put into practice.  And the significance of the product is economic; for it provides a remarkable advantage, indeed to the lay mind a sensational advantage, for one of the most elemental activities by which man has served his material needs, the cultivation of the soil for the production of its fruits.  …  The method cannot be classed as a variant of ancient procedures.  It is additional to the cultivation.  It achieves a separate result, and the result possesses its own economic utility consisting in an important improvement.  …”

65	These principles have been applied in CCOM Pty Ltd v Jiejing Pty Ltd (1994) 51 FCR 260 and Grant v Commissioner of Patents (2006) 154 FCR 62.  In Grant, the Full Court, applying NRDC held that a physical effect in the sense of a concrete effect or phenomenon or manifestation or transformation is required in the application of the process so as to attract patent eligible subject matter.  Since the business method in Grant did not produce any concrete, tangible, physical or observable effect, it was a mere scheme, abstract idea or intellectual formulation which fell outside the notion of “invention” as it fell conceptually outside the recognised approach in Australia to “manner of manufacture”.  
66	The question of what might constitute a concrete, tangible, physical or observable effect in the context of the “Information Age” as discussed by the majority in Bilski and disputed by the dissenters against the background of the historical factors discussed, will undoubtedly come before the Federal Court for comprehensive consideration before too long.  

Justice Andrew Greenwood
Federal Court of Australia
1 August 2010