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and Interferences I MAILED SEP 2 6 2006 U.S PATENT AND TRADEMARKOFHE BOARD OF PATEMAPPEALS uUITED STATES PATENT AND TRADEMARK OFFICE BEFORE THE BOARD OF PATENT APPEALS AND INTERFERENCES Ex parte BERNARD L. BILSKI and RAND A. WARSAW Appeal No. 2002-2257 Application 08/833,892' -- HEARD: March 8, 2006~ Before FRANKFORT, McQuA.DE , BARRETT, BAHR, and NAGUMO, Administrative Patent Judges. BARRETT, Administrative Patent Judge. DECISION ON APPEAL This is a decision on appeal under 35 U.S.C. § 134(a) from the final rejection of claims 1-11 We affirm. - 1 Application for patent filed April 10, 1997, entitled "Energy Risk Management Method,' which claims the priority benefit under 35 U.S.C. 5 119(e) of Provisional Application 60/015,756, filed April 16, 1996. "e h case was previously heard on April 3, 2003, by Administrative Patent Judges Barrett, Fleming, and Nagumo, but no decision was entered. Appeal No. 2002-2257 Application 08/833,892 BACKGROUND The invention relates to a method practiced by a commodity provider for managing (i.e.,hedging) the consumption risks associated with a commodity sold at a fixed price. It is disclosed that energy consumers face two kinds of risk: price risk and consumption risk (specification,p . 1). The proliferation of price risk management tools over the last 5 years before the filing date allows easy management of price risk (specification, p. 2) . However, consumption risk (e.g., the need to use more or less energy than planned due to the weather) is said to be not currently managed in energy markets, which is the problem addressed by the invention (specification, p. 2). Claim 1 is reproduced below. 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. Appeal No. 2002-2257 Application 08/833,892 THE REJECTION No references are applied in the rejection. Claims 1-11 stand rejected under 35 U.S.C. 5 101 as being directed to nonstatutory subject matter. Pages of the final rejection (Paper No. 15) are referred to as "FR . " Pages of the examinerls answer (Paper No. 18) are referred to as "EA-. " Pages of the appeal brief (Paper No. 17) are referred to as I1Br . I 1 Pages of the reply brief (Paper No. 19) are referred to as "RBr . I 1 The examiner's position is summarized in the statement that, "[rlegarding [I claims 1-11, the invention is not implemented on a specific apparatus and merely manipulates [an] abstract idea and solves a purely mathematical problem without any limitation to a practical application, therefore, the invention is not directed to the technological arts" (FR4). That is, the examiner states that the invention is an "abstract idea," and apparently a "mathematical algorithm," and does not fall within the utechnological arts" according to In re Musgrave, 431 F.2d 882, 893, 167 USPQ 280, 289-90 (CCPA 1970), where the examiner states (FR4): "The definition of ltechnologylis the 'application of science and engineering to the development of machines and procedures in order to enhance or improve human conditions, or at least improve human efficiency in some respect.' (Computer Dictionary 384 (Microsoft Press, 2d ed. 1994))." The examiner Appeal No. 2002-2257 Application 08/833,892 finds that no specific apparatus is disclosed to perform the steps, so "claims 1-11 are intended to be directed to the abstract method apart from the apparatus for performing the methodn ( F R 4 ) and [tlherefore, the claims are non-statutory, because they are directed solely to an abstract idea and solve[] a purely mathematical problem without practical application in the technological arts" (FR4). Therefore, the final rejection relies on both the "abstract ideal1 exclusion and a "technological arts" test for statutory subject matter. In the examiner's answer, it is stated that "Applicant[Is admission] that the steps of the method need not be performed on a computer (Appeal Brief at page 6) coupled with no disclosure of a computer or any other means to carry out the invention, make it clear that the invention is not in the technological arts" ( E A 4 ) . The examiner states that the disclosure does not describe an implementation in the technological arts. The examiner states that the only way to perform the steps without a computer is by human means, and, therefore, the method is not technological because it does not "improve human efficiency" as required by the definition of ~technologyv(EA5-6). Thus, the examiner's answer relies primarily on a "technological arts" test. Appeal No. 2002-2257 Application 08/833,892 DISCUSSION The issue The issue is whether the subject matter of claims 1-11 is directed to a statutory "processn under 35 U.S.C. § 101. We conclude that it is not. Equally important is what test(s) should be applied in determining statutory subject matter. Non-machine-implemented methods The I1usefularts" in the Constitution,are implemented by Congress in the statutory categories of eligible subject matter in 35 U.S.C. . § 101: "process, machine, manufacture, or composition of matter, or any new and useful improvements thereof." Machines, manufactures, and man-made compositions of matter represent tangible physical things invented by man and seldom raise a 101 issue, except for the I1specialcasen of § claims to general purpose machines (usually computers) that merely perform abstract ideas (e.g.,mathematical algorithms), where the fact that the claim is nominally directed to a nmachinell under , § 101 does not preclude it from being held nonstatutory. Machine-implemented methods also seldom have a problem being considered a process under § 101 because a llproce~sll includes a new use for a known machine, § 100 (b) again , except for the "special case" of machine-implemented abstract Appeal No. 2002-2257 Application 08/833,892 ideas. However, llnon-machine-implemented" methods, because of their abstract nature, present § 101 issues. This appeal involves "non-machine-implementedIf method claims, i.e., the claims do not recite how the steps are implemented and are broad enough to read on performing the steps without any machine or apparatus (although performing the steps on a machine would, of course, infringe). The steps of claim 1: do not recite any specific way of implementing the steps; do not expressly or impliedly recite any physical transformation of physical subject matter, tangible or intangible, from one state into another; do not recite any electrical, chemical, or mechanical acts or results; do not directly or indirectly recite transforming data by a mathematical or non-mathematical algorithm; are not required to be performed on a machine, such as a computer, either as claimed or disclosed; could be performed entirely by human beings; and do not involve making or using a machine, manufacture, or composition of matter, We do not believe the outcome in this case is controlled by the Federal Circuit decisions in State St. Bank & Trust Co. v. Siqnature Fin. Group, Inc., 149 F.3d 1368, 47 USPQ2d 1596 (Fed. Cir. 1998) and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352, 50 USPQ2d 1447 (Fed. Cir. 1999) because we interpret those cases to involve the laspecialcase" of transformation of data by a machine. Appeal No. 2002-2257 Application 08/833,892 The question of whether this type of non-machine-implemented subject matter is patentable is a common and important one to the U.S. Patent and Trademark Office (USPTO), as the bounds of patentable subject matter are increasingly being tested. In recent years, the USPTO has been flooded with claims to "processes,"many of which bear scant resemblance to classical processes of manipulating or transforming compositions of matter or forms of energy from one state to another. Many of these applications are referred to as so-called "business methods," but claims to methods of meditation, dating, physical sports moves, etc., are also presented. I1Businessmethods" have long been considered statutory subject matter when performed by a machine. Technology Center 3600, Workgroup 3620, in the USPTO is entirely dedicated to llElectronic Commerce (Business Methods)" in Class 705, "Data Processing: Financial, Business Practice, see Management, or Cost/Price Determination"; http://www.uspto.gov/web/menu/pbmethod. The USPTO no longer rejects claims because the claimed subject matter does "business" instead of something else. See State Street, 149 F.3d at 1377, 47 USPQ2d at 1600 (referring to Examination Guidelines, 61 Fed. Reg. 7478, 7479 (1996)). Nevertheless, many questions remain about statutory subject matter and what the tests are for determining statutory subject matter. State Street and AT&T, often called tlrevolutionary,lt involved patented machines or Appeal No. 2 0 0 2 - 2 2 5 7 Application 08/833,892 machine-implemented processes that examiners have for sometime regarded as nonexceptional. Perhaps encouraged by certain general language in these cases, however, a wide range of ever more general claims to vprocesses" come before the Office (although the present case predates both State Street and AT&T). Many, like the claimed process in the present case, are not limited to implementation via any particular technology or machine. Are such llprocesses" patentable because they are llusefuln?Other "process claims" involve what seem to be insubstantial or incidental manipulations of physical subject matter--e.g.,the mere recording of a datum: are these patentable processes? Still other process claims involve human physical activity--methods of throwing a ball or causing a fumble. Do these process claims cover patentable subject matter? Must the examiners analyze such claims for compliance with the written description and enablement requirements, and search the prior art for evidence of novelty and nonobviousness? Given the difficulty for examiners to make § 101 rejections, and the clear disfavor for such rejections in the opinions of our reviewing court, the U.S. Court of Appeals for the Federal Circuit, and in the view of many patent practitioners, it would be much more administratively convenient if the USPTO did not have to examine claims for statutory subject matter under 5 101. Nevertheless, it is the USPTO1s duty to examine claims for Appeal No. 2002-2257 Application 08/833,892 compliance with 101 as well as the other statutory requirements § of patentability. See Graham v. John Deere Co., 383 U.S. 1, 18, 148 USPQ 459, 467 (1966) (I1 he primary responsibility for [TI sifting out unpatentable material lies in the Patent Office. To await litigation is--for all practical purposes--to debilitate the patent system."). The USPTO rejects cases based on its understanding of § 101, not because it may be difficult to find prior art or to examine the claims for novelty and unobviousness. Cf. In re Fisher, 421 F.3d 1365, 1378, 76 USPQ2d 1225, 1235 (Fed. Cir. 2005) ("The concerns of the government and amici [that allowing EST patents would discourage research, delay scientific discovery, and thwart progress in the 'useful Arts1], which may or may not be valid, are not ones that should be considered in deciding whether the application for the claimed ESTs meets the utility requirement of 5 101. The same may be said for the resource and managerial problems that the PTO potentially would face if applicants present the PTO with an onslaught of patent applications directed to particular ESTs. Congress did not intend for these practical implications to affect the determination of whether an invention satisfies the requirements set forth in 35 U.S.C. §§ 101, 102, 103, and 112."). In questioilable cases, we feel that the public interest is best served by making a rejection. The Federal Circuit cannot address See rejections that it does not see. - Enzo Biochern, Inc. v. Appeal No. 2002-2257 Application 08/833,892 Gen-Probe Inc., 323 F.3d 956, 972, 63 USPQ2d 1609, 1619 (Fed. Cir. 2002) (Lourie, J., concurring in decision not to hear the case en banc) ("As for the lack of earlier cases on this issue, it regularly happens in adjudication that issues do not arise until counsel raise them, and, when that occurs, courts are then required to decide them." ) . Only a very small fraction of the cases examined by the Examining Corps are ever appealed to the Board of Patent Appeals and Interferences (Board), and only a very small fraction of the rejections affirmed by the Board will ever be appealed to the Federal Circuit. The fact that not many § 101 cases get appealed should not be interpreted to mean that these are an insignificant problem to the USPTO and the public. As indicated by Justice Breyer dissenting from the dismissal of certiorari in Laboratory Corp. of America Holdings v. Metabolite Labs., Inc., 126 S. Ct. 2921, 79 USPQ2d 1065 (2006) (Labcorp), there are still unresolved issues under § 101. Appeal No. 2002-2257 Application 08/833,892 Legal analysis of statutory subject matter Several major analyses of statutory subject matter have been published recently. We review two in detail in the following summary. Ex parte Lundgren To avoid repetition, this opinion expressly incorporates by reference the legal analysis of statutory subject matter in the concurring-in-part/dissenting-in-part opinion of Administrative Patent Judge Barrett in Ex parte Lundgren, 76 USPQ2d 1385, 1393-1429 (Bd. Pat. App. & Int. 2005) (precedential). That discussion tries to identify the questions that have not been answered in the analysis of patentable subject matter under § 101 and to identify existing tests for statutory subject matter, rather than create some new test. The USPTO is struggling to identify some way to objectively analyze the statutory subject matter issue instead of just saying "We know it when we see it." Appeal No. 2002-2257 Application 08/833,892 The main points of Lundgren are summarized as follow^:^ (1) The Constitution authorizes Congress "To promote the Progress of . . . useful Arts, by securing for limited Times to . . . Inventors the exclusive Right to their . . . Disc~veries.~~ U.S. Const., art. I, 5 8, cl. 8. There is little evidence in the historical record about what is meant by the lluseful arts,I1but it appears intended to refer to llartslf used in industry and the production of goods. - Alan L. Durham, "Useful Arts" in the See Information Age, 1999 BYU L. Rev. 1419 (1999). (2) nTechnological arts" is the modern equivalent of "useful artsH in the Constitution. Lundgren, 76 USPQ2d.at 1393-94. (3) "Te~hnology~~ defined as the totality of means is employed to provide objects necessary for human sustenance and comfort. Id. at 1394. The definition of "engineering" as "the application of science and mathematics by which the properties of matter and the sources of energy in nature are made useful to man in structures, machines, products, systems, and processesn (emphasis added) is considered a good description of lltechnologyll and the lluseful arts. Id. (4) The lluseful arts" provision in the Constitution is implemented by Congress in the statutory categories of eligible subject matter in 35 U.S.C. § 101: nprocess, machine, It should be understood that the citations to Lundgren are to the discussion and cases cited: the remarks of the concurrence/dissent have only persuasive value. Appeal No. 2002-2257 Application 08/833,892 manufacture, or composition of matter, or any new and useful Id. improvements thereof." - at 1396-97. The "utility" requirement of S 101 is separate from the eligible subject matter requirement. Id. at 1396.4 (5) The terms "invents" and udiscovers" in § 101 are interpreted to require "invention,"which is the conception and production of something that did not before exist, as opposed to udiscovery,Hwhich is to bring to light that which existed d before, but which was not known. I . Of course, the practical application of a discovery of a law of nature may be patentable. (6) The oft-quoted statement that "Congress intended statutory subject matter to 'include anything under the sun that is made by manlW1 Diamond v. Diehr, 450 U.S. 175, 182, 4 The Constitution authorizes Congress "To promote the Progress of . . . useful Arts." This provision can be mapped onto the statutory provisions as follows: "Arts" corresponds to the eligible statutory subject matter classes of "process, machine, manufacture, or composition of matter" in § 101 ("art" in the statute before 1952 had a different meaning than "useful arts" in the Constitution and was interpreted as practically synonymous with process or method, S. Rep. No. 1979, reprinted in 1952 U.S. in the Constitution Code Cong. & Admin. News at 2398); corresponds to the llusefulll (utility) requirement in 5 101; "progressn in the Constitution corresponds to the "newu requirement in 5 101 which is defined in the conditions of novelty under § 102 and nonobviousness under § 103. The utility requirement is separate from the eligible subject matter requirement in § 101. See, e-g.,Fisher, 421 F.3d at 1378, 76 USPQ2d at 1236 (expressed sequence tag (EST) is a composition of matter that does not meet utility requirement of 5 101). Appeal No. 2002-2257 Application 08/833,892 209 USPQ 1, 6 (1981), quotes from S. Rep. No. 1979, reprinted in 1952 U.S. Code Cong. & Admin. News at 2399: A person may have l1inventedUa machine or manufacture, which may include anything under the sun made by man, but it is not necessarily patentable under section 101 unless the conditions of the title are fulfilled. This sentence does not mention a llprocess'l a "composition of or matter."' A llmanufacturell long been defined to be "anything has made 'by hands of man1 from raw materials, whether literally by hand or by machinery or by art." In re Hruby, 373 F.2d 997, 1000, 153 USPQ 61, 65 (CCPA 1967), discussing Riter-Conley Mfg. Co. v. Aiken, 203 F. 699 (3d Cir. 1913) . We have no doubt that Congress intended statutory subject matter to include any tangible thing made by man, including man-made compositions of matter and man-made living organisms. However, there is a fundamental difference in nature between llmachines, manufactures, 5 As discussed by Justice Breyer at the oral argument in Labcorp (transcript on ~http://www.supremecourtus.gov/ oral arguments/argument-transcripts.htrn1,"Argument 04-607, argued 3/21/06, p. 43, line 16, to p. 44, line 4): JUSTICE BREYER: Does that fall within it? I mean, I can't resist pointing, as one of these briefs did, the phrase anything under the sun that is made by man comes from a committee report that said something different. It said a person may have invented a machine or a manufacture, which may include anything under the sun that is made by man. So referring to that doesn't help solve the problem where we're not talking about a machine or a manufacture. Rather we are talking about what has to be done in order to make an abstract idea fall within the patent act. Now, sometimes you can make that happen by connecting it with some physical things in the world and sometimes you can't. Appeal No. 2002-2257 Application 08/833,892 or compositions of matter," which are things, and a llprocess,u which refers to acts. Lundgren, 76 USPQ2d at 1397. It is not clear that "anything under the sun made by man" was intended to include every series of acts conceived by man. (7) "Machines, manufactures, and compositions of matter," as defined by the Supreme Court, refer to physical things having Id. physical structure or substance. - at 1397. Machines, manufactures, and man-made compositions of matter broadly cover every possible "thing made by man." Id. A statutory subject matter problem in these categories arises only in the "special case" of transformation of data by a general purpose machine (e.g.,a general purpose computer) claimed as a machine or a machine-implemented process, or a manufacture (a computer program embodied in a tangible medium which is capable of performing certain functions when executed by a machine).6 Where the transformation of data represents an The "special case" arises where the claim recites a programmed general purpose l1rnachinelt(e.g.,a llcomputerll or llsystemll), instead of a new structure; i.e., where what applicant claims is the method to be performed on a known machine. The CCPA and the Federal Circuit have held that a general purpose computer in effect becomes a special purpose computer once it is programmed to perform particular functions. See In re Alappat, 33 F.3d 1526, 1554, 31 USPQ2d 1545, 1558 ( F e d x i r . 1994) (en banc). Nevertheless, a programmed general purpose machine which merely performs an abstract idea, such as a mathematical algorithm, has been held nonstatutory as an attempt to patent the abstract idea itself, see Gottschalk v . Benson, 409 U.S. 63, 71-72, 175 USPQ 673, 676(1972) (llnutshellll holding) and In re de Castelet, 562 F.2d 1236, 1243, 195 USPQ 439, 445 (CCPA 1977) (discussing "nutshell" language), whereas a claim Appeal No. 2002-2257 Application 08/833,892 "abstract idean (e.g., a mathematical algorithm), the fact that the claimed subject matter would otherwise be considered statutory because it nominally recites a "machine" or machineimplemented llprocess" "manufacture" storing information to be or read by a machine, will not prevent the claim from being held Id. unpatentable. - at 1407-08 (citing cases where machine claims for performing mathematical algorithms were held nonstatutory). (8) A flprocess" is the most difficult category of define. § 101 to - at 1398. Not every process in the dictionary sense Id. directed to a new machine structure is clearly a patentable "machine" under § 101. Although a case has not yet been presented, we believe that a similar "special case" exists for "manufacturesu which store programs that cause a machine to perform an abstract idea, e.g., a computer program to perform a mathematical algorithm stored on a tangible medium: the nominal recitation of a llmanufacture" does not preclude the claim from being nonstatutory subject matter, just as the nominal recitation of a "machine" does not preclude a claim from being nonstatutory subject matter. Normally, "functional descriptive material," such as data structures and computer programs, on a tangible medium qualifies as statutory subject matter and the nature of the recorded material may not be ignored under the "printed matter" doctrine. See Examination Guidelines for Computer-Related Inventions, 61 Fed. Reg. 7478, 7481-82 (February 28, 1996), 1184 Off. Gaz. Patent and Trademark Office (O.G.)87, 89 (March 26, 1996) (defining "functional" and "nonfunctional descriptive material"); In re Lowry, 32 F.3d 1579, 32 USPQ2d 1031 (Fed. Cir. 1994). However, applicants should not be able to evade § 101 by a nominal claim to structure. Computer programs are distinguished from passive non-functional descriptive material stored on a medium (e.g.,music or information stored on a compact disc), which is usually addressed as "printed matter" under § 103. But see Alappat, 33 F.3d at 1554, 31 USPQ2d at 1566 (Archer, C.J., concurring in part and dissenting in part) ("The discovery of music does not become patentable subject matter simply because there is an arbitrary claim to some structure.It). Appeal No. 2002-2257 Application 08/833,892 Id. constitutes a I1processff under 5 101. - When Congress approved changing "artu to lfprocessll the 1952 Patent Act, it in incorporated the definition of "processu that had evolved in the Id. courts. - "Art" in the pre-1952 statute is not the same as the "useful arts" in the Constitution. See footnote 4. The Supreme Court has arguably defined a "process" as "an act, or series of acts, performed on the subject matter to be transformed and reduced to a different state or thing." See Lundgren, 76 USPQ2d at 1398. The subject matter transformed may be tangible (matter) or intangible (some form of energy, such as the conversion of electrical signals or the conversion of heat into other forms of energy (thermodynamics)), but it must be physical. Id. - at 1398-99. The transformation test also conforms to many individuals1 expectations that they only have to worry about patent infringement when dealing with methods associated with industry and the production of goods. The transformation definition of a ltprocessll provides an objective test to analyze claims for statutory subject matter because one can identify, analyze, and discuss what and how subject matter is transformed. The transformation test is not without problems as evidenced by the dissent in Labcorp, where the question was whether a "testff step that required a physical transformation of a blood sample made the claim statutory. Justice Breyer stated that "the not process described in claim 13 is - a process for transforming Appeal No. 2002-2257 Application 08/833,892 blood or any other matter,I1Labcorp, 126 S. Ct. at 2927, 79 USPQ2d at 1070, which can be interpreted to mean that while the test step might require a transformation, no physical transformation steps are recited, and/or that the claim as a whole is not directed to a transformation (it is not to a method of performing a test). The CCPA and the Federal Circuit have addressed such limitations as "data gathering" steps. Lundqren, 76 USPQ2d at 1427-28. (9) A generally recited "processu claim is not limited to the means disclosed for performing it. - at 1400-01. Methods Id. tied to a machine generally qualify as a "process'1under § 101 because machines inherently act on and transform physical subject matter, id. at 1400, and new uses for known machines are a "pro~ess~~ under 35 U.S . C. § 100 (b). The principal exception is the "special caset1 general purpose machine-implemented of processes that merely perform an "abstract idea" (the best known example of which is a mathematical algorithm); - - at 1407-08 see id. (cases where machine-implemented process claims for performing mathematical algorithms were held nonstatutory) . Statutory processes are evidenced by physical transformation steps, such as chemical, electrical, and mechanical steps. - at 1401. A Id. statutory llprocessll involving a transformation of physical subject matter can be performed by a human. at 1400-01. Not every step requiring a physical action results in a patentable Appeal No. 2002-2257 Application 08/833,892 physical transformation, e.g., "negotiating a contract," Id. "convening a meeting, etc." (10) Some subject matter, although invented by man, does not fall within any of the four categories of § 101, e.g., data structures, computer programs, documents, music, art, and literature, etc. Id. at 1401-02. (11) The judicially recognized exclusions are limited to Id. "laws of nature, natural phenomena, and abstract ideas." - at 1402-03. There are no separate "mathematical algorithm" or Id. "business method" exclusions. - Of course, this does not mean that "mathematical algorithms" and "business methods" are necessarily statutory, but only that claims cannot be rejected just because they contain mathematical steps or business concepts: the analysis must be framed in terms of the three recognized exclusions. ) (12 "Laws of nature" and It natural phenomenaf1 exclusions can be explained by the fact that the ndiscovery" of a preexisting law of nature, a principle of physical science, or a natural phenomenon does not meet the "inventst1 requirement of § 101: they are not inventions "made by man," but are manifestations of Id. nature, free to all. - at 1403. Appeal No. 2002-2257 Application 08/833,892 (13) "Abstract ideas" refer to disembodied plans, schemes, or theoretical methods. - at 1404. "Abstract ideas" can Id. represent a discovery of a "law of nature" or a "physical phenomenon" or a man-made in~ention.~ Id. Mathematical algorithms are the most well known example of an abstract idea, but there is no reason why the abstract idea exception should be 7 Judge Rader states: In determining what qualifies as patentable subject matter, the Supreme Court has drawn the distinction between inventions and mere discoveries. On the unpatentable discovery side fall "laws of nature, natural phenomena, and abstract ideas." On the patentable invention side fall anything that is "not nature's handiwork, but [the inventor1 own. s] [Citations omitted.1 Alappat, 33 F.3d at 1582, 31 USPQ2d at 1590 (Rader, J., concurrinq). There is no question that any I1machine, manufacture, or [man-made]-composition of matter" is a man-made physical thing, not a law of nature, natural phenomenon, or abstract idea, and is patentable eligible subject matter under § 101 (subject to the Itspecialcase" of general purpose machines and manufactures that merely perform "abstract ideasn). However, we disagree with Judge Raderts statement to the extent it implies that everything conceived by man and claimed as a method is a patentable invention. Unpatentable "abstract ideas" can represent "inventions" made by man as well as udiscoveries" of things that existed in nature, and are easily claimed as a series of steps so as to appear to be a "process" under § 101. For example, mathematical algorithms (the best known example of an abstract idea) can be "abstract ideasu that do not represent a discovery of something that existed in nature. See In re Meyer, 688 F.2d 789, 794-95, 215 USPQ 193, 197 (CCPA 1982) ("However, some mathematical algorithms and formulae do not represent scientific principles or laws of nature; they represent ideas or mental processes and are simply logical vehicles for communicating possible solutions to complex problems."). A claim to a method of government would appear to be an unpatentable abstract political idea even though it is a creation of human thinking that can be claimed as a method. Not every claim to a series of steps "invented by manu is a "process" under § 101. Appeal No. 2002-2257 Application 08/833,892 limited to mathematical algorithms. - Abstract ideas are Id. usually associated with method claims because a "machine, manufacture, or composition of mattern are tangible things and not disembodied concepts. Abstract ideas performed on general purpose machines or embodied in a generic manufacture constitute a "special caseN where subject matter that appears to be nominally within 5 101'is nonstatutory. One possible identifying characteristic of an abstract idea is the lack of transformation of any physical subject matter according to the definition of a 'tprocess" under § 101 described supra. Another possible identifying characteristic is if the . claim is so broad that it covers (preempts) any and every possible way that the steps can be performed, because there is no "practical application" if no specific way is claimed to perform the steps. - at 1405. This may be illustrated by the claim Id. discussed in the dissent in Labcorp, where the Itwords 'assaying a body fluid' refer to the use of any test at all, whether patented 126 S. Ct. at 2924, 79 USPQ2d at 1067, and or not patentedItt ttClaim . 13 . . tells the user to use any test at all," - at id. 2927, 79 USPQ2d at 1070. See also Tilqhman v. Proctor, 102 U.S. 707, 726-27 (1880) (discussing overbreadth of Morse's eighth claim in OtReilly v. Morse, 56 U.S. 62 (1854) compared to the scope of enablement). Incidental physical limitations, such as data gathering, field of use limitations, and post-solution Appeal No. 2002-2257 Application 08/833,892 activity are not enough to convert an "abstract idean into a statutory "process." Lundgren, 76 USPQ2d at 1405 and 1427-28. A method may not be considered an "abstract ideal1 if it produces an objectively measurable result (e.g.,a contract as a result of a negotiation method or a slower heartbeat as a result of a meditation technique), but it may still not qualify as a "process" under § 101 if it does not perform a transformation of physical subject matter. (14) "Laws of nature, natural phenomena, and abstract ideas" can be thought of as "exclusions" or llexceptions,n but the terms refers to subject are not necessarily synonymous. An "excl~sion~~ matter that is not within § 101 by definition. See, e-g., Diamond v. Diehr, 450 U.S. at 185, 209 USPQ at 7 ("This Court has not undoubtably recognized limits to 5 101 and every discovery is embraced within the statutory terms. Excluded from such patent protection are laws of nature, physical phenomena and abstract ideas." (Emphasis added.) ) . The term llexclusionll (from the Latin, "to shut out") carries more of the connotaton a definition that does not encompass certain subject matter. An "exception" (from the Latin, Ittotake out") tends to refer to subject matter that would fall within condition. § 101 "but forn some exceptional The cases, like ordinary language, do not make strong distinctions between the two words and they tend to use them interchangeably. When the point of view is clear, the Appeal No. 2002-2257 Application 08/833,892 distinction is without a difference. Lundqren, 76 USPQ2d at 1405. A great deal of confusion - - not to say mischief - - may arise when advocates (or decision makers) mistake the analytical process for the subject matter. For example, the position that not every series of steps is a "process" under § 101 is consistent with the idea that "abstract ideas" are excluded from 5 101. On the other hand, if every series of steps is a llprocessll under § 101, then, in order to preserve the Supreme Court precedent that abstract thoughts are not patentable, it is necessary to recognize that certain uprocessesll are exceptions to the general rule. (15) There is a long history of mathematical algorithms as abstract ideas before State Street and AT&T. I . at 1406-11. d One of the main issues after Gottschalk v. Benson was the llspecial casef1 of determining when machine claims (including apparatus claims in "means-plus-function"format) and machineimplemented process claims, which recited mathematical algorithms, were unpatentable. This led to the two-part FreemanWalter-Abele test. Id. at 1409-10. (16) We interpret the State Street and AT&T test of a useful, concrete and tangible result" to be limited, at present, to claims to machines and machine-implemented processes, i.e., to the "special cases" of claims that might be within § 101 because Appeal No. 2002-2257 Application 08/833,892 they recite structure, but which involve an abstract idea issue. Id. - at 1411-13. The Federal Circuit recognized that "certain types of mathematical subject matter, standing alone, represent nothing more than abstract ideas until reduced to some type of practical application, i.e., la useful, concrete and tangible result.I f ' State Street, 149 F.3d at 1373, 47 USPQ2d at 1600-01 (citing In re Alappat, 33 F.3d at 1544, 31 USPQ2d at 1557). The full statement in Alappat reads: "This [claimed invention] is not a disembodied mathematical concept which may be characterized as an 'abstract idea,' but rather a specific machine to produce a useful, concrete, and tangible result." (Emphasis added.) Alappat, 33 F.3d at 1544, 31 USPQ2d at 1557. Alappat, Arrhythmia Research Technoloqy Inc. v. Corazonix Corp., 958 F.2d 1053, 22 USPQ2d 1033 (Fed. Cir. 1992), State Street, and AT&T all involved transformation of data by a machine. The court specifically held that transformation of data representing some real world quantity (a waveform in Alappat, an electrocardiograph signals from a patient's heartbeat in Arrhythmia, or discrete dollar amounts in State Street) by a machine was a practical application of a mathematical algorithm, formula, or calculation that produced "a useful, concrete and tangible result,I1and that a method of applying a PIC indicator "value through switching and recording mechanisms to create a signal useful for billing purposes," AT&T, 172 F.3d at 1358, 50 USPQ2d at 1452, a machine- 24 - Appeal No. 2002-2257 Application 08/833,892 implemented process, was "a useful, concrete, tangible result." See Lundgren, 76 USPQ2d at 1411-16 (APJ Barrett, concurring-inpart and dissenting-in-part) (holding that the State Street test, so far, is limited to transformation of data by machines and machine-implemented processes). The test in Alappat may derive from the classical definition of a "machine": "The term machine includes every mechanical device or combination of mechanical powers and devices to perform some function and produce a certain effect or result." Corning v. Burden, 56 U.S. 252, 267 (1854). However, the fact that the court in AT&T commented on In re Grams, 888 F.2d 835, 12 USPQ2d 1824 (Fed. Cir. 1989), and In re Schrader, 22 F.3d 290, 30 USPQ2d 1455 (Fed. Cir. 1994), which both involved non-machine-implementedprocess claims, as being "unhelpful" because they did not ascertain if the end result of the claimed process was useful, concrete, and tangible, AT&T, 172 F.3d at 1360, 50 USPQ2d at 1453, leaves open the question of whether the l~useful, concrete and tangible result" test is intended to be extended past the original facts of the machine-implemented invention. (17) Justice Breyer in his dissent in Labcorp stated in dicta that it is highly questionable whether the lluseful, concrete and tangible result" test is a general test for statutory subject matter: "[State Street] does say that a process is patentable if it produces a 'useful, concrete, and tangible Appeal No. 2002-2257 Application 08/833,892 result.' 149 F.3d, at 1373. 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." 126 S. Ct. at 2928. (18) None of Alappat, State Street, or AT&T states where the Musefull concrete and tangible resultM terms come from or how they are defined. It seems that "concrete" and "tangible" have essentially the same meaning, and that a "concrete and tangible result" is just the opposite of an "abstract idea." The term uuseful'l appears to refer to the requirement in § 101, which is a separate requirement from the patent eligible subject matter requirement. - at 1416. Id. what is meant by the test. Thus, it is not clear to us It may be that the test is merely a restatement of existing principles rather than a completely new test. - Transformation of data by a machine which represents Id. an abstract idea (for example, but not limited to, a mathematical algorithm) is not statutory just because it is nominally claimed as a machine or a machine-implemented process. I . at 1407-8. d Such "special casesM have always been difficult to address. For now, we interpret the State Street and AT&T test to be a test for when transformation of data by a machine is statutory subject matter. The test could be clarified by the facts of the cases: (1) transformation of data (i.e., electrical signals representing data) is by a machine; (2) the data corresponds to something in Appeal No. 2002-2257 Application 08/833,892 the "real world"; and (3) no physical acts need to occur outside of the machine (internal transformation of electrical signals by the machine is sufficient). I . at 1411. If the Federal Circuit d intends to create a new general test for statutory subject matter regardless of whether it involves transformation of data (signals) by a machine, then further explanation in an appropriate case is needed. (19) Non-machine-implementedprocess claims present additional issues to analyze for statutory subject matter. "Processu claims recite acts and are fundamentally different from "machine, manufacture, or composition of matter" claims, which recite things. Process claims do not have to recite structure for performing the acts. Acts are inherently more abstract than structure. While there is seldom disagreement about physical things falling into one of the statutory classes, it is not always easy to determine when a series of steps is a statutory "process" under § 101. Where the steps define a transformation of physical subject matter (tangible or intangible) to a different state or thing, as normally present in chemical, electrical, and mechanical cases, there is no question that the subject matter is statutory; e.g., "mixingn two elements or compounds is clearly a statutory transformation that results in a chemical substance or mixture Appeal No. 2002-2257 Application 08/833,892 although no apparatus is claimed to perform the step and although the step could be performed manually. I . at 1417. d (20) There are several issues that complicate analysis of non-machine-implementedprocesses: (1) a claim that is so broad that it covers both statutory and nonstatutory subject matter; (2) the statement in In re Musgrave, 431 F.2d at 893, 167 USPQ at 289-90, that it makes no difference whether steps are performed by a machine or mentally, as long as they are in the (3) how to determine when a transformation lltechnological artsf1; \ of physical subject matter takes place; (4) whether minor physical limitations can define a statutory process; and (5) whether methods that can only be performed by a human, e . g . , sports moves, are patentable subject matter. Lundgren, 76 USPQ2d at 1417. (21) Although this question does not appear to have been formally decided by the Federal Circuit, we are of the opinion that claims that read on statutory and nonstatutory subject d matter should be rejected as unpatentable. I . at 1417-24. This problem is most critical in method claims because method claims do not have to recite what structure is used to perform the steps, making them abstract in nature, whereas claims to things, "machines, manufactures, or compositions of matter," easily fall within § 101 (subject to the "special casef1 abstract ideas of performed on machines). The USPTO rejects method claims when Appeal No. 2 0 0 2 - 2 2 5 7 Application 08/833,892 they are interpreted to be so broad that they are directed to the abstract idea itself, rather than a practical implementation thereof; e.g., a series of steps without any recitation of how the steps are performed might be rejected as nonstatutory subject matter as an "abstract idea,I1whereas the same series of steps, if performed by a machine, might be statutory as a practical application of the abstract idea. (22) The "technological artsM test for statutory subject matter originated in response to "mental stepsn rejections. Where the steps of the claim were so broad that they could be performed mentally by a human operator (although the claim did not recite how the steps were performed), the claim was rejected as not defining statutory subject matter even though if the steps were performed by a machine it would constitute statutory subject matter. This is the situation of the claims reading on statutory and nonstatutory subject matter. The court in Musqrave declined to follow the approach of previous cases of determining whether the claim, interpreted reasonably, read upon mental implementation of the process or was confined to a machine Id. implementation. - at 1419. The court held that process claims which could be done by purely mental processes (what might today be called I1abstractideast1), well as by machine, were as statutory as long as the steps were in the lltechnological arts." Id. - at 1420. It was not explained how lltechnological artsu were Appeal No. 2002-2257 Application 08/833,892 to be determined. Judge Baldwin concurred, objecting to the majority's analysis and writing, "suppose a claim happens to contain a sequence of operational steps which can reasonably be read to cover a process performable both within and without the technological arts? This is not too far fetched. Would such a claim be statutory? . . . We will have to face these problems some day." Musqrave, 431 F.2d at 896, 167 USPQ at 291. This test, as a separate test, seems to have been implicitly overruled by Gottschalk v. Benson. Lundgren, 76 USPQ2d at 1425. The Board held in Lundgren that the lttechnological arts" test is not a separate and distinct test for statutory subject Id. matter. - at 1388. Although commentators have read this as eliminating a "technology" requirement for patents, this is not what was stated or intended. As APJ Barrett explained, "[tlhe 'technology'requirement implied by ttechnologicalarts' is Id. contained within the definitions of the statutory classes." at 1430. All I1machines,manufactures, or [man-made] compositions of matter" are things made by man and involve technology. Methods which define a transformation of physical subject matter from one state or thing to another involve technology and qualify as a statutory "processn under § 101. The definitions of the statutory classes and application of the exclusions are the proper tests. A process may involve technology because it meets the transformation of physical subject matter definition of a Appeal No. 2002-2257 Application 08/833,892 "processu under 5 101, even though it does not require performance by a machine. - at 1428. The lltechnological Id. artsu is not a useful, objective test because it was never defined as anything except as a more modern term for the "useful arts." The use of such a test would result in conclusory rejections, which are unreviewable, just as many claims in the past were rejected as Itbusinessmethods" because they involved some business aspect (e.g., accounting) . (23) Not all physical limitations in a claim directed to an abstract idea (e.g., a mathematical algorithm) were sufficient to define a statutory process prior to State Street. This case law regarding data gathering, field-of-use limitations, and postsolution activity, which includes Supreme Court precedent, should still apply to determining whether non-machine-implemented process claims are directed to an abstract idea or a practical Id. application of that idea. - at 1427-28; cf. Labcorp, 126 S. Ct. at 2927-28 (initial step of "assaying a body fluid" does not render the claim patentable). It is difficult to determine when such steps are enough to define statutory subject matter. (24) Claims that can only be performed by a human, such as dance and sports moves, meditation techniques, etc., present Id. difficult questions under 5 101. - at 1428-29. Surgical methods are performed by humans, but since they involve the Appeal No. 2002-2257 Application 08/833,892 application of scientific medical knowledge to transform human and animal tissue they are readily classifiable as a type of Id. manufacturing process. - at 1429. This issue is not present in this case, but we believe any judicial review of this decision should recognize that the present case is only one in a broad spectrum of cases involving what the USPTO perceives to be nonstatutory subject matter. (25) The concurrence/dissent in Lundgren concludes that there are three possible existing tests for statutory subject matter of non-machine-implementedmethods: (1) the definition of a Mprocess" under , § 101 requires a transformation of physical subject matter (which is interpreted to mean matter or some form of energy) to a different state or thing; (2) the judicially recognized exclusions for "abstract ideas, laws of nature, or natural phenomena"; and (3) the "useful, concrete and tangible Id. result" test of State Street. - at 1429-30. (26) In summary, the concurrence/dissent in Lundgren makes the following conclusions about non-machine-implementedmethod claims, which hopefully will be addressed by the Federal Circuit. (a) Not every process in the dictionary sense is a I1processu under § 101; i.e., not every series of steps is a "process" under 5 101. (b) The definition of a "processI1under § 101 requires a transformation of physical subject matter to a different state or thing. (i) The physical subject matter transformed can be matter (an object or material) or some form of Appeal No. 2002-2257 Application 08/833,892 energy (e.g.,heat into mechanical motion; electromagnetic waves progagating in space into electrical current in a wire; etc.). The oft-quoted statement that tlCongress intended statutory subject matter to 'include anything under the sun that is made by rnan,lH is based on the Senate Report statement that "[a] person may have 'invented1a machine or manufacture, which may include anything under the sun made by man." The Senate Report indicates that things made by man (''machines, manufactures, or [man-made] compositions of mattert1) are statutory, but does not imply that Congress intended every concept conceived by man that can be claimed as a method to be patentable subject matter. (d) Some claims that nominally fall within § 101 because they recite a general purpose machine or a method performed on a general purpose machine (e.g., "a computer-implemented method comprising . . . " ) may nonetheless be nonstatutory subject matter if all that is performed is an "abstract idea." This is a "special case" because the subject matter is technically within § 101 by virtue of the machine, as opposed to an exclusion that was never within § 101. (e) "Abstract ideas1!can represent ideas "made by man." (f) Possible indicia of an "abstract ideat' may be (i) the lack of transformation of physical subject matter according to the definition of a "processt1 under § 101, and/or (ii) the claim covers (preempts) any and every possible way that the steps can be performed. (g) Physical steps or limitations in a claim are not necessarily sufficient to convert the claim into statutory subject matter, e.g., data-gathering steps, field of use limitations, and minimal post-solution activity. (h) It is possible that a non-machine-implementedmethod may be nonstatutory subject matter if it does not perform a transformation of physical subject matter even though it contains physical steps that might prevent if from being labeled an "abstract idea." (i) The holding of State Street is limited to transformation of data by a machine. Appeal No. 2002-2257 Application 08/833,892 (j) AT&T involved a machine-implemented process claim. (k) The useful, concrete and tangible resultmm test of State Street and AT&T is presently limited to machine claims and machine-implemented process claims. (1) The terms ~museful, concrete and tangibleu have not yet been defined. (m) During prosecution, claims that read on statutory and nonstatutory subject matter should be held to be unpatentable. (n) There is no separate "technological artsm1 test for statutory subject matter. Interim Guidelines After Lundqren, the USPTO published Interim Guidelines for Examination of Patent Applications for Patent Subject Matter Eligibility (Interim Guidelines), 1300 Off. Gaz. Patent and Trademark Office (O.G.) 142 (Nov. 22, 2005). The Interim Guidelines do not track the analysis in Lundgren, which principally focused on non-machine-implementedmethod claims The Interim Guidelines indicate that statutory subject matter: (1) must fall within one of the statutory categories of § 101, 1300 O.G. at 145; and (2) must not fall within one of the judicially recognized exceptions for "laws of nature, natural - The Interim Guidelines state id. phenomena, and abstract ideasImm that while "laws of nature, natural phenomena, and abstract ideas" are not eligible for patenting, a practical application id. may be patented, - A practical application can be identified by tests: (a) a physical transformation of an article to a Appeal No. 2002-2257 Application 08/833,892 different state or thing, id. at 146; or (b) the production of a l~useful, concrete and tangible result," id., i.e. , the State Street test applied to all claims, whether or not machineimplemented. The Interim Guidelines also state that (c) the claim must not preempt every vsubstantial practical application" id. of the of nature, natural phenomena, or abstract idea, Guidelines are intended to instruct examiners on how to apply the law to the facts. The Board is not bound by such guidelinesla but applies the law directly to the facts. The Interim Guidelines state: I1Rejectionswill be based upon the substantive law and it is these rejections which are appealable. Consequently, any failure by USPTO personnel to follow the Guidelines is neither appealable nor petitionable." Id. at 142, under "Introduction.I1 Although the analysis will apply the Interim Guidelines in the alternative, this exercise underscores, for this panel, several problems with the Interim Guidelines that limit their usefulness severely. 8 From the movie Pirates of the Caribbean (Disney 2003): Elizabeth: You have to take me to shore! Code of the Order of the Brethren. According to the Barbossa: First, your return to shore was not part of our negotiations nor our agreement, so I 'must' do nothin'. And secondly, you must be a pirate for the pirate's code to apply, and you're not. And thirdly, the code is more what you call guidelines than actual rules. Welcome aboard the Black Pearl, Miss Turner. Appeal No. 2002-2257 Application 08/833,892 First, the Interim Guidelines implicitly concede that any series of steps is a "process" under § 101 and does not address the case law that says that not every process in the dictionary sense is a "process" under § 101. - Gottschalk v. Benson, See 409 U.S. at 64, 175 USPQ at 674 (''Thequestion is whether the method described and claimed is a 'process1within the meaning of the Patent Act."); Parker v. Flook, 437 U.S. 584, 588 n.9, 198 USPQ 193, 196 n.9 (1978) (''Thestatutory definition of Iprocess' is broad . . . . An argument can be made, however, that this Court has only recognized a process as within the statutory definition when it either was tied to a particular apparatus or operated to change materials to a 'different state or thing.'"); id. at 589, 198 USPQ at 197 ("The holding [in Gottschalk v. Bensonl that the discovery of that method could not be patented as a 'process' forecloses a purely literal reading of § 101."); Lundqren, 76 USPQ2d at 1398-1401. "Process" claims are inherently more abstract than "machine, manufacture, or composition of matter" claims, which are directed to physical things, because a llprocess" not limited to, or required to is recite, the means for performing the steps. Id. at 1400-01. If it is conceded that every series of steps is a "processu under § 101, then one possible statutory subject matter test is lost. Second, the Interim Guidelines do not provide any directions for how examiners should determine whether the claimed invention Appeal No. 2002-2257 Application 08/833,892 is to an "abstract idea, law of nature, or natural phenomenon" except by finding that it is not a practical application as defined by tests (a) (b) and (c). , , The Interim Guidelines treat "abstract ideas, laws of nature, or natural phenomenau as exceptions rather than exclusions, i.e., claims are statutory "but forn some condition. Third, the Interim Guidelines state that a transformation or reduction of an article to a different state or thing is a statutory practical application. Interim Guidelines, 1300 O.G. at 146. This perpetuates the misunderstanding that "transf~rmation~~ requires transformation of a tangible object or article, contrary to cases that explain that the subject matter transformed can be physical, yet intangible, phenomena such as electrical signals. See In re Schrader, 22 F.3d 290, 295 n.12, 30 UPSQ2d 1455, 1459 n.12 (Fed. Cir. 1994) ("In the Telephone Cases, 126 U.S. 1 . . . (1887), the Court upheld the validity of a claim directed to a method for transmitting speech by impressing acoustic vibrations representative of speech onto electrical signals. If there was a requirement that a physical object be transformed or reduced, the claim would not have been patentable . . . . Thus, it is apparent that changes to intanqible subject matter representative of or constituting physical ) ; activity or objects are included in this definitiontt Lundgren, 76 USPQ2d at 1398-99. Appeal No. 2002-2257 Application 08/833,892 Fourth, the Interim Guidelines adopt the "useful, concrete and tangible result1I test of State Street as a general test for patentable subject matter without addressing the fact that the holding of State Street was qualified by transformation of data by a machine and that AT&T involved a machine-implemented process claim. Id. at 1411-13. It may be that the State Street test can be adapted as a general test,but the factual differences between machine claims or machine-implemented process claims and nonmachine-implemented process claims are significant and have not been addressed by the Federal Circuit. Machines inherently act to transform physical subject matter (tangible or intangible) to a different state or thing. As recognized in the earlier Examination Guidelines for Computer-Related Inventions, 61 Fed. Reg. at 7484, 1184 O.G. at 92: "There is always some form of physical transformation within a computer because a computer acts on signals and transforms them during its operation and changes the state of its components during the execution of a process.I1 Machine-implemented processes nominally fit within the definition of a "processu under § 101, but may not necessarily be statutory under the special circumstances involving transformation of data by a machine, which are addressed by the State Street test. The State Street lluseful, concrete and tangible resultu test is more readily understood and applied if it is limited to machine claims and machine-implemented process claims, which are already Appeal No. 2002-2257 Application 08/833,892 nominally within 5 101, because a machine (almost always a programmed computer) that does no more than perform the steps of an abstract idea is not a practical application of the abstract idea. Thus, the State Street test requires that the practical application must be recited in the claims. The fact that an abstract idea is capable of being practically applied, and that a practical application is disclosed, does not make a broad claim to the abstract idea itself patentable. A claim which covers both statutory and nonstatutory subject matter should be held unpatentable, see Lundgren, 76 USPQ2d at 1417-24. Fifth, the Interim Guidelines attempt to define the terms It t l ~ ~ e f "concrete, and "tangible, but have not cited any ~l, support in matter. § 101 cases dealing with patent eligible subject Moreover, the proposed "definitions" seem to be circular and therefore unhelpful. The statutory categories of 5 101 ( l l p r ~ machine, manufacture, or composition of matter") ~ e ~ ~ , define eligible subject matter, i.e., subject matter that can be patented. The terms Ifnewand useful" in 5 101 refer to other conditions for patentability. "It may be useful to think of eligibility as a precondition for patentability, and of utility as one of the three fundamental conditions for patentability, together with novelty ... and nonobviousness . . . . " Robert L. Harmon, Patents and the Federal Circuit 40 (4th ed. Bureau of National Affairs, Inc. 1998). See Lundgren, 76 USPQ2d at 1395- Appeal No. 2002-2257 Application 08/833,892 96. "Notwithstanding the words 'new and useful' in 101, the § invention is not examined under that statute for novelty because that is not the statutory scheme of things or the long-established administrative practice." State Street, 149 F.3d at 1373 n.2, 47 USPQ2d at 1600 n.2 (citing In re Bergy, 569 F.2d 952, 960, 201 USPQ 352, 360 (CCPA 1979)). It seems that the "useful resultB1 part of the State Street test refers to the "utility" requirement of § 101, which is a separate requirement from patent eligible subject matter, yet this is not questioned by the Interim Guidelines. The Interim Guidelines define "tangible" as the opposite of "abstract," 1300 O.G. at 146, which adds nothing of substance or guidance to the abstract idea exception, and no case is cited for the definition. The Interim Guidelines define "concreteu as the opposite of "unrepeatable" or id., nunpredictable,"- yet we find no dictionary that supports this definition. The case cited in support, In re Swartz, 232 F.3d 862, 864, 56 USPQ2d 1703, 1704 (Fed. Cir. 2000) (because asserted results in the area of cold fusion were "irreproducible," claims were properly rejected under § 101), relates to utility, not to patent eligible subject matter. In our opinion, the terms "concrete and tangible" essentially say the same thing, that the result is not just an Ifabstractidea," but is "actual and real." Appeal No. 2002-2257 Application 08/833,892 Sixth, the Interim Guidelines do not provide any guidance as to how examiners should determine whether the claimed invention preempts an "abstract idea, law of nature, or natural phenomenon." Analysis Claim interpretation The meaning of the claim language is not in dispute. Technological arts The Board held in Lundgren that the "technological arts" is not a separate and distinct test for statutory subject matter. Lundqren, 76 U S P 2 d at 1388. Accordingly, the examiner's rejection in this case, to the extent that it is based on a technological arts" test, is reversed. Nevertheless, the examiner's reasoning that the method is not technological because no specific apparatus is disclosed to perform the steps and because the only way to perform the steps is by a human is not persuasive. "It is probably still true that, as stated in In re Benson, 'machines--thecomputers--are in the technological field, are a part of one of our best-known technologies, and are in the "useful arts" rather than the "liberal arts," as are all other types of "business machines," regardless of the uses to which their users may put them,' 441 F.2d at 688, 169 USPQ at 553, with the exception noted in Appeal No. 2002-2257 Application 08/833,892 Gottschalk v. Benson, that a machine which executes a mathematical algorithm is not patentable under 76 USPQ2d at 1416. § 101." Lundqren, The cases do not imply that a process is not in the technological arts if it is not performed on a machine. Musgrave, the case the examiner relies on for the "technological arts" test, did not require a machine and, in fact, held that steps performed mentally could be patentable. Al'thoughwe disagree that mental steps can be patentable, we conclude that a method performed by a human may be statutory subject matter if there is a transformation of physical subject matter from one state to another; e.g., I1mixing"two elements or compounds to produce a chemical substance or mixture is clearly a statutory transformation although no apparatus is claimed to perform the step and although the step could be performed manually. Application of the Lundgren and Guidelines tests Lundgren The three tests identified in the concurrence/dissent in Lundgren are applied below. (1) Transformation Claim 1, as is common with method claims, does not recite how the steps of "initiating a series of transactions between said commodity provider and consumers of said c ~ m m o d i t y , ~ ~ "identifying market participants," and "initiating a series of transactions between said commodity provider and said market - 42 - Appeal No. 2002-2257 Application 08/833,892 participants," are implemented. Appellants acknowledge "that the steps of the method need not be 'performed1on a computer" (Br6) and, thus, there is no implicit transformation of electrical signals from one state to another as happens in a computer. The steps do not transform any physical subject matter (matter or some form of energy) into a different state or thing. Claim 1 does not involve transformation of data, at least not in the usual sense of a specific, well-defined series of steps (i.e.,an algorithm) performed on data as in a computer-implemented process. The last clause of claim 1, "such that said series of market participant transactions balances the risk position of said series of consumer transaction^,^^ indicates that what are transformed are the non-physical financial risks and legal liabilities of the commodity provider, the consumer, and the market participants having a counter-risk position to the consumer. Accordingly, the steps of claim 1 do not define a test. statutory "processu under S 101 using the lltransformation'l Claim 2 depends on claim 1 and defines the commodity as energy and the market participants as transmission distributors. Claim 3 depends on claim 2 and defines the consumption risk as a weather-related price risk. These claims limit the com