Thursday, January 29, 2009

The First Domino? C.D. Ca. Invalidates Business Method Patent Under Bilski

Fort Properties, Inc. v. Master Lease LLC, (SACV07-365 AG) C.D. Ca., January 22, 2009

Fort Properties filed suit against Master Lease, seeking a declaration from the court that Master Lease's patent on business methods for creating an investment instrument out of real property (US patent 6,292,788) was not infringed and/or invalid.

Shortly after the CAFC decided Bilski, Fort Properties filed a SJ motion arguing that the patent was invalid under 35 U.S.C. 101. The district court agreed with Fort Properties, relying first on the prosecution history of the patent:

[T]he Court is convinced that review of the ‘788 Patent is appropriate in this case. Defendant’s application to the U.S. Patent Office was declined twice because the examiner found the claims were not “in the technological arts” and thus not patentable under Section 101 . . . The patent examiner who rejected those applications then apparently left the U.S. Patent Office, and the application was assigned to another patent examiner . . . who ultimately allowed the claims in April 2001. While the Notice of Allowance did not address the Section 101 issues, Defendant’s previous correspondence with [the examiner] discussed the “useful, concrete and tangible results” of the claims. . . . Defendant also noted [the examiner, during an interview] “explained his view that the claims as written met the statutory requirement of patentable subject matter under 35 U.S.C. § 101, and provided a useful, concrete, and tangible result.” . . . The Court finds that [the examiner's] decision to allow the claims relied in large part on the “useful, concrete, and tangible result” test rejected by Bilski. The Court thus examines the claims of the ‘788 Patent under the proper machine-or-transformation test.

Defendant explicitly acknowledged during the patent application process that the recited methods “need not be performed by a computer.” (Ex. 2:199.) In its opposition brief, Defendant acknowledges that “the ‘machine’ prong of the Benson test is not what gives rise to patentability in [the ‘788 Patent], but rather the ‘transformation of an article.’”

Defendant points out . . . the “creation of deedshares,” arguing that “[t]he creation of the deedshare certainly qualifies as the ‘transformation and reduction of an article.’” “Certainly,” Defendant argues, “there can be no greater transformation for an article than the very creation of the article itself.” But the deedshares themselves are not physical objects or substances. See Bilski, 545 F.3d at 963. As Plaintiff explains, “what is allegedly created is nothing more than an arrangement of conceptual legal rights, which may or may not be in a printed document.” Nor do the deedshares represent physical objects or substances. See Bilski, 545 F.3d at 963. Again, the deedshares represent only legal ownership interests in property. Those ownership rights are not physical objects. Creation of a deedshare does not constitute transformation of an article or thing under Bilski.

Download a copy of the opinion here.

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