CITE:  22 F.3d 290
CMON:  April 1994
PLAIN: In re Schrader and Klingaman
DEFND: United States Patent and Trademark Office
COURT: United States Court of Appeals Federal Circuit
DATE:  April 13, 1994

Inventors appealed decision of the Patent and Trademark Office Board of
Patent Appeals and Interferences rejecting, for lack of statutory subject
matter, application for patent for method of competitively bidding on
plurality of related items, such as contiguous tracts of land.  The Court
of Appeals, Plager, Circuit Judge, held that claims, in which mathematical
algorithm was implicit, were properly rejected for lack of statutory
subject matter. Affirmed.

Rex D. Schrader and Eugene D. Klingaman (collectively Schrader or
appellants) appeal the November 20, 1991 decision of the Patent and
Trademark Office Board of Patent Appeals and Interferences (Board),
Appeal No. 91-2650, affirming the rejection of all claims pending in
U.S. Patent Application Serial No. 07/367,668 (the '668 application) for
lack of statutory subject matter under 35 U.S.C. Section 101 (1988).
Finding no reversible error in the Board's decision, we AFFIRM.

  Transformations to data representing physical activity or objects
  are patentable processes.  Dissent supports business method patents.

JUDGE: Plager, Circuit Judge
Before NEWMAN, MAYER, and PLAGER, circuit judges.
Pauline Newman, Circuit Judge, filed opinion dissenting.



Schrader filed the '668 application on June 19, 1989. That application is
directed to a method for competitively bidding on a plurality of related
items, such as contiguous tracts of land or the like. After the items have
been offered to bidders, bids on one, some, or all of the items are
received and entered into a "record".  Then, the combination of winning
bids is determined by assembling a "completion" from all the entered bids.
As explained in the specification, a completion is the particular
combination of bids which "would complete a sale of all of the items
being offered at the highest offered total price." {1}  The items are
then sold in accordance with the "completion".

For example, in an auction involving two contiguous tracts of land, tracts
1 and 2, the following bids might be received and recorded: Bid 1 -- $100,000
for tract 1 by bidder A; Bid 2 -- $200,000 for tract 2 by bidder B; and
Bid 3  -- $250,000 for both tracts 1 and 2 by bidder C.  The combination
of bids that maximizes the revenue to the seller, and thus the combination
of bids that forms the "completion," would be bids 1 and 2.

Schrader claims that his method constitutes a novel way of conducting
auctions. According to Schrader, the type of bids that are normally offered
at auctions is dictated solely by the way in which the auctioneer organizes
or groups the items to be sold.  Through his method, claims Schrader, bids
on any combination of the items being auctioned off are offered at the
discretion of the bidder.  The purported benefit is greater sales revenue
or profit to the seller.  This is illustrated by the previous example, in
which bids were offered on each of the individual tracts as well as on both
tracts together.  As a result, the seller attained total sales revenue of
$300,000. If the seller had only been offered bids on the combined tracts,
i.e., Bid 3, the seller would have derived $250,000 in revenue.

As filed, the application contained 36 claims, of which only two, claims
1 and 34, were independent. Claim 1 is representative:

  1. A method of competitively bidding on a plurality of items comprising
  the steps of identifying a plurality of related items in a record,
  offering said plurality of items to a plurality of potential bidders,
  receiving bids from said bidders for both individual ones of said items
  and a plurality of groups of said items, each of said groups including
  one or more of said items, said items and groups being any number of all
  of said individual ones and all of the possible combinations of said
  items, entering said bids in said record, indexing each of said bids to
  one of said individual ones or said groups of said items, and assembling
  a completion of all said bids on said items and groups, said completion
  identifying a bid for all of said items at a prevailing total price,
  identifying in said record all of said bids corresponding to said
  prevailing total price.

During prosecution, the examiner rejected the claims for lack of statutory
subject matter under 35 U.S.C. Section 101.{2}  After this rejection was
made final, Schrader appealed to the Board.  On appeal, the Board sustained
the rejection 3 apparently on three different grounds:

  First, "[t]he claimed subject matter is, in our opinion, directed to
  subject matter that falls within a judicially determined exception to
  a process set forth in Section 101. The claimed process involves only
  information exchange and data processing and does not involve a process
  of transforming or reducing an article to a different state or thing. 
  .  .  ."

  Second, the claimed method "involves a mathematical algorithm or
  mathematical calculation steps, as the method includes a procedure
  for solving a given type of mathematical problem. .  .  .  [T]he
  mathematical computations of the summation of the possible bidding
  combinations is at the heart of the invention".

  Third, the issues in the case relating to the Section 101 rejection
  are analogous to the issues in Ex parte Murray, 9 USPQ2d 1819 (Bd.
  Pat. App. & Inter. 1988), which also involved a Section 101 rejection;
  Murray was held to be binding precedent.  Schrader appealed the
  decision of the Board to this court.


Schrader argues that the Board incorrectly invoked the rule that a patent
cannot be obtained for a mathematical algorithm in the abstract. 
See Parker v. Flook, 437 U.S. 584, 594, 98 S.Ct. 2522, 2527 (1978);
Gottschalk v. Benson, 409 U.S. 63,71-72, 93 S.Ct. 253,257 (1972).{4}
That rule can be applied by following a two-step protocol developed by
our predecessor court and dubbed the Freeman-Walter-Abele test. Arrythmia
Research Technology, Inc. v. Corazonix Corp., 958 F.2d 1053, 1058, (Fed.
Cir. 1992).  According to that test:

  It is first determined whether a mathematical algorithm is recited
  directly or indirectly in the claim. If so, it is next determined
  whether the claimed invention as a whole is no more than the algorithm
  itself; that is, whether the claim is directed to a mathematical
  algorithm that is not applied to or limited by physical elements or
  process steps. Such claims are nonstatutory. However, when the
  mathematical algorithm is applied to one or more elements of an
  otherwise statutory process claim, .  .  . the requirements  of section
  101 are met. Id.

Schrader's first point is that there is no mathematical algorithm implicit
in the claim. {5}  We disagree.  Benson defines a "mathematical algorithm"
for purposes of Section 101 as a "procedure for solving a given type of
mathematical problem. .  .  ." 409 U.S. at 65.  See also Diamond v. Diehr,
450 U.S. 175, 186 (1981).  The claim language "assembling a completion" is
such a  procedure because it describes the solving of a mathematical problem:
determining the optimal combination of bids.{6}  This conclusion is
supported by an admission in Schrader's brief that the following two-step
mathematical process is inherent in the phrase:

  Perform a mathematical calculation which

  a)determines possible combinations of items and/or groups with
  the provision that each item only appear once in each combination.

  b)selects the combination with prevailing (i.e. highest or lowest) value.

This process, although expressed in general terms, is within or similar to
a class of well-known mathematical optimization procedures commonly applied
to business problems called linear programming{7}.  Thus, a mathematical
algorithm is implicit in the claim. {8}

Schrader further argues that the claim implies no more than the step of
summing, hardly a mathematical algorithm in Schrader's view.  This is too
narrow a view.  As we have discussed, the claim implies a procedure for
determining the optimal combination of bids.  While that procedure may
involve summing, it is certainly not limited to it. In any event, this is
not a dispositive argument because even simple summing may be an algorithm.
See In re Taner, 681 F.2d 787, 790 (CCPA 1982).

Schrader's next point is that, even if a mathematical algorithm is implicit
in the claim, the claim recites or implies sufficient physical activity to
meet the second prong of the Freeman-Walter-Abele test.  Thus, he argues
the method physically regroups raw bids into new groupings and ultimately
'completions'; physically transforms bid data into completion data or
display data; and makes physical changes to a "display".  In the
specification, Schrader says that the claim envisages an auction
environment in which "all of the bidders are assembled in one large room
with a display in front of the room" or with the bidders "assembled in
several rooms either adjacent or in different cities interconnected by a
closed-circuit television system or the like using large screen displays".

We find this argument unpersuasive.  The word "display" is nowhere
mentioned in the claim. Moreover, there is nothing physical about bids
per se.  Thus, the grouping or regrouping of bids cannot constitute a
physical change, effect, or result.  Also, the terms "bid data", "completion
data", or "display data" are nowhere mentioned in the claim and there is
no basis to read them into the claim.  See Intervet America, Inc. v.
Kee-Vet Lab., Inc., 887 F.2d 1050, 1053 (Fed. Cir. 1989); E.I. duPont de
Nemours & Co. v. Phillips Petroleum Co., 849 F.2d 1430, 1433 (Fed. Cir.),
cert. denied, 488 U.S. 986 (1988).  Therefore, we do not find in the
claim any kind of data transformation. Finally, the notion of bidders
assembled in a single location in front of a display, or in several
locations interconnected by closed-circuit television through a
large-screen display is not recited in the claim.

The only physical effect or result which is required by the claim is the
entering of bids in a "record," a step that can be accomplished simply by
writing the bids on a piece of paper or a chalkboard.  For purposes of
Section 101, such activity is indistinguishable from the data gathering
steps which we said in In re Grams, 888 F.2d 835, (Fed. Cir. 1989), were
insufficient to impart patentability to a claim involving the solving of
a mathematical algorithm. {9}  Id. at 840;  see also In re Meyer,
688 F.2d 789, 794, (CCPA 1982).

Moreover, the step of entering data into a "record" is implicit in any
application of a mathematical algorithm. The recitation of such a step
in a claim involving the solving of a mathematical algorithm merely makes
explicit what had been implicit.  A conclusion that such activity is
sufficient to impart patentability to a claim involving the solving of
a mathematical algorithm would exalt form over substance.  A similar
point was recognized in Flook, in which the Court concluded that the
recitation of insignificant post-solution activity in a claim involving
the solving of a mathematical algorithm could not impart patentability
to the claim:

  The notion that post-solution activity, no matter how conventional
  or obvious in itself, can transform an unpatentable principle into
  a patentable process exalts form over substance.  A competent draftsman
  could attach some form of post-solution activity to almost any
  mathematical formula; . . . . The concept of patentable subject
  matter under Section 101 is not "like a nose of wax which may be turned
  and twisted in any direction. . . ."  White v. Dunbar, 119 U.S. 47, 51.
  Flook, 437 U.S. at 590.

Schrader's claims are thus not patentable.

Arrythmia is not to the contrary.  The claims in Arrythmia involved the
manipulation of electrical signals and data representative of human cardiac
activity; it was held that they recited patentable subject matter. 
958 F.2d at 1053.  For purposes of Section 101, the claims were
indistinguishable from the claims involving the manipulation of data
representing CAT scan images held patentable in In re Abele, 684 F.2d 902,
(CCPA 1982); or the claims involving the manipulation of signals
representative of reflected seismic energy held patentable in In re Taner,
681 F.2d 787, (CCPA 1982).

These claims all involved the transformation or conversion of subject
matter representative of or constituting physical activity or objects.
In Arrythmia, it was electrocardiograph signals representative of human
cardiac activity; in Abele, it was X-ray attenuation data representative
of CAT scan images of physical objects; and in Taner, it was seismic
reflection signals representative of discontinuities below the earth's
surface. Schrader's claims, except for incidental changes to a "record",
do not reflect any transformation or conversion of subject matter
representative of or constituting physical activity or objects.

The requirement that in a process claim compliance with Section 101
requires some kind of transformation or reduction of subject matter is not
in violation of the Supreme Court's admonition in Diehr that "courts 'should
not read into the patent laws limitations and conditions which the
legislature has not expressed.'"  Id. at 192 (quoting Diamond v. Chakrabarty,
447 U.S. at 308).  When Congress approved the addition of the term
"process" {10} to the categories of patentable subject matter in 1952,
it incorporated the definition of "process" that had evolved in the
courts. {11}  As of 1952, that term included a requirement that there
be a transformation or reduction of subject matter. We first see the
requirement reflected in an early case, Cochrane v. Deener, 94 U.S. 780,
787- 788 (1877), in which the Court stated:

  A process is .  .  . an act, or a series of acts, performed upon the
  the subject matter to be transformed and reduced to a  different state or
  thing. (Emphasis added)

We then see it reflected, albeit imperfectly{12}, in Professor Robinson's
classic treatise, written when the statute said art:

  An art or operation is an act or a series of acts performed by some
  physical agent  upon some physical object, and producing in such
  object some change either of character or of condition.  It is
  also called a "process", .  .  .  . (Emphasis added)
  1 William C. Robinson, The Law of Patents For Useful Inventions Section
  159 (1890).

We also see it reflected, again imperfectly{13}, in Benson, in which the
Court stated:

  Transformation and reduction of an article "to a different state or
  thing" is the clue to the patentability of a process claim. .  .  .
  409 U.S. at 70.

Finally, we see it cited with approval in Diehr, 450 U.S. at 183-84. This
basic requirement preceded and remains a part of the requirements
incorporated in the 1952 Act.  See Astoria Federal Sav. and Loan Ass'n v.
Solimino,  111 S.Ct. 2166, 2169 (1991) (presumption that well-established
common law principles are left unchanged by statutory enactment).


Accordingly, we conclude the Board properly rejected the claims for lack
of statutory subject matter.{14} The decision of the Board sustaining the
rejection of claims 1-36 is AFFIRMED.


Newman, Judge, dissenting.

I respectfully disagree with my colleagues on this panel, for I do not
view this subject matter as nonstatutory in terms of 35 U.S.C. Section 101.
However, on the record before us I do not deem the claims allowable.  In
view of the inadequate examination for patentability under sections 102
and 103 of the Patent act, I would remand to the Patent and Trademark
Office for further processing of the application.


The applicant Schrader is claiming a method whereby parcels of real
property or other things are sold at auction by a procedure of bidding
and determining optimum prices that, according to Schrader's brief, is
usefully but not necessarily performed with the aid of a computer.
Schrader's method involves more than mental steps or theories or plans,
see Arrythmia Research Technology Inc. v. Corazonix Corp., 958 F.2d 1053,
1057, (Fed. Cir. 1992) (claim must be directed to physical elements or
process steps), and is not a scientific principle, law of nature,
natural phenomenon, or abstract idea, the terms generally used to
delineate unpatentable subject matter.

Although Schrader's claimed process requires computational steps, the fact
that mathematical procedures are performed does not preclude patentability.
It is necessary to ascertain whether the claim as a whole defines statutory
subject matter, whether or not mathematical procedures are invoked along
the way.  Diamond v. Diehr, 450 U.S. 175, 187 (1981). In deciding this

  it must be determined whether a scientific principle, law of nature,
  idea, or mental process, which may be represented by a mathematical
  algorithm, is included in the subject matter of the claim. If it is,
  it must then be determined whether such principle, law, idea, or mental
  process is applied in an invention of a type set forth in 35 U.S.C. 101.

In re Meyer, 688 F.2d 789, 795 (CCPA 1982).

Even if the Schrader claims are viewed as encompassing a mathematical
algorithm {1'}, it is applied in a statutory process as set forth in
35 U.S.C. Section 101, in this case a process of conducting an auction
of multiple lots of separable elements. Although one may debate whether
the claimed process is a "method of doing business", as the Board found,
see post, I can not agree that the claimed invention is no more than a
mathematical algorithm.

Indeed, the Schrader claims easily satisfy the Freeman-Walter-Abele test.
See In re Abele, 684 F.2d 902 (CCPA 1982).  This court has made clear
that the Freeman-Walter-Abele test is not the only test for the existence
of statutory subject matter when computation is involved.  Arrhythmia,
958 F.2d at 1057; In re Grams, 188 F.2d 835, 838-39 (Fed. Cir. 1989).
However, the test is useful and, when met, ends the inquiry, for it 
implements the principle set forth in Diamond v. Diehr, 450 U.S. at 309,
that "Congress intended statutory subject matter to 'include anything
under the sun that is made by man"' (quoting legislative history of
1952 Patent Act).

As stated in In re Musgrave, 431 F.2d 882, 893 (CCPA 1970), a statutory
"process" is limited only in that it must be technologically useful.
A process does not become nonstatutory because of the nature of the
subject matter to which it is applied, or the nature of the product
produced.  In re Toma, 575 F.2d 872, 877-78 (CCPA 1978). The nation has
benefitted from the adaptability of the patent system to new technologies,
as was recognized in Diamond v. Chakrabarty, 447 U.S. 303, 316 (1980)
("Mr. Justice Douglas reminded that the inventions most benefiting
mankind are those which 'push back the frontiers of chemistry, physics
and the like.' ")

The majority now imposes fresh uncertainty on the sorts of inventions
that will meet the majority's requirements. All mathematical algorithms
transform data, and thus serve as a process to convert initial conditions
or inputs into solutions or outputs, through transformation of information.
Data representing bid prices for parcels of land do not differ, in section
101 substance, from data representing electrocardiogram signals (Arrhythmia)
or parameters in a process for curing rubber (Diehr).  All of these
processes are employed in technologically useful arts {2'}.  Even were a
mathematical formula viewed as "like a law of nature", Diehr, 450 U.S. at
186, or as an abstract idea, see Gottschalk v. Benson, 409 U.S. 63, 71-72,
(1972), the requirements of section 101 are met when the formula
is applied in a technological process to produce a useful result. The
Freeman-Walter-Abele test facilitates this analysis, for once one has
determined that a mathematical algorithm is implicated in the claimed
invention, the inquiry  proceeds to the invention as a whole, as the
statute requires.  The test is simply whether the mathematical formula
or equation is all that is claimed, or whether the procedures involving
the specified mathematics are part of a useful process. When the latter
requirement is met the subject matter is statutory.

In the continuum wherein the jurisprudence relating to computer-implemented
inventions has evolved, as noted in Arrythmia, 958 F.2d at 1057 n.4,
judge-made law has retreated from specifying how a mathematical algorithm
must interact in the claimed invention in order to constitute statutory
subject matter, and advanced toward the test of whether the overall process
is for a technologically useful art.  See Freeman and Walter and Abele.

Schrader's claimed process requires the performance of specified steps
and procedures, including calculations, to achieve a technologically
useful result; it is not a mathematical abstraction. As stated in Diamond
v. Diehr, 450 U.S. at 187, subject matter does not become nonstatutory
"simply because it uses a mathematical formula" in an otherwise statutory
process.  Thus I respectfully dissent from the panel majority's view
that Schrader's claims do not comply with 35 U.S.C. Section 101.


The Board also relied on the "method of doing business" ground for
finding Schrader's subject matter non-statutory under section 101.  In so
doing the Board remarked that the "method of doing business" is a "fuzzy"
concept, observed the inconclusiveness of precedent, and sought guidance
from this court. Indeed it is fuzzy; and since it is also an unwarranted
encumbrance to the definition of statutory subject matter in section 101,
{3} my guidance is that it be discarded as error-prone, redundant, and
obsolete.  It merits retirement from the glossary of section 101.

The decisions that have spoken of "methods of doing business" have, or
could have, resolved the issue in each case simply by relying on the
statutory requirements of patentability such as novelty and unobviousness.
An illustration is the CCPA's analysis in In re Howard, 394 F.2d 869,
(CCPA 1968), wherein the court affirmed the Board of Appeals' rejection
of the claims for lack of novelty, the court finding it unnecessary to
reach the Board's section 101 ground that a method of doing business is
"inherently unpatentable".  Id. at 872.

Ex parte Murray, 9 USPQ2d 1819 (Bd. Pat. App. & Interf. 1988), relied on
herein by the Board, can be viewed similarly, for the Murray holding that
"the claimed accounting method [requires] no more than the entering,
sorting, debiting and totaling of expenditures as necessary preliminary
steps to issuing an expense analysis statement", 9 USPQ2d at 1820, states
grounds of obviousness or lack of novelty, not of non-statutory subject
matter.  Indeed, in Dann v. Johnston,  425 U.S. 219, (1976) the Supreme
Court declined to discuss the section 101 argument concerning the
computerized financial record-keeping system, in view of the Court's
holding of patent invalidity under section 103.

A case often cited as establishing the business methods "exception" to
patentable subject matter is Hotel Security Checking Co. v. Lorraine Co.,
160 F. 467 (2nd Cir. 1908); however, the court discussed the "obviousness"
of the system of records kept to prevent embezzlement by waiters at
considerably greater length than whether the subject matter was
"statutory". Although a clearer statement was made in In re Patton,
127 F.2d 324, 327, (CCPA 1942) that a system for transacting business,
separate from the means for carrying out the system, is not patentable
subject matter, the jurisprudence does not require the creation of a
distinct business class of unpatentable subject matter.

The cases simply reaffirm that the patent system is directed to tangible
things and procedures, not mere ideas.  See Rubber-Tip Pencil Co. v.
Howard, 87 U.S. (20 Wall.) 498, 507 (1874) ("An idea of itself is not
patentable, but a new device by which it may be made practically useful
is").  Any historical distinctions between a method of "doing" business
and the means of carrying it out blur in the complexity of modern business
systems.  See Paine, Webber, Jackson and Curtis v. Merrill Lynch,
564 F. Supp. 1358, 218 USPQ 212  (D. Del. 1983), wherein a computerized
system of cash management was held to be statutory subject matter.

I discern no purpose in perpetuating a poorly defined, redundant, and
unnecessary "business methods" exception, indeed enlarging (and enhancing
the fuzziness of) that exception by applying it in this case. All of the
"doing business" cases could have been decided using the clearer concepts
of Title 35. Patentability does not turn on whether the claimed method
does "business" instead of something else, but on whether the method,
viewed as a whole, meets the requirements of patentability as set forth
in Sections 102, 103, and 112 of the Patent Act.


Although I conclude that the requirements of section 101 were met, the
examination in this case was not adequate to determine the merits of
patentability.  The record does not show analysis in terms of sections
102 and 103.  It is not reasonable to believe that the activity here
described is devoid of prior art, particularly in view of the breadth
with which it is claimed.  It would be improper for this court to
authorize issuance of a patent in these circumstances.


{1}  In some instances, the completion is formed from those bids that
minimize the price of the items bid upon. For example, in a competitive
bid for a defense contract, where multiple contractors are bidding to
provide services at one or more military bases, the completion is formed
from those bids that minimize the contract price, and thus the cost to
the government.

{2}  The examiner also rejected the claims for lack of enablement under
35 U.S.C. Section 112 Para. 2 (1988).  However, the Board did not sustain
this rejection, and it is not before us on appeal.

{3}  Schrader never argued the patentability of the dependent claims
separately from that of the independent claims. Thus, they stand or fall
together.  See 37 C.F.R. Section 1.192 (c)(5) (1992).

{4}  We are aware of the criticism that has been leveled at the Benson
decision, see Donald S. Chisum, The Patentability of Algorithms, 47 U. Pitt.
L. Rev. 959 (1986), and the possible implications for the holding in that
decision following the decisions in Diamond v. Diehr, 450 U.S. 175 (1981)
and Diamond v. Chakrabarty, 447 U.S. 303 [206 USPQ 193] (1980), as well as
the fact that court decisions regarding the circumstances under which
algorithms are patentable have not been wholly consistent.  See In re
Musgrave, 431 F.2d 882, (CCPA 1970).  Our citation to Benson and related
cases is for historical and analytical purposes related to the decision
in this case, and is not intended to be read as suggesting any conclusions
regarding the patentability of computer programming in general.
See note 8, infra, and Arrythmia Research Technology, Inc. v.
Corazonix Corp., 958 F.2d 1053, (Fed. Cir. 1992).

{5}  The definition of "algorithm" is not universally agreed. One working
definition is that "[a]n algorithm is an unambiguous specification of a
conditional sequence of steps or operations for solving a class of
problems."  Allen Newell, Response: The Models Are Broken, The Models Are
Broken, 47 U. Pitt. L. Rev. 1023, 1024 (1986).  The same author notes that
the label "mathematical algorithm" is a source of confusion: "The
first confusion is using involvement with numbers as the hallmark for
distinguishing mathematics from nonmathematics, as an aid to determining
what is an algorithm. . . .  [M]athematics deals with both nonnumerical
things and numerical things.  .  .   .  [T]here are both numerical and
nonnumerical algorithms.  .  .  . Therefore, any attempt to find a helpful
or cutting distinction between mathematics and  nonmathematics, as between
numerical or nonnumerical, is doomed."  Id.

{6}  The precedent of our predecessor court is in accord. In In re
Gelnovatch, 595 F.2d 32 (CCPA 1979), the CCPA held that a method for
choosing a set of optimal microwave circuit elements was a mathematical

{7}  Defined in Webster's New International Dictionary to mean "a theory
of maximization of linear functions of a large number of variables subject
to constraints used esp. in the administrative and economic planning of
industrial and military operations." Linear programming is a known
procedure for solving business problems involving profit maximization.
See 12 McGraw Hill Encyclopedia of Science & Technology, at 385-387
(6th ed. 1987).

{8}  There is no inconsistency between this conclusion and the statement
in Diehr, 450 U.S. at 185-86 & 186 n.9, that the mathematical algorithm
exception is limited to those algorithms that express a law of nature,
a natural phenomenon, or an abstract idea.  Schrader's algorithm relates
to two obvious and familiar modes of human behavior: that potential buyers
naturally may submit bids on one, some, or all of the items available for
sale, and that sellers may naturally choose that combination of bids that
maximize their profits.

{9}  In re Grams, 888 F.2d 835 (Fed. Cir. 1989), held that it is incorrect
to apply the second prong of the Freeman-Walter-Abele test by viewing in
isolation the claim steps which "refine" or "limit" the steps involving
the solving of the mathematical algorithm.  Id. at 839.  When applied in
such a manner, the test is not dispositive.  The dispositive issue is
whether the claim as a whole recites sufficient physical activity to
constitute patentable subject matter. Id.

{10}  35 U.S.C. Section 101 reads in relevant part:  "Whoever invents or
discovers any new . . . process . . . may obtain a patent therefor. . . ."
The term "process" is defined by 35 U.S.C. Section 100(b) to mean:
" .  .  . process, art or method, and includes a new use of a known
process, machine, manufacture, composition of matter, or material."

{11}  This conclusion is drawn from three sources.  The first is 35 U.S.C.
Section 100(b), which defines "process" circularly to mean "process".
The second is the legislative history, which shows Congress approved the
substitution of the term "process" for the term "art" used in all previous
patent statutes because it had a more "readily grasped" meaning that had
evolved in the courts.  See S. Rep. No. 1979, 82nd Cong., 2d Sess. 5, 17
(1952), reprinted in 1952 U.S.C.C.A.N. 2394, 2398-99 & 2409-10; H. Rep.
No. 1923, 82nd Cong., 2d Sess. 6, 17 (1952).  See also P.J. Federico,
Commentary on the New Patent Act, 35 U.S.C.A. Section 1 et seq., at 15-16
(1954 ed. West) reprinted in 75 JPOS 161, 176 (1993).  The third is the
presumption that when a statute uses a term of art, such as "process",
Congress intended it to have its established meaning.  See McDermott Int'l,
Inc. v. Wilander, 498 U.S. 337, 342 (1991); Barber v. Gonzales, 347 U.S.
637, 641 (1954).

{12}  Professor Robinson cites to Cochrane for the above definition but
inexplicably speaks in terms of changes to a physical "object" while
Cochrane speaks in terms of changes to "subject matter".  The distinction
is significant. 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.
The point was recognized by our predecessor court in In re Prater,
415 F.2d 1393, (CCPA 1969): "[The Cochrane passage] has sometimes been
misconstrued as a 'rule' or 'definition' requiring that all processes,
to be patentable, must operate physically upon substances. Such a result
misapprehends the nature of the passage. .  .  ."   Id. at 1403, modifying
on rehearing, 415 F.2d at 1387-88 (CCPA 1968); see also In re Musgrave,
431 F.2d 882, 892 (CCPA 1970).  Thus, it is apparent that changes to
intangible subject matter representative of or constituting physical
activity or objects are included in the definition.  See Tilghman v.
Proctor, 102 U.S. 707, 728 (1881); Corning v. Burden, 56 U.S. (15 How.)
252 (1854).

{13}  Cochrane is cited in Benson for the above definition, yet, as
noted, Cochrane speaks in terms of changes to "subject matter" rather
than changes to an "article".

{14}  As noted, the Board affirmed the rejection of Schrader's claims
on three alternative grounds.  And the dissent suggests other grounds
on which the rejection might have been based.  Since we are obligated
to decide the case on the grounds invoked by the Board, we cannot reach
the issues suggested by the dissent, and, in view of our disposition of
the appeal on the mathematical algorithm ground, we need not address the
other grounds offered by the Board.

{1'}  I do not believe that they do.  The Supreme Court has defined
mathematical algorithm as a "procedure" or "formulation" for solving
a particular mathematical problem.  Gottschalk v. Benson, 409 U.S. 63,
65, (1972). The only mathematical problem in Schrader's invention is
identifying that combination of bids which yields the highest return,
and he does not claim any particular procedure or formula for solving
that problem.  Neither the trivial procedure of adding up the returns
on all permissible combinations of bids and selecting the combination
with the highest return, nor some more elegant mathematical manipulation,
is claimed. One must distinguish the answer to be found from the method
of finding that answer. The latter might be a mathematical algorithm;
the former is not.

{2'}  By enlarging section 101 beyond its statutory scope, the majority
implies that it is more desirable, from the viewpoint of social policy,
to withhold the patent incentive from innovative activity such as that
here illustrated.  Such policy decisions have been made for a variety of
reasons, as exemplified in the denial of patents on inventions relating
to nuclear weapons, perpetual motion machines, and, until 1977, gambling

{3'}  35 U.S.C. Section 101 Inventions patentable.  "Whoever invents or
discovers anynew and useful process, machine, manufacture, or composition
of matter, or any new and useful improvement thereof, may obtain a patent
therefor, subject to the conditions and requirements of this title."