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State Street Bank v. Signature Financial Group

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Citation Edit

State Street Bank & Trust v. Signature Financial Group, 149 F.3d 1368, 47 U.S.P.Q.2d (BNA) 1596 (Fed. Cir. 1998) (full-text), cert. denied, 525 U.S. 1093 (1999).

Factual Background Edit

The patent at issue in that case concerned a data processing system for implementing an investment structure known as a "Hub and Spoke" system.[1] This system allowed individual mutual funds (“Spokes”) to pool their assets in an investment portfolio ("Hub") organized as a partnership. According to the patent, this investment regime provided the advantageous combination of economies of scale in administering investments coupled with the tax advantages of a partnership.[2]

The patented system purported to allow administrators to monitor financial information and complete the accounting necessary to maintain this particular investment structure. In addition, it tracked "all the relevant data determined on a daily basis for the Hub and each Spoke, so that aggregate year end income, expenses, and capital gain or loss can be determined for accounting and tax purposes for the Hub and, as a result, for each publicly traded Spoke."[3]

Litigation arose between Signature, the patent owner, and State Street Bank over the latter firm's alleged use of the patented invention. Among the defenses offered by State Street Bank was that the asserted patent claimed subject matter that was not within one of the four categories of statutory subject matter, and hence was invalid.[4]

Trial Court Proceedings Edit

The district court sided with State Street Bank.[5] The trial judge explained:

At bottom, the invention is an accounting system for a certain type of financial investment vehicle claimed as [a] means for performing a series of mathematical functions. Quite simply, it involves no further physical transformation or reduction than inputting numbers, calculating numbers, outputting numbers, and storing numbers. The same functions could be performed, albeit less efficiently, by an accountant armed with pencil, paper, calculator, and a filing system.[6]

The trial court further relied upon "the long-established principle that business ‘plans’ and ‘systems’ are not patentable."[7] The court judged that “patenting an accounting system necessary to carry on a certain type of business is tantamount to a patent on the business itself.”[8] Because the court found that "abstract ideas are not patentable, either as methods of doing business or as mathematical algorithms,"[9] the patent was held to be invalid.

Federal Circuit Proceedings Edit

Following an appeal, the Federal Circuit reversed. The court of appeals concluded that the patent claimed not merely an abstract idea, but rather a programmed machine that produced a "useful, concrete, and tangible result."[10] Because the invention achieved a useful result, it constituted patentable subject matter even though its result was expressed numerically.[11] The court further explained that:

Today, we hold that the transformation of data, representing discrete dollar amounts, by a machine through a series of mathematical calculations into a final share price, constitutes a practical application of a mathematical algorithm, formula, or calculation, because it produces "a useful, concrete and tangible result" — a final share price momentarily fixed for recording and reporting purposes and even accepted and relied upon by regulatory authorities and in subsequent trades.[12]

The court of appeals then turned to the district court’s business methods rejection, opting to "take [the] opportunity to lay this ill-conceived exception to rest."[13] The court explained restrictions upon patents for methods of doing business had not been the law since at least the enactment of the 1952 Patent Act. The Federal Circuit then concluded that methods of doing business should be subject to the same patentability analysis as any other sort of process.[14]

Aftermath Edit

Whatever the status of business method patents prior to 1998, State Street clearly sanctioned their use prospectively. Absent reconsideration of the issue by Congress, the U.S. Supreme Court, or the Federal Circuit itself, business methods remain patentable subject matter.[15]

Congressional reaction to the patenting of business methods has to this point been limited. In 1999, Congress enacted the First Inventor Defense Act as part of the American Inventors Protection Act.[16] That statute provides an earlier inventor of a "method of doing or conducting business" that was later patented by another to assert a defense to patent infringement in certain circumstances.

In its 2000 White Paper on business methods, the U.S. Patent & Trademark Office noted that the State Street decision has "triggered an awareness of the 'business method claim' as a viable form of patent protection. We are at the beginning of a change in the approach to how inventors choose to describe their inventions."[17]

References Edit

  1. See U.S. Patent No. 5,193,056.
  2. 149 F.3d at 1370.
  3. Id.
  4. 35 U.S.C. §101 (identifying processes, machines, manufactures, and compositions of matter as patentable subject matter).
  5. 927 F. Supp. 502 (D. Mass. 1996).
  6. Id. at 515.
  7. Id.
  8. Id. at 516.
  9. Id.
  10. 149 F.3d at 1373.
  11. Id. at 1375.
  12. Id. at 1373.
  13. Id. at 1375.
  14. Id.
  15. On September 20, 2007, the Federal Circuit issued its decision in In re Comiskey, 499 F.3d 1365, 84 U.S.P.Q.2d (BNA) 1670 (Fed. Cir. 2007) (full-text). The Comiskey opinion concluded that "mental processes — or processes of human thinking — standing alone are not patentable even if they have practical application." Id. at 1377. However, the court of appeals also confirmed that the proposition that when “an unpatentable mental process is combined with a machine, the combination may produce patentable subject matter” (id. at 1379), and that "business methods are 'subject to the same legal requirements for patentability as applied to any other process or method.'" Id. at 1374 (citing State Street Bank, 149 F.3d at 1375).
  16. Pub. L. No. 106-113, 113 Stat. 1536 (1999) (codified at 35 U.S.C. §273(b)).
  17. U.S. Patent & Trademark Office, Automated Financial or Management Data Processing Methods (Business Methods), at iv (Mar. 2000) (full-text).

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