RICH, Circuit Judge.
Signature Financial Group, Inc. (Signature) appeals from the decision of the United States District Court for the District of Massachusetts granting a motion for summary judgment in favor of State Street Bank & Trust Co. (State Street), finding U.S. Patent No. 5,193,056 (the '056 patent) invalid on the ground that the claimed subject matter is not encompassed by 35 U.S.C. @ 101 (1994). We reverse and remand because we conclude that the patent claims are directed to statutory subject matter.
Signature is the assignee of the '056 patent which is entitled
"Data Processing System for Hub and Spoke Financial Services
Configuration." The '056 patent issued to Signature on 9
March 1993, naming R. Todd Boes as the inventor. The '056 patent
is generally directed to a data processing system (the system)
for implementing an investment structure which was developed for
use in Signature's business as an administrator and accounting
agent for mutual funds. In essence, the system, identified by
the proprietary name Hub and Spoke (R), facilitates a structure
whereby mutual funds (Spokes) pool their assets in an investment
portfolio (Hub) organized as a partnership. This investment configuration
provides the administrator of a mutual fund with the advantageous
combination of economies of scale in administering investments
coupled with the tax advantages of a partnership.
State Street and Signature are both in the business of acting
as custodians and accounting agents for multi-tiered partnership
fund financial services. State Street negotiated with Signature
for a license to use its patented data processing system described
and claimed in the '056 patent. When negotiations broke down,
State Street brought a declaratory judgment action asserting invalidity,
unenforceability, and noninfringement in Massachusetts district
court, and then filed a motion for partial summary judgment of
patent invalidity for failure to claim statutory subject matter
under @ 101. The motion was granted and this appeal followed.
On appeal, we are not bound [*4] to give deference to the district court's grant of summary judgment, but must make an independent determination that the standards for summary judgment have been met. Summary judgment is properly granted where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. The substantive issue at hand, whether the '056 patent is invalid for failure to claim statutory subject matter under @ 101, is a matter of both claim construction and statutory construction. "We review claim construction de novo including any allegedly fact-based questions relating to claim construction. We also review statutory construction de novo. We hold that declaratory judgment plaintiff State Street was not entitled to the grant of summary judgment of invalidity of the '056 patent under @ 101 as a matter of law, because the patent claims are directed to statutory subject matter.
The following facts pertinent to the statutory subject matter
issue are either undisputed or represent the version alleged by
the nonmovant. The patented invention relates generally to a system
that allows an administrator to monitor and record the financial
information flow and make all calculations necessary for maintaining
a partner fund financial services configuration. As previously
mentioned, a partner fund financial services configuration essentially
allows several mutual funds, or "Spokes," to pool their
investment funds into a single portfolio, or "Hub,"
allowing for consolidation of, inter alia, the costs of administering
the fund combined with the tax advantages of a partnership. In
particular, this system provides means for a daily allocation
of assets for two or more Spokes that are invested in the same
Hub. The system determines the percentage share that each Spoke
maintains in the Hub, while taking into consideration daily changes
both in the value of the Hub's investment securities and in the
concomitant amount of each Spoke's assets.
In determining daily changes, the system also allows for the allocation
among the Spokes of the Hub's daily income, expenses, and net
realized and unrealized gain or loss, calculating each day's total
investments based on the concept of a book capital account. This
enables the determination of a true asset value of each Spoke
and accurate calculation of allocation ratios between or among
the Spokes. The system additionally tracks 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 for tax purposes for the
Hub and, as a result, for each publicly traded Spoke.
It is essential that these calculations are quickly and accurately
performed. In large part this is required because each Spoke sells
shares to the public and the price of those shares is substantially
based on the Spoke's percentage interest in the portfolio. In
some instances, a mutual fund administrator is required to calculate
the value of the shares to the nearest penny within as little
as an hour and a half after the market closes. Given the complexity
of the calculations, a computer or equivalent device is a virtual
necessity to perform the task.
The '056 patent application was filed 11 March 1991. It initially
contained six "machine" claims, which incorporated means-plus-function
clauses, and six method claims. According to Signature, during
prosecution the examiner contemplated a @ 101 rejection for failure
to claim statutory subject matter. However, upon cancellation
of the six method claims, the examiner issued a notice of allowance
for the remaining present six claims on appeal. Only claim 1 is
an independent claim.
The district court began its analysis by construing the claims
to be directed to a process, with each "means" clause
merely representing a step in that process. However, "machine"
claims having "means" clauses may only be reasonably
viewed as process claims if there is no supporting structure in
the written description that corresponds to the claimed "means"
elements. See In re Alappat, 33 F.3d 1526, 1540-41, 31 U.S.P.Q.2D
(BNA) 1545, 1554 (Fed. Cir. 1994) (in banc). This is not the case
now before us.
When independent claim 1 is properly construed in accordance
with @ 112, P 6, it is directed to a machine, as demonstrated
below, where representative claim 1 is set forth, the subject
matter in brackets stating the structure the written description
discloses as corresponding to the respective "means"
recited in the claims.
Each claim component, recited as a "means" plus its function, is to be read, of course, pursuant to @ 112, P 6, as inclusive of the "equivalents" of the structures disclosed in the written description portion of the specification. Thus, claim 1, properly construed, claims a machine, namely, a data processing system for managing a financial services configuration of a portfolio established as a partnership, which machine is made up of, at the very least, the specific structures disclosed in the written description and corresponding to the means-plus-function elements (a)-(g) recited in the claim. A "machine" is proper statutory subject matter under @ 101. We note that, for the purposes of a @ 101 analysis, it is of little relevance whether claim 1 is directed to a "machine" or a "process," as long as it falls within at least one of the four enumerated categories of patentable subject matter, "machine" and "process" being such categories.
This does not end our analysis, however, because the court
concluded that the claimed subject matter fell into one of two
alternative judicially-created exceptions to statutory subject
matter. n1 The court refers to the first exception
as the "mathematical algorithm" exception and the second
exception as the "business method" exception. Section
101 reads:
Whoever invents or discovers any new and useful process, machine,
manufacture, or composition of matter, or any new and useful improvement
thereof, may obtain a patent therefor, subject to the conditions
and requirements of this title.
The plain and unambiguous meaning of @ 101 is that any invention
falling within one of the four stated categories of statutory
subject matter may be patented, provided it meets the other requirements
for patentability set forth in Title 35, i.e., those found in
@@ 102, 103, and 112, P2.
The repetitive use of the expansive term "any" in @ 101 shows Congress's intent not to place any restrictions on the subject matter for which a patent may be obtained beyond those specifically recited in @ 101. Indeed, the Supreme Court has acknowledged that Congress intended @ 101 to extend to "anything under the sun that is made by man." Diamond v. Chakrabarty, 447 U.S. 303, 309, 65 L. Ed. 2d 144, 100 S. Ct. 2204 (1980); see also Diamond v. Diehr, 450 U.S. 175, 182, 67 L. Ed. 2d 155, 101 S. Ct. 1048 (1981). Thus, it is improper to read limitations into @ 101 on the subject matter that may be patented where the legislative history indicates that Congress clearly did not intend such limitations.
The Supreme Court has identified three categories of subject matter that are unpatentable, namely "laws of nature, natural phenomena, and abstract ideas." Diehr, 450 U.S. at 185. Of particular relevance to this case, the Court has held that mathematical algorithms are not patentable subject matter to the extent that they are merely abstract ideas. See Diehr, 450 U.S. 175, 67 L. Ed. 2d 155, 101 S. Ct. 1048, passim; Parker v. Flook, 437 U.S. 584, 57 L. Ed. 2d 451, 98 S. Ct. 2522 (1978); Gottschalk v. Benson, 409 U.S. 63, 34 L. Ed. 2d 273, 93 S. Ct. 253 (1972). In Diehr, the Court explained 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., "a useful, concrete and tangible result." Alappat, 33 F.3d at 1544, 31 U.S.P.Q.2D (BNA) at 1557. n4
Unpatentable mathematical algorithms are identifiable by showing
they are merely abstract ideas constituting disembodied concepts
or truths that are not "useful." From a practical standpoint,
this means that to be patentable an algorithm must be applied
in a "useful" way. In Alappat, we held that data, transformed
by a machine through a series of mathematical calculations to
produce a smooth waveform display on a rasterizer monitor, constituted
a practical application of an abstract idea (a mathematical algorithm,
formula, or calculation), because it produced "a useful,
concrete and tangible result"--the smooth waveform.
Similarly, in Arrhythmia Research Technology Inc. v. Corazonix
Corp., 958 F.2d 1053, 22 U.S.P.Q.2D (BNA) 1033 (Fed. Cir. 1992),
we held that the transformation of electrocardiograph signals
from a patient's heartbeat by a machine through a series of mathematical
calculations constituted a practical application of an abstract
idea (a mathematical algorithm, formula, or calculation), because
it corresponded to a useful, concrete or tangible thing--the condition
of a patient's heart.
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.
The district court erred by applying the Freeman-Walter-Abele
test to determine whether the claimed subject matter was an unpatentable
abstract idea. The Freeman-Walter-Abele test was designed by the
Court of Customs and Patent Appeals, and subsequently adopted
by this court, to extract and identify unpatentable mathematical
algorithms in the aftermath of Benson and Flook. See In re Freeman,
573 F.2d 1237, 197 U.S.P.Q. (BNA) 464 (CCPA 1978) as modified
by In re Walter, 618 F.2d 758, 205 U.S.P.Q. (BNA) 397 (CCPA 1980).
The test has been thus articulated:
First, the claim is analyzed to determine whether a mathematical
algorithm is directly or indirectly recited. Next, if a mathematical
algorithm is found, the claim as a whole is further analyzed to
determine whether the algorithm is "applied [*16] in any
manner to physical elements or process steps," and, if it
is, it "passes muster under @ 101."
In re Pardo, 684 F.2d 912, 915, 214 U.S.P.Q. (BNA) 673, 675-76
(CCPA 1982) (citing In re Abele, 684 F.2d 902, 214 U.S.P.Q. (BNA)
682 (CCPA 1982)). n5
After Diehr and Chakrabarty, the Freeman-Walter-Abele test has
little, if any, applicability to determining the presence of statutory
subject matter. As we pointed out in Alappat, 33 F.3d at 1543,
31 U.S.P.Q.2D (BNA) at 1557, application of the test could be
misleading, because a process, machine, manufacture, or composition
of matter employing a law of nature, natural phenomenon, or abstract
idea is patentable subject matter even though a law of nature,
natural phenomenon, or abstract idea would not, by itself, be
entitled to such protection. n6 The test determines the presence
of, for example, an algorithm. Under Benson, this may have been
a sufficient indicium of nonstatutory subject matter. However,
after Diehr and Alappat, the mere fact that a claimed invention
involves inputting numbers, calculating numbers, outputting numbers,
and storing numbers, in and of itself, would not render it nonstatutory
subject matter, unless, of course, its operation does not produce
a "useful, concrete and tangible result." Alappat, 33
F.3d at 1544, 31 U.S.P.Q.2D (BNA) at 1557. After all, as we have
repeatedly stated, every step-by-step process, be it electronic
or chemical or mechanical, involves an algorithm in the broad
sense of the term. Since @ 101 expressly includes processes as
a category of inventions which may be patented and @ 100(b) further
defines the word "process" as meaning "process,
art or method, and includes a new use of a known process, machine,
manufacture, composition of matter, or material," it follows
that it is no ground for holding a claim is directed to nonstatutory
subject matter to say it includes or is directed to an algorithm.
This is why the proscription against patenting has been limited
to mathematical algorithms . . . .
The question of whether a claim encompasses statutory subject matter should not focus on which of the four categories of subject matter a claim is directed to --process, machine, manufacture, or composition of matter--but rather on the essential characteristics of the subject matter, in particular, its practical utility. Section 101 specifies that statutory subject matter must also satisfy the other "conditions and requirements" of Title 35, including novelty, nonobviousness, and adequacy of disclosure and notice. For purpose of our analysis, as noted above, claim 1 is directed to a machine programmed with the Hub and Spoke software and admittedly produces a "useful, concrete, and tangible result." This renders it statutory subject matter, even if the useful result is expressed in numbers, such as price, profit, percentage, cost, or loss.
As an alternative ground for invalidating the '056 patent under
@ 101, the court relied on the judicially-created, so-called "business
method" exception to statutory subject matter. We take this
opportunity to lay this ill-conceived exception to rest. Since
its inception, the "business method" exception has merely
represented the application of some general, but no longer applicable
legal principle, perhaps arising out of the "requirement
for invention"--which was eliminated by @ 103. Since the
1952 Patent Act, business methods have been, and should have been,
subject to the same legal requirements for patentability as applied
to any other process or method.
The business method exception has never been invoked by this court,
or the CCPA, to deem an invention unpatentable. Application of
this particular exception has always been preceded by a ruling
based on some clearer concept of Title 35 or, more commonly, application
of the abstract idea exception based on finding a mathematical
algorithm.
For example, In re Schrader, 22 F.3d 290, 30 U.S.P.Q.2D (BNA) 1455 (Fed. Cir. 1994), while making reference to the business method exception, turned on the fact that the claims implicitly recited an abstract idea in the form of a mathematical algorithm and there was no "transformation or conversion of subject matter representative of or constituting physical activity or objects." 22 F.3d at 294, 30 U.S.P.Q.2D (BNA) at 1459 (emphasis omitted).
This case is no exception. The district court announced the precepts of the business method exception as set forth in several treatises, but noted as its primary reason for finding the patent invalid under the business method exception as follows:
927 F. Supp. 502, 516, 38 U.S.P.Q.2D (BNA) 1530, 1542 (emphasis
added). Whether the patent's claims are too broad to be patentable
is not to be judged under @ 101, but rather under @@ 102, 103
and 112. Assuming the above statement to be correct, it has nothing
to do with whether what is claimed is statutory subject matter.
Whether the claims are directed to subject matter within @ 101
should not turn on whether the claimed subject matter does "business"
instead of something else.
The appealed decision is reversed and the case is remanded to the district court for further proceedings [*28] consistent with this opinion.