96-1327
UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT
149 F.3d 1368; 47 U.S.P.Q.2D (BNA) 1596
July 23, 1998, Decided
SUBSEQUENT HISTORY:
Certiorari Denied January 11, 1999, Reported at: 1999 U.S. LEXIS
493.
PRIOR HISTORY:
Appealed from: U.S. District Court for the District of Massachusetts.
Judge Patti B. Saris.
DISPOSITION:
REVERSED and REMANDED.
COUNSEL:
William L. Patton, Ropes & Gray, of Boston, Massachusetts, argued
for plaintiff-appellee. With him on the brief were James L. Sigel and James
S. DeGraw. Also on the brief was Maurice E. Gauthier, Samuels, Gauthier,
Stevens & Reppert.
Steven L. Friedman, Dilworth, Paxson, Kalish & Kauffman LLP, of Philadelphia, Pennsylvania, argued for defendant-appellant. With him on the brief were Steven J. Henry, Wolf, Greenfield & Sacks, P.C., of Boston, Massachusetts; and Philip G. Koenig, Pittas Koenig, of Winchester, Massachusetts.
William T. Ellis, Foley & Lardner, of Washington, D.C., for amicus curiae Information Technology Industry Council. With him on the brief were Harold C. Wegner, Richard L. Schwaab, and Mary Michelle Kile. Of counsel was John F. Cooney, Venable, Baetjer, Howard & Civiletti, LLP.
Robert C. Scheinfeld, Baker & Botts, L.L.P., of New York, New York, for amicus curiae Mastercard International Service. With him on the brief was Lawrence T. Kass. Of counsel on the brief for amicus curiae VISA International Service Association were Laurie S. Hane, Donald S. Chisum, and Alan L. Durham, Morrison & Foerster LLP, of Palo Alto, California.
JUDGES:
Before RICH, PLAGER, and BRYSON, Circuit Judges.
OPINION BY:
RICH
[*1107] *1370 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). See State Street Bank & Trust
Co. v. Signature Financial Group, Inc., 927 F. Supp. 502, 38 U.S.P.Q.2D
(BNA) 1530 (D. Mass. 1996). We reverse and remand because we conclude that
the patent claims are directed to statutory subject matter.
OPINION:
BACKGROUND
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.
DISCUSSION
On appeal, we are not bound 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. Vas-Cath, Inc.
v. Mahurkar, 935 F.2d 1555, 1560, 19 U.S.P.Q.2D (BNA) 1111, 1114 (Fed.
Cir. 1991). 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. Fed. R. Civ. P. 56(c). 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." Cybor
Corp. v. FAS Techs., 138 F.3d 1448, 1451, 46 U.S.P.Q.2D (BNA) 1169, 1174
(Fed. Cir. 1998) (in banc). We also review statutory construction
de novo. See Romero v. United States, 38 F.3d 1204, 1207 (Fed. Cir. 1994).
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.
See Anderson v. Liberty Lobby, [*1371] Inc., 477 U.S. 242,
255, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). 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.
1. A data processing system for managing a financial services configuration of a portfolio established as a partnership, each partner being one of a plurality of funds, comprising:
(a) computer processor means [a personal computer including a CPU] for processing data;
(b) storage means [a data disk] for storing data on a storage medium;
(c) first means [an arithmetic logic circuit configured to prepare the data disk to magnetically store selected data] for initializing the storage medium;
(d) second means [an arithmetic logic circuit configured to retrieve information from a specific file, calculate incremental increases or decreases based on specific input, allocate the results on a percentage basis, and store the output in a [*1372] separate file] for processing data regarding assets in the portfolio and each of the funds from a previous day and data regarding increases or decreases in each of the funds, [sic, funds'] assets and for allocating the percentage share that each fund holds in the portfolio;
(e) third means [an arithmetic logic circuit configured to retrieve information from a specific file, calculate incremental increases and decreases based on specific input, allocate the results on a percentage basis and store the output in a separate file] for processing data regarding daily incremental income, expenses, and net realized gain or loss for the portfolio and for allocating such data among each fund;
(f) fourth means [an arithmetic logic circuit configured to retrieve information from a specific file, calculate incremental increases and decreases based on specific input, allocate the results on a percentage basis and store the output in a separate file] for processing data regarding daily net unrealized gain or loss for the portfolio and for allocating such data among each fund; and
(g) fifth means [an arithmetic logic circuit configured to retrieve information from specific files, calculate that information on an aggregate basis and store the output in a separate file] for processing data regarding aggregate year-end income, expenses, and capital gain or loss for the portfolio and each of the funds.
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. n2
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n1 Indeed, although we do not make this determination here, the judicially
created exceptions, i.e., abstract ideas, laws of nature, etc., should
be applicable to all categories of statutory subject matter, as our own
precedent suggests. See Alappat, 33 F.3d at 1542, 31 U.S.P.Q.2D (BNA) at
1556; see also In re Johnston, 502 F.2d 765, 183 U.S.P.Q. (BNA) 172 (CCPA
1974) (Rich, J., dissenting).
n2 As explained in In re Bergy, 596 F.2d 952, 960, 201 U.S.P.Q. (BNA)
352, 360 (CCPA 1979) (emphases and footnote omitted):
The first door which must be opened on the difficult path to patentability
is § 101....The person approaching that door is an inventor,
whether his invention is patentable or not....Being an inventor or having
an invention, however, is no guarantee of opening even the first door.
What kind of an invention or discovery is it? In dealing with the question
of kind, as distinguished from the qualitative conditions which make the
invention patentable, § 101 is broad and general; its language
is: "any * * * process, machine, manufacture, or composition of matter,
or any * * * improvement thereof." Section 100(b) further expands "process"
to include "art or method, and * * * a new use of a known process, machine,
manufacture, composition of matter, or material." If the invention, as
the inventor defines it in his claims (pursuant to § 112, second
paragraph), falls into any one of the named categories, he is allowed to
pass through to the second door, which is § 102; "novelty and
loss of right to patent" is the sign on it. 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.
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[*1373] 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). n3 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. See Chakrabarty, 447 U.S. at 308 ("We
have also cautioned that courts 'should not read into the patent laws limitations
and conditions which the legislature has not expressed.'" (citations omitted)).
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n3 The Committee Reports accompanying the 1952 Act inform us that Congress
intended statutory subject matter to "include anything under the sun that
is made by man." S. Rep. No. 82-1979 at 5 (1952); H.R. Rep. No. 82-1923
at 6 (1952).
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The "Mathematical Algorithm" Exception
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
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n4 This has come to be known as the mathematical algorithm exception.
This designation has led to some confusion, especially given the Freeman-Walter-Abele
analysis. By keeping in mind that the mathematical algorithm is unpatentable
only to the extent that it represents an abstract idea, this confusion
may be ameliorated.
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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 [*1374]
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 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
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n5 The test has been the source of much confusion. In In re Abele,
684 F.2d 902, 214 U.S.P.Q. (BNA) 682 (CCPA 1982), the CCPA upheld claims
applying "a mathematical formula within the context of a process which
encompasses significantly more than the algorithm alone." Id. at 909. Thus,
the CCPA apparently inserted an additional consideration--the significance
of additions to the algorithm. The CCPA appeared to abandon the application
of the test in In re Taner, 681 F.2d 787, 214 U.S.P.Q. (BNA) 678 (CCPA
1982), only to subsequently "clarify" that the Freeman-Walter-Abele test
was simply not the exclusive test for detecting unpatentable subject matter.
In re Meyer, 688 F.2d 789, 796, 215 U.S.P.Q. (BNA) 193, 199 (CCPA 1982).
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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. n7 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 [*1375] 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 . . . .
In re Iwahashi, 888 F.2d 1370, 1374, 12 U.S.P.Q.2D (BNA) 1908, 1911 (Fed. Cir. 1989) (emphasis in the original). n8
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n6 See e.g. Parker v. Flook, 437 U.S. 584, 590, 57 L. Ed. 2d
451, 98 S. Ct. 2522 (1978) ("[A] process is not unpatentable simply because
it contains a law of nature or a mathematical algorithm."); Funk Bros.
Seed Co. v. Kalo Inoculant Co., 333 U.S. 127, 130, 92 L. Ed. 588, 68 S.
Ct. 440 (1948) ("He who discovers a hitherto unknown phenomenon of nature
has no claim to a monopoly of it which the law recognizes. If there is
to be invention from such a discovery, it must come from the application
of the law to a new and useful end."); Mackay Radio & Tel. Co. v. Radio
Corp. of Am., 306 U.S. 86, 94, 83 L. Ed. 506, 59 S. Ct. 427 (1939) ("While
a scientific truth, or the mathematical expression of it, is not a patentable
invention, a novel and useful structure created with the aid of knowledge
of scientific truth may be.").
When a claim containing a mathematical formula implements or applies that formula in a structure or process which, when considered as a whole, is performing a function which the patent laws were designed to protect (e.g., transforming or reducing an article to a different state or thing), then the claim satisfies the requirements of § 101.
Diehr, 450 U.S. at 192; see also In re Iwahashi, 888 F.2d 1370,
1375, 12 U.S.P.Q.2D (BNA) 1908, 1911 (Fed. Cir. 1989); Taner, 681 F.2d
at 789, 214 U.S.P.Q. (BNA) at 680. The dispositive inquiry is whether the
claim as a whole is directed to statutory subject matter. It is irrelevant
that a claim may contain, as part of the whole, subject matter which would
not be patentable by itself. "A claim drawn to subject matter otherwise
statutory does not become nonstatutory simply because it uses a mathematical
formula, computer program or digital computer." Diehr, 450 U.S. at 187.
n7 As the Supreme Court expressly stated in Diehr, its own holdings
in Benson and Flook "stand for no more than these long-established principles"
that abstract ideas and natural phenomena are not patentable. Diehr, 450
U.S. at 185 (citing Chakrabarty, 447 U.S. at 309 and Funk Bros., 333 U.S.
at 130.).
n8 In In re Pardo, 684 F.2d 912 (CCPA 1982), the CCPA narrowly limited
"mathematical algorithm" to the execution of formulas with given data.
In the same year, in In re Meyer, 688 F.2d 789, 215 U.S.P.Q. (BNA) 193
(CCPA 1982), the CCPA interpreted the same term to include any mental process
that can be represented by a mathematical algorithm. This is also the position
taken by the PTO in its Examination Guidelines, 61 Fed. Reg. 7478, 7483
(1996).
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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 n9 --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.
See In re Warmerdam, 33 F.3d 1354, 1359, 31 U.S.P.Q.2D (BNA) 1754, 1757-58
(Fed. Cir. 1994). 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." Alappat,
33 F.3d at 1544, 31 U.S.P.Q.2D (BNA) at 1557. This renders it statutory
subject matter, even if the useful result is expressed in numbers, such
as price, profit, percentage, cost, or loss.
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n9 Of course, the subject matter must fall into at least one category
of statutory subject matter.
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The Business Method Exception
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. n10
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n10 As Judge Newman has previously stated,
[The business method exception] is . . . an unwarranted encumbrance to the definition of statutory subject matter in section 101, that [should] be discarded as error-prone, redundant, and obsolete. It merits retirement from the glossary of section 101. . . . 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.
In re Schrader, 22 F.3d 290, 298, 30 U.S.P.Q.2D (BNA) 1455, 1462 (Fed. Cir. 1994) (Newman, J., dissenting).
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The business method exception has never been invoked by this court,
or the CCPA, to deem an invention unpatentable. n11 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. Illustrative
is the CCPA's analysis in In re Howard, 55 C.C.P.A. 1121, 394 F.2d 869,
157 U.S.P.Q. (BNA) 615 (CCPA 1968), wherein the court affirmed the Board
of Appeals' rejection of the claims for lack of novelty and found it unnecessary
to reach the Board's section 101 ground that a method of doing business
is "inherently unpatentable." 394 F.2d at 872, 157 U.S.P.Q. (BNA) at 617.
n12
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n11 See Rinaldo Del Gallo, III, Are 'Methods of Doing Business' Finally
out of Business as a Statutory Rejection?, 38 IDEA 403, 435 (1998).
n12 See also Dann v. Johnston, 425 U.S. 219, 47 L. Ed. 2d 692, 96 S.
Ct. 1393 (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); In
re Chatfield, 545 F.2d 152, 157, 191 U.S.P.Q. (BNA) 730, 735 (CCPA 1976);
Ex parte Murray, 9 U.S.P.Q.2D (BNA) 1819, 1820 (Bd. Pat. App. & Interf.
1988) ("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. . . .") states grounds
of obviousness or lack of novelty, not of non-statutory subject matter.
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[*1376] Similarly, 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). n13
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n13 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 & Curtis v. Merrill Lynch, 564
F. Supp. 1358, 218 U.S.P.Q. (BNA) 212 (D. Del. 1983), (holding a computerized
system of cash management was held to be statutory subject matter.)
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State Street argues that we acknowledged the validity of the business
method exception in Alappat when we discussed Maucorps and Meyer:
Maucorps dealt with a business methodology for deciding how salesmen should best handle respective customers and Meyer involved a 'system' for aiding a neurologist in diagnosing patients. Clearly, neither of the alleged 'inventions' in those cases falls within any § 101 category.
Alappat, 33 F.3d at 1541, 31 U.S.P.Q.2D (BNA) at 1555. However, closer scrutiny of these cases reveals that the claimed inventions in both Maucorps and Meyer were rejected as abstract ideas under the mathematical algorithm exception, not the business method exception. See In re Maucorps, 609 F.2d 481, 484, 203 U.S.P.Q. (BNA) 812, 816 (CCPA 1979); In re Meyer, 688 F.2d 789, 796, 215 U.S.P.Q. (BNA) 193, 199 (CCPA 1982). n14
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n14 Moreover, these cases were subject to the Benson era Freeman-Walter-Abele
test--in other words, analysis as it existed before Diehr and Alappat.
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Even the case frequently cited as establishing the business method
exception to statutory subject matter, Hotel Security Checking Co. v. Lorraine
Co., 160 F. 467 (2d Cir. 1908), did not rely on the exception to strike
the patent. n15 In that case, the patent was found invalid for lack
of novelty and "invention," not because it was improper subject matter
for a patent. The court stated "the fundamental principle of the system
is as old as the art of bookkeeping, i.e., charging the goods of the employer
to the agent who takes them." Id. at 469. "If at the time of [the patent]
application, there had been no system of bookkeeping of any kind in restaurants,
we would be confronted with the question whether a new and useful system
of cash registering and account checking is such an art as is patentable
under the statute." Id. at 472.
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n15 See also Loew's Drive-In Theatres v. Park-In Theatres, 174 F.2d
547, 552 (1st Cir. 1949) (holding that the means for carrying out the system
of transacting business lacked "an exercise of the faculty of invention");
In re Patton, 29 C.C.P.A. 982, 127 F.2d 324, 327-38 (CCPA 1942) (finding
claims invalid as failing to define patentable subject matter over the
references of record.); Berardini v. Tocci, 190 F. 329, 332 (C.C.S.D.N.Y.
1911); In re Wait, 22 C.C.P.A. 822, 73 F.2d 982, 983 (CCPA 1934) ("Surely
these are, and always have been, essential steps in all dealings of this
nature, and even conceding, without holding, that some methods of doing
business might present patentable novelty, we think such novelty is lacking
here."); In re Howard, 55 C.C.P.A. 1121, 157 U.S.P.Q. (BNA) 615, 617, 394
F.2d 869 (CCPA 1968) ("We therefore affirm the decision of the Board of
Appeals on the ground that the claims do not define a novel process...[so
we find it] unnecessary to consider the issue of whether a method of doing
business is inherently unpatentable."). Although a clearer statement was
made in In re Patton, 29 C.C.P.A. 982, 127 F.2d 324, 327, 53 U.S.P.Q. (BNA)
376, 379 (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.
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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:
If Signature's invention were patentable, any financial institution desirous of implementing a multi-tiered funding complex modelled (sic) on a Hub and Spoke configuration would be required to seek Signature's permission before embarking on [*1377] such a project. This is so because the '056 Patent is claimed [sic] sufficiently broadly to foreclose virtually any computer-implemented accounting method necessary to manage this type of financial structure.
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.
In view of this background, it comes as no surprise that in the most
recent edition of the Manual of Patent Examining Procedures (MPEP) (1996),
a paragraph of § 706.03(a) was deleted. In past editions it read:
Though seemingly within the category of process or method, a method of doing business can be rejected as not being within the statutory classes. See Hotel Security Checking Co. v. Lorraine Co., 160 F. 467 (2nd Cir. 1908) and In re Wait, 73 F.2d 982, 24 U.S.P.Q. (BNA) 88, 22 C.C.P.A. 822 (1934).
MPEP § 706.03(a) (1994). This acknowledgment is buttressed by the U.S. Patent and Trademark 1996 Examination Guidelines for Computer Related Inventions which now read:
Office personnel have had difficulty in properly treating claims directed to methods of doing business. Claims should not be categorized as methods of doing business. Instead such claims should be treated like any other process claims.
Examination Guidelines, 61 Fed. Reg. 7478, 7479 (1996). We agree that
this is precisely the manner in which this type of claim should be treated.
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.
CONCLUSION
The appealed decision is reversed and the case is remanded to the district
court for further proceedings consistent with this opinion.
REVERSED and REMANDED.