State Street Bank V. Signature Financial Group - Overview

Overview

On March 9, 1993, Signature Financial Group, Inc. was granted U.S. Patent 5,193,056 entitled "Data Processing System for Hub and Spoke Financial Services Configuration". The "spokes" were mutual funds that pool their assets in a central "hub". It has been pointed out that the patent claim comprises means for performing steps that are the requirements specified in an Internal Revenue Service regulation for avoiding taxes on a partnership. That the invention described and claimed in the patent constituted protectable subject matter was affirmed by the Federal Circuit in July 1998. The court held 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.

This is considered by many to be significant because previously "methods of doing business" had been widely speculated to be an excluded class of patentable subject matter, although some point out that the issue was never directly addressed by the courts until the State Street decision.

The Federal Circuit in this opinion observed that:

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. Illustrative is the CCPA's analysis in In re Howard, 394 F.2d 869, 157 USPQ 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."

Id. at 872, 157 USPQ at 617

The Federal Circuit found it unnecessary to carve out a new exception to the principle that "anything under the sun made by man is patentable" (a phrase from the U.S. Supreme Court ruling in the Chakrabarty decision based on a 1952 report from the Congress). Accordingly, that principle is equally applicable to any business method that produces a useful, concrete and tangible result.

According to many, this ruling has been a major impetus behind the recent boom in software and business method patents. Thus, in his dissenting opinion in In re Bilski, Judge Mayer stated, "Not surprisingly, State Street and its progeny have generated a thundering chorus of criticism," and he collected citations to supporting authorities. He quoted one source for the statement, “The Federal Circuit’s recent endorsement of patent protection for methods of doing business marks so sweeping a departure from precedent as to invite a search for its justification” and another for this: “To call distressing is an understatement. The consensus . . . appears to be that patents should not be issuing for new business methods.”

Others argue that the business method patent boom started much earlier, i.e., in the early 1990s. Regardless, some commentatorssee the boom as harmful and others as beneficial. The CAFC has not taken a fully consistent stand. Thus the court noted in In re Bilski that the claims of patent in State Street were for a machine and not a process. On the other hand, the court has repeatedly said that use of the apparatus or method format should not be determinative of patent-eligibility.