Patents & the Financial Services Industry

Introduction

Much has already been written about this long-awaited decision.  The important holding was simply that (1) the Federal Circuit’s machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible process,  and (2) Bilski’s claim^* covering hedging risks in commodities trading was too abstract to be patent eligible.  To some, who were expecting a new test for patent-eligible subject matter, this decision may have been disappointing or at very least anticlimactic.

Justice Kennedy wrote for the majority, and two concurring opinions were offered, by Justice Stevens and Justice Breyer.  The Majority opinion was rather short, while Justice Stevens’ concurrence was much lengthier, and some have speculated that the Stevens concurrence was written as though it were drafted to be the majority opinion but which failed to garner a fifth vote (namely Scalia, who appeared to be the swing vote in this case), while Kennedy’s shorter majority opinion may have been written as a compromise after it was clear that Stevens was not going to get five votes.  In any event, the Stevens opinion is very informative to read.

Some points to know about the decision:

• All nine Justices agreed that Bilski’s proposed patent covered an abstract idea, which (along with laws of nature and physical phenomena) is not patentable
• Only 4 Justices voted to categorically find “business methods” not patentable; the majority did not agree, and therefore business methods are not per se unpatenable (e.g., Breyer concurrence: “This Court has never before held that so-called ‘business methods’ are patentable, and, in my view, the text, history, and purposes of the Patent Act make clear that they are not.”)
• The majority probably barred any categorical exclusion of software patents, but not explicitly.  Indeed, the majority opinion did not even explicitly mention software much less expressly rule on the patentability of software, but it clearly expressed a desire to avoid categorical bars beyond abstract ideas, laws of nature, and physical phenomena.  (Kennedy discusses software briefly in his decision, but in a section not joined by Scalia and therefore this was merely a Kennedy concurrence and not signed by the majority)
• The majority did not explicitly reject the “Useful, Concrete, and Tangible result” test of State Street, but both concurring opinions (5 Justices) explicitly rejected the UCT test.  Therefore, five Justices expressed the view that the State Street test is inconsistent with Supreme Court precedent
• Absent a new or complementary test, the Benson-Flook-Diehr (BFD) cases are the “guideposts” to look towards when determining whether a claimed invention is “abstract.”
• Insofar as most observers did not expect the S.Ct. to find Bilski’s claim patent-eligible, the decision can largely be seen as a victory for Bilski – as well as proponents of broad patent protection for financial services inventions – because the Court agreed with petitioners that (1) business methods are not excluded from patentability, (2) the Federal Circuit’s machine-or-transformation test is not the exclusive test for patent eligibility, thereby expanding the category of eligible subject matter beyond only that subject matter which passes the machine-or-transformation test, and (3) the ruling allows for the possibility that software and other business methods can be patented.

Now that we are back in a BFD world again, the focus going forward for financial services patents and applications will be these three S.Ct. cases and, particularly, what is and is not an “abstract idea.”

Abstract Ideas

Because the S.Ct., probably quite correctly, did not provide a new test for determining §101 patent eligibility, we are left with a §101 framework that affirms the MOT test as a useful clue – and any claims that satisfy this test are most certainly patentable based on S.Ct. precedents unless and until we find a claim that passes MOT but is nonetheless directed towards an abstract idea – while allowing that some claimed inventions may fail the MOT test but be patent-eligible if they are not abstract ideas.

The upshot of this framework is two-fold: (1) the S.Ct. in its decision did nothing to develop the MOT test further than it already has in the past, and (2) the S.Ct. did not do much more for explaining when an invention is an abstract idea.  It was already established that an invention that satisfies the MOT test is patent-eligible, but for inventions that fail MOT, the Court did not provide much guidance for distinguishing between those inventions that are simply abstract ideas and those that are not.  This aspect of the Bilski v. Kappos decision frustrated many practitioners because it is precisely in this realm of further defining what is or is not an abstract idea that would have provided more certainty with respect to §101.

It is not the case, however, that the S.Ct. provided no guidance whatsoever on what constitutes an abstract invention.  In its cursory discussion of why the Bilski claim was directed towards an abstract idea, the explained:

Read more…

DealerTrack, a provider of on-demand software and data solutions for the U.S. automotive retail industry, had it’s patent (U.S. Patent No. 7,181,427) for credit application processing invalidated in light of the Bilski test.

A district court judge (C.D. Cal.) ruled this month that claims for a computer-aided method of managing a credit application are invalid under 35 U.S.C. § 101 because DealerTrack conceded that the claims do not meet the “transformation” prong of the Bilski test and the court determined that they also fail the “machine” prong of the Bilski test.

Specifically, DealerTrack argued that the asserted claims (see Claim 1 below) are tied to a central processor “consisting of a specially programmed computer hardware database,” a “remote application entry and display device,” and a “remote funding source terminal device.” (emphasis added)  The Court found that the patent does not specify how the computer hardware and database are “specially programmed” to perform the claimed steps.  The Court also construed that the “remote application entry and display device” could be “any device, e.g., personal computer or dumb terminal, remote from the central processor, for application entry and display,” and that the “terminal device” could be “any device, e.g., personal computer or dumb terminal, located at a logical or physical terminus of the system.

Accordingly, the Court found that none of these devices constitutes a “particular machine” within the meaning of Bilski, and therefore the claims are invalid under § 101.

DealerTrack indicated that it will appeal the decision.

Claim 1, an independent claim, recites a “computer aided method” of managing a credit application, consisting of the following steps:

[A] receiving credit application data from a remote application entry and display device;

[B] selectively forwarding the credit application data to remote funding source terminal devices;

[C] forwarding funding decision data from at least one of the remote funding source terminal devices to the remote application entry and display device;

[D] wherein the selectively forwarding the credit application data step further comprises:

[E] sending at least a portion of a credit application to more than one of said remote funding sources substantially at the same time;

[F] sending at least a portion of a credit application to more than one of said remote funding sources sequentially until a finding [sic] source returns a positive funding decision;

[G] sending . . . a credit application . . . after a predetermined time . . . ; or;

[H] sending the credit application from a first remote funding source to a second remote finding [sic] source . . . .

Ex Parte Dickerson, Appeal 2009-001172 (BPAI 2009)

For anyone trying to discern best practices for drafting and prosecuting computer-related claims after In re Bilski, the Board of Patent Appeals and Interferences is making it difficult to find consistent trends.  In this case, the Examiner rejected the claims under 35 U.S.C. § 101 as being directed to non-statutory subject matter.  The claims recited an invention for a method and system for increasing the business value of a company in an industry by identifying a solution based upon its impact and the company’s performance gaps.  The Board reversed all of the § 101 rejections as follows:

The Board found that claims 32 and 33 recite articles of manufacture, which fall into one of the four categories of patent-eligible subject matter.

Claim 32 recites a program product stored on a recordable medium including:

program code configured to receive operational metrics and a set of solutions for application by the industry, wherein the operational metrics include a factor used to measure health or viability of a generic company in the specific industry, wherein the set includes one of a decision, an action, a product, and a service, wherein the specific industry is a grocery store.

 

Claim 33 recites a program product stored on a recordable medium including:

program code configured to receive operational metrics, a set of solutions for application by the industry, operational performance data of the company, and average operational performance data of companies within the industry, wherein the operational metrics include a factor used to measure health or viability of a generic company in the specific industry, wherein the set includes one of a decision, anaction, a product, and a service, wherein the specific industry is a grocery store.

That Board also found that claim 31 recites an apparatus, which is likewise statutory subject matter.

Claim 31 recites a computer system including:

an information system for receiving operational metrics, a set of solutions for application by the specific industry, operational performance data of the company, and average operational performance data of companies within the specific industry, wherein the operational metrics include a factor used to measure health or viability of a generic company in the specific industry, wherein the set includes one of a decision, an auction, a product, and a service, wherein the specific industry is a grocery store industry.

Finally, the Board found that claims 23, 29, and 30 recite a computerized method which includes a step of outputting information from a computer and, therefore, are tied to a particular machine or apparatus.

23. A computerized method for identifying a solution to address exposed performance gaps of a company in a specific industry, comprising:

first identifying a plurality of operational metrics for the specific industry, wherein the operational metrics includes a factor used to measure health or viability of a generic company in the specific industry, wherein the specific industry is a grocery store industry, wherein the operational metrics include at least one of a rate of inventory turnover and a number of customers per day;

assembling a set of solutions for application by the specific industry, wherein the set includes one of a decision, an action, a product, and a service;

assessing impacts of application of the set of solutions on the operational metrics for the specific industry, wherein the assessing includes determining which of the set of solutions has a negative impact on an operational metric and determining which of the set of solutions has a positive impact on the operational metric;

after identifying, assembling, and assessing, then comparing a current operational performance of the company to an operational performance of another company within the specific industry to obtain at least one performance gap, wherein the operational performance includes a performance of a company based upon the operational metric for the specific industry;

identifying a solution based upon the impacts to address the exposed performance gaps, wherein the solution is at least one of a decision, an action, a product, and a service that impacts a problem in a positive manner; and outputting the solution from the computer system.

Judge Paul A. Magnuson of the U.S. District Court for the Middle District of Florida ruled on Summary Judgment back in May that Every Penny Counts’ patent is invalid in light of In re Bilski.  EPC’s patent 6,112,191 is directed to a system that allows consumers to save a portion of a credit or debit transaction.

Now that the Supreme Court agreed to review In re Bilski, which occurred after Judge Magnuson’s ruling, EPC filed a motion on July 7, 2009 to stay execution of costs pending the Supreme Court’s review of Bilski.  The District Court granted the defendant’s motion for Summary Judgment based solely upon the Federal Circuit’s decision in Bilski, and EPC believes the Supreme Court’s review of Bilski is likely to have a significant impact on its action.

Because we are in a period of uncertainty until the Supreme Court renders its decision on Bilski, which may not happen for a year, we are likely to see more and more plaintiffs and applicants requesting similar stays or other delays until the Supreme Court speaks.

Ex Parte Cherian, Appeal 2009-004157 (BPAI 2009)

In an application for an invention relating to creating a computer-usable description of XML message sequencing, the Examiner rejected Claim 1 under 35 U.S.C. §101 as “software per se.”

Claim 1 reads:

A conformance testing system comprising:

a sequence verifier to receive a plurality of messages exchanged between two or more participants and to test conformance of each of the plurality of messages to a specific markup language standard without using a reference implementation of the markup language standard;

wherein the plurality of messages comprises a first message sent from a first participant of the two or more participants to a second participant of the two or more participants and a second message sent from the second participant of the two or more participants to the first participant of the two or more participants.

The Examiner asserted that claims 1 and 5-19 are directed to non-statutory subject matter because they “are nominally directed to a machine/apparatus yet they only claim software not embodied on a computer readable medium.”  The Appellants argued that “[w]hile computers such as conformance testing systems or sequence verifiers may include a compute-readable medium storing executable instructions representing a computer program, nothing in independent claim 1 states or implies that executable instructions or computer programs are being claimed.”

The Board, looking to the specification for clarification, agreed with the Examiner.  The Board found that claim 1 “expressly indicates that the conformance testing system (CTS) includes the sequence verifier,” which the specification explicitly states “is typically embodied by a programmed computer” and “[t]he programmed computer provides the herein-disclosed functionality which may be implemented in hardware and/or software and/or firmware.”  Thus, because claim 1 recites a sequence verifier that reads on software, claim 1 is directed to non-statutory subject matter, and the rejection was sustained.

As an interesting side note, the Appellant asserted, and the Board agreed, that the Examiner failed to provide any explanation for the 35 U.S.C. §101 rejection to claim 20.  Moreover, the Board declined to offer its own rationale for rejection claim 20 under §101, and the Board was persuaded that such rejection was in error.  However, given other recent BPAI decisions, it seems that this Board could have just as easily found a justification to reject claim 20 under §101.

Claim 20:

A method comprising:

receiving a plurality of messages exchanged between two or more participants, the plurality of messages comprising a first message sent from a first participant of the two or more participants to a second participant of the two or more participants and a second message sent from the second participant of the two or more participants to the first participant of the two or more participants; and

testing conformance of each of the plurality of messages to a specific markup language standard without using a reference implementation of the markup language standard.

Ex parte Dang, Appeal 2009-000984 (BPAI 2009)

The application is directed towards a computer-implemented method relating to medical claims, and the only issue on appeal was whether the Appellant established that the Examiner erred by rejecting claim 1 under § 103.  The Examiner cited a single reference as the basis of the § 103 rejection and asserted that the remaining limitations would have been obvious to a person with ordinary skill in the art.

As an initial matter, the Board reversed the Examiner’s obviousness rejection because the Examiner failed to articulate how the prior art rendered obvious one of the claimed features:

Claim 1 specifically requires that the later presented medical claim data fall within the first clean period. This does not occur in Cave. Cave discloses that once the later presented claim is ascertained, a new DEC is formed for it and a new period is started for the associated later presented claim. While the Examiner provides an articulated reasoning for why resetting the new DEC in Cave would be obvious (FF 4,6), the reasoning does not address how the prior art discloses or makes obvious Cave’s mandating a new Dec for the later presented claim. Such a feature relates to a core factual finding determinative of patentability, which needs to be established by a teaching(s) in the prior art. See In re Zurko, 258 F.3d 1379, 1385 (Fed. Cir. 2001).  Accordingly we cannot sustain the rejection of claim 1.

Perhaps a more salient discussion for financial services patents is the Board’s introduction of a new §101 rejection.  Claim 1, which is reproduced below, recites a computer-implemented method for grouping medical claims data and recites a “computer” in the preamble.  The Board first found that there was no “transformation” because the step of “resetting” a time period could be a mental step.  The Board further found that the invention was not tied to a particular machine.  In making this latter finding, the Board noted that although the “computer” was recited in the preamble of the method claim, such limitation is merely a field of use recitation and as such it would only be given weight in accordance with whether it is “intimately meshed with the ensuing language of the claim . . .”  Because the “computer” was not recited in the body of the claim, claim 1 is not tied to a particular machine and is therefore not eligible subject matter.

Claim 1 fails to transform an article into a different state in that it only resets a period which can be a metal step. Second, although the claim preamble recites the method as being computer implemented, we considered it to be merely a field of use recitation, and the weight given it “[depends upon if] that statement is intimately meshed with the ensuing language in the claim. Pitney Bowes, Inc. v. Hewlett-Packard Co., 182 F.3d 1298, 1305-1306 (Fed. Cir. 1999). Since the reference to a computer is not again mentioned in the claim, we find that claim 1 fails to be tied to a particular machine or apparatus. Thus, claim 1 recites non-patent eligible subject matter

The fact that the Board’s decision seemed to turn on the failure to recite the “computer” in the body of the claim would appear to put form over substance, particularly when this could be easily fixed with a very simple amendment to the claim that would not meaningfully affect its scope.  On the other hand, it also provides a good claim drafting reminder about the importance of reciting and incorporating “particular machine” language in the body of method  claims such that they are sufficiently integrated with the claimed steps that it would be difficult for an Examiner or the Board to use the same reasoning as it did in Ex parte Dang to issue or affirm a §101 rejection.

Claim 1 recites:

1. A computer-implemented method for grouping medical claims data, comprising the steps of:

a.    grouping a plurality of medical claim data records to an episode of care having at least one defining characteristic;

b.    assigning a first clean period to the episode of care, the first clean period defined by a predefined time duration during which there is an absence of medical claim data having the at least one defining characteristic of the episode treatment group; and

c.    resetting the first clean period to define a second clean period, the second clean period defining a second predefined time duration, wherein the first clean period is reset to the second clean period when later presented medical claim data having the at least one characteristic of the episode of care and falling within the first clean period is added to the episode of care.

Ex Parte Roberts, Appeal 2009-004444 (BPAI 2009)

The invention at issue relates to a method for performing tax-deferred real estate transactions, and Claim 42 recites a method of creating a real estate investment instrument adapted for performing tax-deferred exchanges comprising creating a real estate portfolio, subjecting real property in the real estate portfolio to a master agreement, and issuing a plurality of deedshares to a plurality of holders.

The Board held that Claim 42 recites a process but that it “is not tied to a machine nor does it transform a particular article into a different state or thing.”  Accordingly it is drawn to nonpatentable subject matter.  The Board cited Bilski extensively:

“[T]he proper inquiry under § 101 is not whether the process claim recites sufficient “physical steps,” but rather whether the claim meets the machine-or-transformation test. As a result, even a claim that recites “physical steps” but neither recites a particular machine or apparatus, nor transforms any article into a different state or thing, is not drawn to patent-eligible subject matter. Conversely, a claim that purportedly lacks any “physical steps” but is still tied to a machine or achieves an eligible transformation passes muster under § 101.” In re Bilski, 545 F.3d 943, 961 (Fed. Cir. 2008) (en banc) footnote omitted).

 

Claim 42 reads as follows:

42. A method of creating a real estate investment instrument adapted for performing tax-deferred exchanges comprising:

creating a real estate portfolio from at least one real property;

subjecting the real property in the real estate portfolio to a master agreement;

creating a plurality of deedshares by dividing title in the real estate portfolio into a plurality of tenant-in-common deeds, each of the plurality of deedshares subject to a provision in the master agreement for later reaggregating the plurality of tenant-in-common deeds; and

issuing the plurality of deedshares to a plurality of holders, at least one of the holders receiving deedshares in exchange for relinquishing title to a real property not in the real estate portfolio;

wherein the master agreement does not establish a partnership among the plurality of holders and wherein said exchange by said at least one of the holders is a tax-deferred exchange under IRC § 1031.

Ex Parte Verhaegh, Appeal 2009-000128 (BPAI 2009)

This application describes a method of determining a schedule for executing a plurality of tasks requiring a plurality of resources, and the claims are directed towards creating a schedule for tasks using project management techniques.  The Examiner interpreted the means-plus-function claims as a process and rejected them under §101.

Claim 6 recites the scheduler with means-plus-function construction:

A scheduler for determining a schedule for executing a plurality of tasks requiring a plurality of resources, comprising

constructing means for constructing a set of constraints from given requirements of each task and from given limitations on each resource;

ordering means for determining for each task a relative starting time, a relative ending time and an assignment of resources, based on the constraints from said set;

timing means for determining for each task an absolute starting time, an absolute ending time and a collection of times and associated task processing speeds, based on the determined relative starting time, relative ending time and assignment of resources for said task, minimizing any violation of the constraints from said set; and

scheduling means for determining the schedule, comprising for each task the determined absolute starting time, absolute ending time, collection of times and associated task processing speeds and assignment of resources to said task.

The Examiner found that the scheduler did not fall within one of the four enumerated categories of patentable subject matter and that it is no more than a software module that is not embedded on a computer readable medium or executable by a computer, and accordingly the Examiner interpreted this claim as a process.  The Board disagreed that claim 6 is a process claim.

The BPAI sided with the Appellants, who argued that the Specification links the scheduler to various systems and that it determines a schedule for executing tasks.  After presuming that each of the “means” elements require construction § 112, ¶6, the Board reasoned that (1) none of the means-plus-function elements recited any structural limitations, and (2) the claim as a whole is directed to a scheduler and the Specification describes it as part of a digital video transmission  system, which is a “particular machine.”  Thus, the Board found that claim 6 is directed to a “machine” and the Examiner erred in rejecting the claim under § 101 as being directed to non-statutory subject matter.

Claim 6 . . . recites four elements in means plus function format. Thus, each of these means are presumed to require construction under 35 U.S.C. § 112, sixth paragraph. None of the four elements recite structural limitations to the means in the claims. Thus we conclude these elements are to be construed as means plus function, implying the claim is directed to a machine. Looking at the claim as a whole, the claim is directed to a scheduler. The Specification discloses a scheduler as being part of a digital video transmission system (FF 01). Thus the claim is directed to a particular machine, viz. a digital video transmission system.

The Board did, however, find claim 1 as being directed to a non-statutory process.  Claim 1 is a method claim directed to determining a schedule for executing a plurality of tasks.

The Decision is a worthwhile read for prosecution practitioners, as it discusses 35 U.S.C. §§ 101, 102, 103, 112 ¶2, ¶6 all in the context of hardware and software technologies.

It has been widely circulated that the Supreme Court granted cert yesterday in In re Bilski.  See the NYT article here (“Justices to Weigh Issue of Patenting Business Methods”) and the WSJ Law Blog here (“Bilski! Supremes Grant Cert on Business-Method Patent Case”).  Congratulations to the many folks who worked hard to make the Supreme Court review of this case a reality.

Unfortunately, although I’ve been concerned about many of the post-Bilski decisions coming from district courts and the BPAI, I think some good future case law from the CAFC could have made the Bilski test, despite some of its shortcomings, a workable standard for financial services inventions.  On the other hand, I’m actually more concerned about what sort of patentable subject matter test may come from the Supreme Court.  This could be a case of be-careful-what-you-ask-for!

On cross-motions for summary judgment in this patent case between Every Penny Counts, Inc. and Bank of America, Judge Paul A. Magnuson of the U.S. District Court for the Middle District of Florida ruled that Every Penny Counts’ patent is invalid in light of In re Bilski.

EPC’s patent 6,112,191 is directed to a system that allows consumers to save a portion of a credit or debit transaction.  As Judge Magnuson describes the patent:

This patent claims a system whereby consumers can save and/or donate a portion of a credit or debit transaction. For example, a consumer can determine that any credit or debit transaction will be rounded up to the nearest dollar, and the difference between the actual transaction price and the rounded price will go to the consumer’s savings account, or to a charitable organization, or a portion to each. A consumer can also select a particular amount to be added to each transaction, rather than rounding the transaction to the nearest dollar.

Bank of America’s original motion had two grounds: (1) BOA’s “Keep the Change” program does not infringe the patent, and (2) the patent is invalid because of EPC’s inequitable conduct before the PTO.  However, after the motion was briefed, BOA asked the Court to postpone the hearing on the motion and to reopen discovery in order to allow the parties to examine the effect of the Federal Circuit’s In re Bilski decision.  The Court allowed the additional discovery, and in response EPC filed its own motion, seeking a judgment of validity under § 101.

Claim 15 of the patent provides:

A system, comprising:

        a network;

        entry means coupled to said network for entering into the network an amount being paid in a transaction by a payor;

        identification entering means in said entry means and coupled to said network for entering an identification of the payor;

        said network including computing means having data concerning the payor including an excess determinant established by the payor for the accounts;

        said computing means in said network being responsive to said data and said identification entering means for determining an excess payment on the basis of the determinant established by the payor, and

        said computing means in said network being responsive to the excess payment for apportioning, at least a part of the excess payment amount said accounts on the basis of the excess determined and established by the payor and on the basis of commands established by the payor and controlled by other than the payee.

EPC argued that the patent does not claim a process, but rather claims a system, which is analogous to a machine, and therefore Bilski should not apply in the first place.  However, the court disagreed and found the patent invalid under §101:

Simply because the process at issue requires machines or computers to work, however, does not mean that the process or system is a machine. . . The “system” described by the 191 patent “has no substantial practical application except in connection with” computers, cash registers, and networks, but it is not comprised of those devices. The 191 patent is a process, not a machine. [emphasis added]

 

The involvement of the machine in the process is insignificant extra-solution activity and thus the process is not patentable under § 101.

 

. . . EPC does not argue that the 191 patent transforms any article into something different. Thus, the patent is valid only if it is tied to a particular machine. Because it is beyond question that the patented process is not tied to a particular computer or other device, the process embodied by the 191 patent is invalid under § 101.