149 F.3d 1368 (Fed. Cir. 1998)
Signature Financial Group, Inc. is the assignee of U.S. Patent No. 5,193,056.1 The patent issued on March 9, 1993, naming R. Todd Boes as the inventor.2 It is entitled “Data Processing System for Hub and Spoke Financial Services Configuration.”3
The patent is directed to a data processing system for implementing an investment structure.4
Mutual funds pool their assets in an investment portfolio organized as a partnership.5 This provides economies of scale in administering investments coupled with the tax advantages of a partnership.6
The system facilitates daily allocation of assets among the funds.7 It takes into account changes in the value of the portfolio's securities and each fund's assets.8 It calculates each fund's percentage share.9 It allocates daily income, expenses, and net realized and unrealized gain or loss.10 It tracks data for aggregate year-end determinations for accounting and tax purposes.11
The calculations must be performed quickly and accurately.12 Often this must occur within an hour and a half after the market closes.13 This necessitates the use of a computer.14
State Street Bank & Trust Co. and Signature both act as custodians and accounting agents for multi-tiered partnership fund financial services.15 State Street negotiated with Signature for a license.16 When negotiations broke down, State Street filed a declaratory judgment action in the United States District Court for the District of Massachusetts.17 The action asserted invalidity, unenforceability, and noninfringement of the patent.18
State Street moved for partial summary judgment on the ground that the patent claims failed to claim statutory subject matter.19 The district court granted the motion.20 Signature appealed to the United States Court of Appeals for the Federal Circuit.21
Whether the claims of U.S. Patent No. 5,193,056 are directed to statutory subject matter under 35 U.S.C. § 101?22
Section 101 provides that 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.23 The Supreme Court has acknowledged that Congress intended § 101 to extend to anything under the sun that is made by man.24
Yes. The claims are directed to a machine.25 Claim 1 recites a data processing system with specific means for processing data in the hub and spoke configuration.26 The system allows an administrator to monitor and record the financial information flow.27
It makes all calculations necessary for maintaining a partner fund financial services configuration.28 This produces a useful, concrete and tangible result in the form of a final share price.29 The calculations are a virtual necessity to be performed by a computer.30 The patent claims a machine made up of the specific structures disclosed.31
The claims of U.S. Patent No. 5,193,056 are directed to statutory subject matter under 35 U.S.C. § 101.32
Whether the claims of the ’056 patent fall within the judicially created mathematical algorithm exception to statutory subject matter?33
No. The claims involve mathematical calculations but they are applied to produce a useful, concrete and tangible result, the final share price.36 The established facts show the system determines the percentage share that each Spoke maintains in the Hub and allocates income and expenses.37 The system takes into consideration daily changes in the value of the Hub's investment securities and the amount of each Spoke's assets to accurately perform these allocations.38
The claims of the ’056 patent do not fall within the judicially created mathematical algorithm exception to statutory subject matter.39
Whether the claims of the ’056 patent fall within the judicially created business method exception to statutory subject matter?40
The so-called business method exception is not a valid exception to statutory subject matter under § 101, as business methods are subject to the same legal requirements for patentability as applied to any other process or method.41
No. The district court relied on the business method exception to invalidate the patent.42 However, the Federal Circuit held that this ill-conceived exception should be laid to rest.43 Since the 1952 Patent Act, business methods have been subject to the same legal requirements for patentability as any other process or method.44 The claims here are for a machine that manages a financial services configuration of a portfolio established as a partnership.45
The machine produces a useful, concrete and tangible result.46 Therefore, the claims are directed to statutory subject matter under § 101.47
The claims of the ’056 patent do not fall within the judicially created business method exception to statutory subject matter.48