State Street Bank & Trust Company v. Signature Financial Group, Inc.

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The decision of July 23, 1998 of the United States Court of Appeals for the Federal Circuit in State Street Bank & Trust Company v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), often called simply State Street decision or State Street Bank decision, was an important court decision concerning United States patent law and more particularly the patentability of so-called business methods. Basically, since this decision, an invention is considered eligible for protection by a patent in the United States if it involves some practical application and "it produces a useful, concrete and tangible result."

[edit] 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". That the invention described and claimed in the patent constituted protectible subject matter was affirmed by Court of Appeals for 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. Those more intimately familiar with patents and their relationship to software realize the boom started much ealier, i.e., in the early 1990s. Regardless, some commentators see the boom as harmful and others as beneficial.

It may be worth noting that patents have struggled with every new class of technology. However, by definition, each and every patent covers something that has never been covered by a patent before. The patent system is designed to adapt to new types of technology as they arise. In this vein, the Federal Circuit appears to be very cautious in carving out new categories of excluded technology.