010 State Street Bank Vs Signature Financial

State Street Bank & Trust Co. vs Signature Financial Group Inc.
US Court of Appeals Federal Circuit

July 23, 1998
149 F.3d 1368
Facts:
Respondent Signature is the assignee of the 056 patent which is entitled Data
Processing System for Hub and Spoke Financial Services Configuration which
was issued on 9 March 1993, 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. The system,
identified by the proprietary name Hub and Spoke TM, facilitates a structure whereby
mutual funds (Spokes) pool their assets in an investment portfolio (Hub)
organized as a partnership.
The invention relates to a system that allows an administrator to monitor and record the
financial information flow and makes all calculations necessary for maintaining a partner
fund financial services configuration.
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.
State Street brought a declaratory judgment action asserting invalidity,

unenforceability, and non-infringement in Massachusetts district court, and then
filed a motion for partial summary judgment of patent invalidity for failure to claim
statutory subject matter under Section 101. Motion was granted, hence, appeal.
Section 101. 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.
Issue:
WON 056 patent is invalid for failure to claim statutory subject matter under Section 101
Decision:
We hold that declaratory judgment plaintiff State Street was not entitled to the
grant of summary judgment of invalidity of the '056 patent under Sec. 101 as a
matter of law, because the patent claims are directed to statutory subject matter.
The plain and unambiguous meaning of Section 101 is that any invention falling within
one of the 4 stated categories (process, machine, manufacture, or composition of
matter) of statutory subject matter may be patented.
Mathematical Algorithms Exception:

The SC has identified three categories of subject matter that are unpatentable, namely
"laws of nature, natural phenomena, and abstract ideas." 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.
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.
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 question of whether a claim encompasses statutory subject matter should not focus
on which of the 4 categories of subject matter a claim is directed to--process, machine,
manufacture, or composition of matter--but rather on the essential characteristics of the
subject matter, in particular, its practical utility.
Sec. 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. Claim 1 is directed to a machine programmed with the Hub
and Spoke software and admittedly produces a "useful, concrete, and tangible
result." This renders it statutory subject matter, even if the useful result is expressed in
numbers, such as price, profit, percentage, cost, or loss.
Business Method Exception:

As an alternative ground for invalidating the '056 patent under Sec. 101, the court relied
on the judicially-created, so-called "business method" exception to statutory subject
matter. Business methods should be subject to the same legal requirements for
patentability as applied to any other process or method.
This case is no exception. The primary reason for finding the patent invalid under the
business method exception as follows:
If Signature's invention was patentable, any financial institution desirous of implementing

a multi-tiered funding complex modeled on a Hub and Spoke configuration would be
required to seek Signature's permission. This is so because the '056 Patent is claimed
sufficiently broadly to foreclose virtually any computer-implemented accounting method
necessary to manage this type of financial structure.
Though seemingly within the category of process or method, a method of doing

business can be rejected as not being within the statutory classes. Claims should
not be categorized as methods of doing business. Instead such claims should be treated
like any other process claims.
Appealed Decision REVERSED; Case REMANDED to the district court for further
proceedings consistent with this opinion.

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State Street Bank & Trust Co. vs Signature Financial Group Inc.

US Court of Appeals Federal Circuit

State Street brought a declaratory judgment action asserting invalidity,

Mathematical Algorithms Exception:

Unpatentable mathematical algorithms are identifiable by showing they are merely

We hold that the transformation of data, representing discrete dollar amounts, by

Business Method Exception:

If Signature's invention was patentable, any financial institution desirous of implementing

Though seemingly within the category of process or method, a method of doing

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