Flashback: Business Methods

State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1386 (Fed. Cir. 1998)

In 1998, the State Street decision ushered in a new era of patentable subject matter under 35 U.S.C. § 101—business method patents. Although the definition of business methods is somewhat hazy, business methods may include any method of doing business, such as delivering services or products to customers, automating financial decisions, organizing accounting methods and product mixes, and coordinating procurement decisions among input suppliers. Although business method patents were not unheard of prior to State Street, with this decision the Federal Circuit put its stamp of approval on the patentability of business methods under 35 U.S.C. § 101. The court stated:

Today, 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. (Emphasis added).

The Federal Circuit added that:

Whether the patent's claims are too broad to be patentable is not to be judged under § 101, but rather under §§ 102, 103 and 112. Assuming the above statement to be correct, it has nothing to do with whether what is claimed is statutory subject matter.

The State Street claims were directed to machines, although in dicta, the Federal Circuit indicated that for patentability purposes, it did not matter whether the claim was directed to a machine or a process. Still, some uncertainty remained as to whether the Federal Circuit would actually apply the same analysis to a § 101 challenge of a process patent.

AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999)

One year later in AT&T, the Federal Circuit explicitly extended the State Street holding to include process claims. Here, the patent claim covered a method of adding “PIC” indicator to a message record that is generated when a customer makes a long distance phone call. The court eliminated the requirement of physical elements, limitations, or transformation, stating that a physical transformation was “not an invariable requirement, but merely one example” of how an algorithm can be applied to create a useful, concrete, and tangible result. This second point was particularly significant for computer process claims, where nothing physically outside the computer performing the process is transformed. In both State Street and AT&T, the Federal Circuit confidently determined that the other provisions of patentability, 35 U.S.C. §§ 102, 103, and 112 would be the ultimate validity determination for business method claims.

The State Street and AT&T decisions opened the door to providing patent protection for methods of doing business on the Internet, as long as they have a “useful, concrete, and tangible result.”