EB: STATE STREET BANK & TRUST CS. v. SIGNATURE FINANCIAL GROUP, INC., 149 F.3d 1368 (1998)

The Situation

Signature Financial Group developed a "Data Processing System for Hub and Spoke Financial Services Configuration"

• This patent basically facilitated a financial structure where mutual funds (Spokes) pool their assets into one investment portfolio (Hub) - advantageous economies of scale (more money to invest=better diversity=better returns) and tax advantages of partnership.

State Street tried to negotiate with Signature for use of the system, but after negotiations failed State Street brought the case to court

• A summary judgement for patent invalidity (due to non-patentable subject matter, Section 101) was granted by the District Court
• Signature appeals the decision

Decision

Signatures patent is valid (which reverses the District Court's summary judgement decision)

Reasoning

In addition to "laws of nature, natural phenomena, and abstract ideas" the Court has specifically cited that mathematical algorithms (in and of themselves) and business models are not patentable subject matter.

• This court rules that Signatures patent does not fall under any of these exceptions

The algorithm exception:

"Unpatentable mathematical algorithms are identifiable by showing they are merely abstract ideas constituting disembodies concepts or truths that are not 'useful.'" Thus, in order to be patentable, and algorithm must be "useful."

• The court rules that the mathematical algorithm in question is useful, "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'"

The Business Method Exception:

The Court says that this exception is "ill-conceived," perhaps originating from an attempt to require "inventiveness," but this is covered under Section 103, and is thus irrelevant to the current discussion.

• Signatures patent cannot be found invalid via the business method exception

In Class

• Is this consistent with Diehr? (Which is a binding case for this court because the Supreme court is there boss)
  • Does this invention constitute a physical "transformation"? This court rules yes: the invention produces a "tangible result." Thus, there should not be so much emphasis on the "physical" part of the transformation - non-physical things can be just as legitimate "transformations"