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

From Wikipedia, the free encyclopedia
Jump to: navigation, search
State Street Bank & Trust Co. v. Signature Financial Group, Inc.
United States Court of Appeals for the Federal Circuit
Court United States Court of Appeals for the Federal Circuit
Full case name STATE STREET BANK & TRUST CO., Plaintiff-Appellee, v. SIGNATURE FINANCIAL GROUP, INC., Defendant-Appellant
Decided July 23 1998
Citation(s) 149 F.3d 1368
Case history
Prior action(s) Finding for plaintiff, 927 F. Supp. 502, 38 USPQ2d 1530 (D. Mass. 1996) (finding U.S. Patent No. 5,193,056 invalid for lack of statutory subject matter)
A claim is eligible for protection by a patent in the United States if it involved some practical application and it produces a useful, concrete and tangible result.
Court membership
Judge(s) sitting Circuit Judges Rich, Plager and Bryson
Case opinions
Majority Rich
Laws applied
35 U.S.C. § 101

State Street Bank and Trust Company v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), also referred to as State Street or State Street Bank, was a decision of the United States Court of Appeals for the Federal Circuit concerning the patentability of business methods. State Street for a time established the principle that a claimed invention was eligible for protection by a patent in the United States if it involved some practical application and, in the words of the State Street opinion, "it produces a useful, concrete and tangible result." With the 2008 decision In re Bilski,[1] however, the useful-concrete-tangible test was jettisoned. According to the Bilski opinion, the "'useful, concrete and tangible result inquiry' is inadequate," and the portions of the State Street decision relying on this inquiry are no longer of any effect under US patent law. The Supreme Court granted certiorari in In re Bilski and oral argument was held on November 9, 2009.[2][3] The Supreme Court decided Bilski v. Kappos on June 28, 2010.[4]


On March 9, 1993, Signature Financial Group, Inc. was granted U.S. Patent 5,193,056[5] entitled "Data Processing System for Hub and Spoke Financial Services Configuration". The "spokes" were mutual funds that pool their assets in a central "hub". It has been pointed out that the patent claim comprises means for performing steps that are the requirements specified in an Internal Revenue Service regulation for avoiding taxes[6] on a partnership.[7] That the invention described and claimed in the patent constituted protectable subject matter was affirmed by 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. Thus, in his dissenting opinion in In re Bilski, Judge Mayer stated, "Not surprisingly, State Street and its progeny have generated a thundering chorus of criticism," and he collected citations to supporting authorities. He quoted one source for the statement, “The Federal Circuit’s recent endorsement of patent protection for methods of doing business marks so sweeping a departure from precedent as to invite a search for its justification” and another for this: “To call [the situation following State Street] distressing is an understatement. The consensus . . . appears to be that patents should not be issuing for new business methods.”

Others argue that the business method patent boom started much earlier, i.e., in the early 1990s.[citation needed] Regardless, some commentators[who?]see the boom as harmful and others as beneficial. The CAFC has not taken a fully consistent stand. Thus the court noted in In re Bilski that the claims of patent in State Street were for a machine and not a process. On the other hand, the court has repeatedly said that use of the apparatus or method format should not be determinative of patent-eligibility.

Bilski and the current status of State Street[edit]

The following should be considered with the caveat that the Federal Circuit's opinion in In re Bilski was subsequently reviewed by the Supreme Court in Bilski v. Kappos, decided on June 28, 2010,[8] rendering moot some of the following.

In its order setting In re Bilski for reargument en banc, one of the questions that the Federal Circuit listed to be briefed by the applicant, the PTO, and the amici curiae was “(5) Whether the court should reconsider State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998) … in which the court had held that business methods could be patented, and whether th[at] case[ ] should be overruled in any respect.”[9] In the en banc opinion later issued in that case,[10] the Federal Circuit jettisoned the useful-concrete-tangible test stated in State Street, but it did not explicitly overrule State Street in its entirety.

As explained in an October 2008 Federal Circuit opinion, Bilski held:

that the “useful, concrete and tangible result test” “is insufficient to determine whether a claim is patent-eligible under § 101,” Bilski, 545 F.3d at 959, and “is inadequate,” id. at 960 (reaffirming that “the machine-or-transformation test outlined by the Supreme Court is the proper test to apply” (emphasis added)), and that “those portions of our opinions in State Street, relying on a ‘useful, concrete and tangible result’ analysis should not longer be relied on.” id. at 960 n.19.[11]

The Bilski opinion does not hold that business methods are patent-ineligible, so that it at least nominally leaves standing State Street’s ruling that business methods are potentially patent-eligible. Bilski’s establishment of the primacy of the machine-or-transformation test as the legal test of patent-eligibility for method claims, however, seemingly leaves little room for business-method patents because of their typical lack of limitations to a “particular machine,” assuming that a programmed general-purpose digital computer does not qualify as a particular machine. Moreover, the transformation prong of the machine-or-transformation test would seem to be of little use to business-method patents, because:

Purported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances. … As discussed earlier, the process as claimed encompasses the exchange of only options, which are simply legal rights to purchase some commodity at a given price in a given time period. The claim only refers to "transactions" involving the exchange of these legal rights at a "fixed rate corresponding to a risk position." Thus, claim 1 does not involve the transformation of any physical object or substance, or an electronic signal representative of any physical object or substance.[12]

For these reasons, little of substance in State Street appears to have survived. The certiorari petition in Bilski asserts that while the decision “purported to reject a categorical exclusion of business method patents,” yet “its holding has the practical effect of precluding most patents on business methods.”[13]

A March 2009 district court opinion interpreting Bilski pondered whether "the end has arrived for business method patents."[14] The court then observed:

Without expressly overruling State Street, the Bilski majority struck down its underpinnings. This caused one dissenter, Judge Newman, to write that State Street “is left hanging,” while another dissenter, Judge Meyer, registered “an emphatic 'yes'” to rejecting State Street.... Although the majority declined say so explicitly, Bilski’s holding suggests a perilous future for most business method patents.

The Supreme Court decided Bilski v. Kappos on June 28, 2010,[15] holding that the machine-or-transformation test is not the sole test for determining the patent eligibility of a process, but rather "a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under § 101."

The Supreme Court's subsequent decisions in Mayo v. Prometheus and Alice v. CLS Bank further expanded on Bilski and substantially obliterated State Street. These decisions established a two-step inquiry in which, first, the court is to look to whether the claimed invention is directed to an abstract idea or natural principle; if it is, a second step follows in which the court must determine whether the claimed invention implements the abstract idea inventively or instead in a merely routine or conventional manner. Unless the implementation or application of the abstract idea embodies an "inventive concept," the claimed invention is patent ineligible.[16] (These concepts are explained further in the articles on the Mayo and Alice cases.) Alice specifically holds that a generic computer implementation of an abstract idea is patent ineligible.

See also[edit]


  1. ^ 545 F.3d 943 (Fed. Cir. 2008).
  2. ^ Transcript of Oral Argument (PDF) in In re Bilski (retrieved Nov. 10, 2009)
  3. ^ Links to Briefs in In re Bilski (retrieved Nov. 10, 2009)
  4. ^
  5. ^ US 5193056  „Data processing system for hub and spoke financial services configuration“ filed March 11, 1991. Named inventor Todd Boes did not originate the hub-and-spokes technique. It had been devised earlier, but Boes developed it for computerized use at Signature Financial Group. The actual programming, apparently, was performed by others under his direction.
  6. ^ In oral argument, Judge Rich asked counsel for the patentee whether the patent was not one directed to a "tax dodge."
  7. ^ Scope-of-Protection Problems with Patents and Copyrights on Methods of Doing Business, 10 FORDHAM INTELL. PROP., MEDIA & ENT. L.J. 105, 121 (1999) and Appendix A,available at [1] and [2]. Appendix A, op. cit., is a table showing the elements of the claim and the corresponding parts of the regulations, side by side.
  8. ^
  9. ^ In re Bilski, 264 Fed. Appx. 896 (Fed. Cir. 2008).
  10. ^ In re Bilski, 545 F.3d 943 (Fed. Cir. 2008) (en banc).
  11. ^ In re Ferguson, _ F.3d _, _ n.4 (2009).
  12. ^ Bilski, 545 F.3d at _.
  13. ^ Petition at 23.
  14. ^ CyberSource Corp. v. Retail Decisions Inc., 2009 WL 815448 (N.D. Cal. Mar. 23, 2009).
  15. ^
  16. ^ Under a Mayo-Alice analysis, the claims in State Street are directed to the abstract idea of complying with certain IRS regulations governing taxation of hub-and-spoke funds as partnerships. The implementation is a conventional generic computer implementation.

External links[edit]