Amazon.com: a Look at Patenting Computer Implemented Business Methods Following State Street

• Jurisdiction: United States,Federal
• Citation: Vol. 2 No. 2000
• Publication year: 2000

James E. Landis

I. Introduction

Patent law will always be a unique crossover of the legal field with scientific and engineering disciplines. As computer technology takes its place in the landscape of civilization, patent law has had an increasingly difficult time keeping pace with the revolution.⁰ The parallel development of internet technology, particularly e-business, has further compounded the problem¹ by adding another non-legal field of expertise into patent law while at the same time, raising the monetary stakes. Only recently has software programming gained adequate recognition as patentable subject matter.² With the relatively recent collapse of the business method exception to patent subject matter³ and the curtailed application of the mathematical algorithm exception to software,⁴ what is to be done with e-business inventions and more importantly, why?

II. Legal Background

A. Deconstructing the Old Approach

In past years, challenges to business methods or computer programming relied on the lack of statutory subject matter as a basis for denying patents.⁵ The Patent and Trademark Office (PTO), however, requires only "that the subject matter sought to be patented be a 'useful' invention" and in explanation, "any new and useful process, machine, manufacture, or composition of matter under the sun that is made by man is the proper subject matter of a patent."⁶ The battle over statutory subject matter is limited to what is useful in a patent sense. The PTO limits exclusions to the three traditional exceptions of abstract ideas, laws of nature, and natural phenomena.⁷ Business methods and mathematical algorithms are not statutorily excluded.

The mathematical algorithm exception has a clear but twisted path and cannot be attributed to misinterpretation and summarily dismissed. The algorithm exception was born in case law involving an elementary computer program used to convert between numeric codes.⁸ It was viewed as too basic a tool for patent because it would unfairly limit further use of computers.⁹ This was the case in 1972, because computer programming was limited to abstract mathematical concepts, properly viewed as mere abstractions. As computer programming became more complex, the algorithm exception was strained and revised by the Supreme Court.¹⁰ In 1978, the federal circuit court interpretations introduced new standards, which in turn were strained and revised.¹¹ In 1994, the federal circuit court, sitting en banc, returned to a simpler statutory reading initially suggested by the Supreme Court.¹² The Alappat algorithm test requires processes, explicitly including computer programs, to be looked at as a whole¹³ . As for computer programs, "[s]uch programming creates a new machine, because a general purpose computer in effect becomes a special purpose computer once it is programmed to perform particular functions pursuant to instructions from program software."¹⁴ In relation to e-business software, the complexity and functionality prevents application of the mathematical algorithm exception.

The business method exception was born in dicta in 1908.¹⁵ While statutory subject matter differed by definition in that time, the Hotel Security case relied on terms that were not confined to subject matter. The opinion rested on the idea that "if the [invention] described in the specification be old, the claims cannot be upheld because of novelty in the appliances used in carrying it out, -- for the reason that there is no novelty."¹⁶ Later in the opinion, the court commented that "[t]he essential features were old."¹⁷ In alternate justification, the court was "of the opinion that the improvements ... [were] such as would occur to anyone conversant in the business."¹⁸ Squarely and certainly, the case was decided on novelty, and only in misinterpretation raised an idea of the business method exception. Interestingly, the words of the 1908 case implicate the issue of novelty in patenting computer automations. Business models must still meet statutory subject matter restrictions. A business concept shown to be a mere abstract idea remains unpatentable.

In retrospect, neither exception appeared fundamentally defective in its time. The mathematical algorithm exception made perfect sense in the era where computer programming involved only simple number manipulation and demanded minimal inventive skill. Today, the programming in question requires the complex fusion of inventive design and creative logic manipulation. While historic inventions were honed in mechanical media, modern inventors are using software as their alternative media of choice. The algorithm exception has shown itself woefully inept at sorting "invention" from abstract ideas, laws of nature, and natural phenomena.¹⁹ While the exclusion of business methods as abstract ideas contained seeds of wisdom in Hotel Security in 1908, computer software as mere algorithms appeared analogously doomed in the early 1970's. It had been well established by the Supreme Court that abstract ideas alone were not patent worthy topics as early as 1874.²⁰ While the patent subject matter statute provided patent protection only to "any new and useful art, machine, manufacture or composition of matter,"²¹ the mere mention of business methods excited notions of a new exception. Alternatively, there was judicial discomfort in recognizing business methods as the fruit of invention, and even without an official recognition, business methods were continually rejected by the courts on other grounds.²² Today, the advent of electronic commerce has brought new attention to both failed exceptions. In particular, the PTO has had to directly address the means by which inventions of computer-implemented business methods are to be examined for patent.²³ Rightfully, analytic focus is shifting away from the narrowly viewed subject matter tests to the more relevant questions of real claim scope, novelty, and obviousness.

B. Building the New Approach

In 1998 the court of appeals's State Street opinion restricts use of the "mathematical algorithm exception" and generally allows software with practical utility.²⁴ State Street also quashes the "business method exception."²⁵ Numerous articles have included the State Street case as a watershed case in computer-implemented business methods. In the three years since decided, the State Street decision has been included in six (6) citing decisions and 122 law reviews and periodicals.²⁶

For purposes of this note, it is important only to review the step-wise logic used in State Street to arrive at the modern state of computer-implemented business method law. First, the patent was claimed on a system of calculation and maintenance,²⁷ not on the underlying investment tool. The system did rely on the basic economic concept of efficiency by aggregation of resources, but did not claim this abstract idea or law of nature as its invention. Second, the patent as issued involved only machine claims, with all method claims dropped.²⁸ By claiming the system of calculations as a machine, the invention followed the theory and guidelines for claiming software programming.²⁹ Third, "the Freeman-Walter-Abele analysis has limited application in determining the presence of statutory subject matter."³⁰ The court supported and used the Alappat³¹ test³² as embryonically envisioned by the language of Diehr³³ As a group, Diehr, Alappat and State Street permanently include software in patent subject matter. Fourth, subject matter must take into account the whole of what is claimed.³⁴ Fifth, the examination of statutory subject matter claims should be foremost concerned with "the essential characteristics of the subject matter, in particular, its practical utility,"³⁵ and allow categorization to be a minor secondary concern.³⁶ Finally, §101 does not exclude business methods, but §§102, 103, and 112 may.³⁷

In all, State Street appears to follow the PTO's 1996 Examination Guidelines for Computer-Related Inventions. Both decisively limit the mathematical algorithm exception as developed by Freeman-Walter-Abele to those claims falling outside of the Alappat functional-output test, ³⁸ while State Street points out that in most or even all cases, the inquiry is altogether unnecessary.³⁹ So an early inquiry must be made whether "the subject matter sought to be patented [is] a useful invention"⁴⁰ as a whole based on "its practical utility"⁴¹ and "a useful, concrete, and tangible result"⁴² without regard to particular exceptions.

The practical utility requirement will go hand in hand with the description and enablement requirements of 35 U.S.C. §112. In particular, the specification must "particularly [point] out and distinctly [claim] the subject matter which the applicant regards as his invention."⁴³ The tendency has been to write claims as broadly as possible either to make them easier to understand,⁴⁴ or to broaden the scope of the claim as much as allowable.

The novelty condition for patentability is embodied in 35 U.S.C. §102. In summary, the invention must be something not already introduced. Computer programs have found this to be a problem, as a mere automation of a known process should be considered lacking in novelty.⁴⁵ Anticipation requires identical elements found in the identical situation related in the same way all within one prior art reference.⁴⁶

The non-obvious condition for patentability is embodied in 35 U.S.C. §103. An invention not exactly embodied in prior art may not be patented "if the differences between the subject matter ... and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art."⁴⁷ obviousness requires both factual and legal determinations. The factual inquires include: "(1) the scope and content of the prior art; (2) the differences between the prior art and the claims; (3) the level of ordinary skill in the pertinent art; and (4)...