State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368, 47 U.S.P.Q.2d 1596 (Fed. Cir. 1998) (Re: Business Method Exception)

State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.
3d 1368, 47
U.S.P.Q.2d 1596 (Fed. Cir. 1998) (re: business method exception)
The “Mathematical Algorithm” Exception
The Court has held that mathematical algorithms are not patentable subject matter to the
extent that they are merely abstract ideas. That to be patentable an algorithm must be applied in
a “useful” way.
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.
The test has been thus articulated: First, the claim is analyzed to determine whether a
mathematical algorithm is directly or indirectly recited.
Next, if a mathematical algorithm is found, the claim as a whole is further analyzed to determine
whether the algorithm is “applied in any manner to physical elements or process steps,” and, if it
is, it “passes muster under § 101.”
However, after Diehr and Alappat, the mere fact that a claimed invention involves inputting
numbers, calculating numbers, outputting numbers, and storing numbers, in and of itself, would
not render it non-statutory subject matter, unless, of course, its operation does not produce a
“useful, concrete and tangible result.”
Every step-by-step process, be it electronic or chemical or mechanical, involves an algorithm in
the broad sense of the term.
Proscription against patenting has been limited to mathematical algorithms.
The question of whether a claim encompasses statutory subject matter should not focus on
which of the four categories of subject matter a claim is directed to 9 -process, machine,
manufacture, or composition of matter but rather on the essential characteristics of the subject
matter, in particular, its practical utility.
For purpose of our analysis, as noted above, claim 1 is directed to a machine programmed with
the Hub and Spoke software and admittedly produces a “useful, concrete, and tangible result.”
The Business Method Exception

State Street puts an end to the business method exception.
This case is no exception to the business method. The district court announced the
precepts of the business method exception as set forth in several treatises, but noted as its
primary reason for finding the patent invalid under the business method exception as follows:
If Signature's invention were patentable, any financial institution desirous of implementing a
multi-tiered funding complex modelled (sic) on a Hub and Spoke configuration would be
required to seek Signature's permission before embarking on such a project. This is so because
the '056 Patent is claimed [sic] sufficiently broadly to foreclose virtually any computer-
implemented accounting method necessary to manage this type of financial structure.
The business method exception has never been invoked by this court, or the CCPA, to deem an
invention unpatentable.
State Street argues that we acknowledged the validity of the business method exception in
Alappat when we discussed Maucorps and Meyer. However, closer scrutiny of these cases
reveals that the claimed inventions in both Maucorps and Meyer were rejected as abstract ideas
under the mathematical algorithm exception, not the business method exception
The appealed decision is reversed and the case is remanded to the district court for further
proceedings consistent with this opinion.
REVERSED and REMANDED.
What the invention is: The patented invention relates generally to a system that allows an
administrator to monitor and record the financial information flow and make all calculations
necessary for maintaining a partner fund financial services configuration. As previously
mentioned, a partner fund financial services configuration essentially allows several mutual
funds, or “Spokes,” to pool their investment funds into a single portfolio, or “Hub,” allowing for
consolidation of, inter alia, the costs of administering the fund combined with the tax advantages
of a partnership. In particular, this system provides means for a daily allocation of assets for two
or more Spokes that are invested in the same Hub. The system determines the percentage
share that each Spoke maintains in the Hub, while taking into consideration daily changes both
in the value of the Hub's investment securities and in the concomitant amount of each Spoke's
assets.

State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368, 47 U.S.P.Q.2d 1596 (Fed. Cir. 1998) (Re: Business Method Exception)

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State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368, 47 U.S.P.Q.2d 1596 (Fed. Cir. 1998) (Re: Business Method Exception)

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State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.

The “Mathematical Algorithm” Exception

The Business Method Exception

REVERSED and REMANDED.

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