Patent Law - Patentable Subject Matter - Federal Circuit Holds That Certain Software Method Claims Are Patent Ineligible

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PATENT LAW--PATENTABLE SUBJECT MATTER--FEDERAL CIRCUIT HOLDS THAT CERTAIN SOFTWARE METHOD CLAIMS ARE PATENT INELIGIBLE.--Bancorp Services, L.L.C. v. Sun Life Assurance Co. of Canada (U.S.), 687 F.3d 1266 (Fed. Cir. 2012).

To encourage innovation, (1) patent eligibility is defined broadly (2) by the categories identified in [section] 101 of the Patent Act of 1952. (3) The Supreme Court has identified three implicit exceptions to patent eligibility--"laws of nature, physical phenomena, and abstract ideas" (4)--to preserve free public access to fundamentally important concepts. (5) Patents that involve processing otherwise-abstract ideas on computers have proven difficult to evaluate under [section] 101 and the abstract-idea exception. In determining the patent eligibility of a method claim reciting the use of a computer as a limitation, the Federal Circuit has looked to whether the computer plays "a significant part" in the invention or is merely "an obvious mechanism for permitting a solution to be achieved more quickly." (6) However, the court has not established a clear rule for determining whether a computer plays a "significant part" in performing a claimed software method. Recently, in Bancorp Services, L.L.C. v. Sun Life Assurance Co. of Canada (U.S.), (7) the Federal Circuit considered the patent eligibility of claims describing a method and system for "determining the values required to manage a stable value protected life insurance policy," (8) and held that the use of a computer was not sufficiently "integral to the claimed invention" to avoid patent ineligibility under the abstract-idea exception. (9) Bancorp illustrates that the Federal Circuit's current approach to patent eligibility of software methods is indeterminate and can lead to seemingly contradictory results in similar cases, producing ex ante uncertainty surrounding patentability and therefore chilling innovation. Rather than continuing this approach, the Federal Circuit should adopt a rule, derived from its existing jurisprudence, that any software implementation of a method performable without a computer is patent eligible if the computer provides some functional benefit other than efficiency.

Bancorp owned U.S. Patents 5,926,792 (the '792 Patent) and 7,249,037 (the '037 Patent), which cover systems and methods for managing assets known as stable value protected investment plans. (10) The patented methods "provide[] a computerized means for tracking the book value and market value of the policies" (11) and disclose equations that can be used to "calculat[e] the credits representing the amount the [third party] must guarantee and pay should the policy be paid out prematurely." (12)

In 2000, Bancorp sued Sun Life Assurance Company of Canada (U.S.) (Sun Life) for infringement of the '792 Patent and, in 2009, added a claim for infringment of the '037 Patent. (13) Sun Life moved for summary judgment, arguing that the asserted patents were invalid under [section] 101 for covering patent-ineligible subject matter. (14) The U.S. District Court for the Eastern District of Missouri granted Sun Life's motion, holding that both the system and method claims described patent-ineligible subject matter. (15) The court applied the traditional "machine-or-transformation" test, which permits method patents only where they are reduced to application on machines or perform a fundamental transformation. (16) Here, the court found both the machine prong and the transformation prong unsatisfied: the machine prong because "the specified computer components are no more than 'object[s] on which the method operates,'" (17) and the transformation prong because the claims at issue did not transform raw data into anything other than more data.18 The court also noted that the claimed steps could be performed manually, albeit less efficiently. (19)

The Federal Circuit affirmed. (20) Writing for a unanimous panel, Judge Lourie (21) held that the asserted patents were invalid under [section] 101 as directed toward abstract ideas. …

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