1998 B.C. Intell. Prop. & Tech. F. 102801
The Federal Circuit and the Freeman-Walter-Abele Test
by Brian Berlandi, Staff Writer
On July 23, 1998, the Federal Circuit Court came down with a decision that will continue to advance patent law and its relation to computers and the high-tech world. In the decision of State Street Bank & Trust Co. v. Signature Financial Group, Inc., 47 U.S.P.Q.2nd 1696 (Fed. Cir. 1998), the Court not only held that, "a final share price momentarily fixed for recording and reporting purposes and even accepted and relied upon regulatory authorities and in subsequent trades can constitute, "a useful, concrete, and tangible result," for purposes of patenting Defendant's mathematical algorithm, but also that the Freeman-Walter-Abele test now has "little, if any, applicability to determining the presence of statutory Subject matter."
Background
In this case, Defendant was (and still is) the assignee of U.S. Patent No. 5,193,056 (the '056 patent) which is entitled "Data Processing System for Hub and Spoke Financial Services Configuration." The patent's claims are generally directed to a data processing system for implementing an investment structure which was developed for use in Defendant's business as an administrator and accounting agent for mutual funds.
Plaintiff negotiated with Defendant for a license to use Defendant's patented data processing system. When the negotiations broke down, Plaintiff brought a declaratory judgement action in the U.S. District Court in Massachusetts asserting invalidity, unenforceability, and non-infringement. Plaintiff then filed a motion for partial summary judgement of patent invalidity for failure to claim a statutory subject matter under Section 101 of the Patent Act. The District Court granted Plaintiff's motion, and Defendant appealed to the Federal Circuit.
Findings
In short, the Federal Circuit reversed and remanded the case back to the District Court in Massachusetts. It held that the District Court erred by concluding: 1) that the '56 patent did not claim statutory subject matter; and 2) that the claimed subject matter fell into one of two alternative judicially-created exceptions: a) the mathematical algorithm exception; and b) the business method exception.
By highlighting the cases of Diamond v. Chakrabarty, 447 U.S. 303 (1980) and Diamond v. Diehr 450 U.S. 175 (1981), the Federal Circuit reiterated the congressional; intent to not place any restrictions on the subject matter for which a patent may be obtained beyond those specifically recited in Section 101. With this in mind, the Federal Circuit then likened the instant case to cases such as Arrythmia Research Technology Inc. v. Corazonix Corp., 958 F.2d 1053 (Fed. Cir. 1992)(where a mathematical algorithm produced a "useful, concrete and tangible result" - a measurement of the condition of the patient's heart) and in re Applat, 33 F.3d 1526 (Fed. Cir. 1994) (where a mathematical algorithm produced "useful, concrete and tangible result" - a smooth waveform.
In State Street Bank, the Federal Circuit, disagreeing with the District Court, read the '056 patent to describe "the transformation of data, representing discrete dollar amount, by a machine through a series of mathematical calculations into a final share price," as constituting the practical application of a mathematical algorithm. As such, the Federal Circuit thus determined that the algorithm 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. As for Freeman-Walter-Abele test (a test originally designed to help the courts extract and identify unpatentable mathematical algorithms), the Federal Circuit stated that the test now has "little, if any, applicability to determine the presence of statutory subject matter" under Section 101. This is because, as a practical issue, application of the test could easily be misleading. Although the Federal Circuit confirmed here that a law of nature, natural phenomenon, or abstract idea (including a mathematical algorithm) would not, by itself, be patentable, it also reiterated from its previous holding in Alappat that a process, machine, manufacture or composition of matter employing a law of nature, natural phenomenon, or abstract idea (including a mathematical algorithm) is, in fact, patentable under Section 101. In essence, it was this latter category into which the claims of the '056 patent fell.
Conclusion
The result of this decision appears to make sense, as long as the Court follows the same logic and analysis it implemented in Arrythmia and Alappat. For all those math buffs out there, it is probably nice to know that your hard work is not going to waste. Your algorithms are still able to find a safe harbor in the PTO! For others, like perhaps State Street Bank & Trust Co., however, this decision probably appears to be another "natural phenomenon" coming out of the Federal Circuit.