Your financial products and services are still patentable (maybe) – tips for procurement
September 2014 | EXPERT BRIEFING | INTELLECTUAL PROPERTY
Obtaining patent protection for financial products and services has never been more difficult. Such ‘business method patents’, which may cover data processing used in the practice, administration or management of a financial product or service, have been under attack in recent years, both legislatively and in the courts. For example, the America Invents Act includes a specific provision for challenging business method patents at the US Patent and Trademark Office (PTO) regardless of how long ago they were issued. And, courts have routinely invalidated business method patents for claiming little more than ‘abstract ideas’. Understanding recent case law in this area, however, can reveal useful guidelines for obtaining these patents even in today’s hostile anti-patent protection climate.
Under Section 101 of the US Patent Laws, ‘abstract ideas’ are not patentable. According to the PTO, patent-ineligible abstract ideas may include “fundamental economic practices”, “certain methods of organizing human activities”, “an idea of itself”, and “mathematical relationships/formulas”. (PTO preliminary examination instructions, 25 June 2014). Many financial products or services patents have been invalidated under Section 101 for impermissibly claiming abstract ideas.
On 19 June 2014, the Supreme Court in Alice Corp. v. CLS Bank held that patents for a computer-implemented scheme for mitigating settlement risk were invalid under Section 101 for claiming a patent-ineligible ‘abstract idea’. The Supreme Court followed a two-part test: (i) determine if the patent claims are directed to an abstract idea; and (ii) if so, determine whether the patent claims include an “inventive concept” that transforms the otherwise abstract idea into a patentable invention by “ensur[ing] that the patent in practice amounts to significantly more than a patent upon the [abstract idea] itself”.
The following is a representative ‘abstract idea’ patent claim held invalid by the Supreme Court in Alice Corp.:
“33. A method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of:
(a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions;
(b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record;
(c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party’s shadow credit record or shadow debit record, allowing only these transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order; and
(d) at the end-of-day, the supervisory institution instructing ones of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.” (U.S. Patent No. 5,970,479, representative claim 33.)
This method may appear to claim much more than an abstract idea. But according to the Supreme Court, it only claims the abstract idea of using a third party (the third party being a computer) to mitigate settlement risk, which is a ‘fundamental economic practice’ or ‘building block’ of our economy. As for whether there was an ‘inventive concept’ sufficient to transform the claim into more than a patent-ineligible abstract idea, its implementation on a general purpose computer was held insufficient because “the prohibition against patenting abstract ideas cannot be circumvented by attempting to limit the use of [the idea] to a particular technological environment”.
Following Alice Corp., the Federal Circuit in Digitech Image v. Electronics for Imaging (Fed. Cir. July 11, 2014) invalidated patent claims directed to a ‘device profile’ for claiming an abstract idea:
“10. A method of generating a device profile that describes properties of a device in a digital image reproduction system for capturing, transforming or rendering an image, said method comprising:
generating first data for describing a device dependent transformation of color information content of the image to a device independent color space through use of measured chromatic stimuli and device response characteristic functions;
generating second data for describing a device dependent transformation of spatial information content of the image in said device independent color space through use of spatial stimuli and device response characteristic functions; and
combining said first and second data into the device profile.” (U.S. Patent No. 6,128,415, representative claim 10.)
Under the two-part Alice Corp. test, the Federal Circuit held: (i) the patent claims the abstract idea of “gathering and combining data that does not require input from a physical device”; and (ii) there is no “inventive concept” that transforms the abstract idea into a patentable invention because it is “so abstract and sweeping as to cover any and all uses of a device profile”. The Federal Circuit further explained that “without additional limitations, a process that employs mathematical algorithms to manipulate existing information to generate additional information is not patent eligible”.
District courts have been falling in line post-Alice Corp., invalidating patents claiming the abstract ideas of “selecting meals for the day, according to one’s particular dietary goals and food preferences”, (DietGoal Innovations v. Bravo Media (S.D.N.Y. July 8, 2014)), and “determining if a decision is required” (Comcast IP Holdings v. Sprint (D. Del. July 16, 2014)). In both cases, implementation on a computer or computerised network was insufficient to transform these abstract ideas into patent-eligible inventions.
The PTO recently issued preliminary examination instructions in view of Alice Corp., which provide additional insight as to what may be considered a sufficiently ‘inventive concept’ to transform abstract ideas into patentable inventions. According to the PTO, examples of sufficiently inventive concepts include: (i) “improvements to another technology or technical field”, (ii) “improvements to the functioning of the computer itself”, or (iii) “meaningful limitations beyond generally linking the use of an abstract idea to a particular technological environment”. In contrast, the following are insufficient: (iv) “adding the words ‘apply it’ (or an equivalent) with an abstract idea, or mere instructions to implement an abstract idea on a computer”; or (v) “requiring no more than a generic computer to perform generic computer functions that are well-understood, routine and conventional activities previously known to the industry”.
Admittedly, this two-part Alice Corp. framework may appear insurmountable for financial patents. Financial business methods are typically implemented on a computer or computerised network, and some courts seem willing to go out of their way to categorise business method patents as covering abstract ideas even if it means defining the abstract idea as a summary recitation of the claimed method itself. However, the following tips may help one obtain financial patents:
Tip 1: Draft patent claims that depend upon more than a general purpose computer. Business method claims should recite particular software or hardware components that implement the claimed business method in a way that infers that patentability also turns on the technology itself, not just the method steps that may be characterised as an abstract idea.
Tip 2: Draft patent claims that must be implemented by specialised devices (e.g., a specific tablet or smart phone with software or hardware enhancements). Although such claims will be limited in scope, sufficient patent protection may be afforded if the specialised devices are generally used in the financial industry.
Tip 3: Draft patent claims with detailed method steps. Although courts have exercised broad discretion in defining an abstract idea or ‘fundamental economic concept’ to characterise business method claims, every additional method step may constitute a sufficient ‘inventive concept’ that transforms the abstract idea into a patentable invention.
Tip 4: Include substantial disclosure and examples in the patent application specification to support an argument that the claimed subject matter is not an overly broad abstract idea.
Practicing these tips may increase the odds of obtaining allowance for financial patent applications, and provide better defences post-issuance against validity challenges in litigation or in front of the PTO. The key arguments in favour of validity or patentability will almost always depend on whether the financial patent claims particular technology, or is sufficiently detailed to avoid Section 101 treatment. Although an uphill battle, the Supreme Court hasn’t completely shut the door just yet.
Scott J. Bornstein is co-chair of the Global Patent Litigation Group and chair of the New York IP & Technology Group, and John Handy is a senior associate, at Greenberg Traurig, LLP. Mr Bornstein can be contacted on +1 (212) 801 2172 or by email: firstname.lastname@example.org. Mr Handy can be contacted on +1 (212) 801 2270 or by email: email@example.com.
© Financier Worldwide
Scott J. Bornstein and John Handy
Greenberg Traurig, LLP