Patenting Business & Software Methods: The Beginning

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Until 1998, software related business methods could not foresee a future and were considered as un-patentable subjects. Inventors had to rely on copyrights and trademarks to protect their software related business methods. However, (thankfully!) this belief was laid to rest by the Court of Appeals for the Federal Circuit’s (CAFC) 1998 decision on State Street Bank & Trust Co. v. Signature Financial Group. Since then, companies and inventors have considered seeking patent protection for their software. This was the time, when business methods were patentable in US and involved computer implemented methods of doing business.

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

State Street Bank, a financial services company, negotiated with Signature Financial Group for a license to use its patented data processing system described and claimed in patent US 5,196,056. However, negotiations between the two broke down after State Street Bank alleged Signature’s failure to claim statutory subject matter under § 101. It subsequently filed a motion in Massachusetts district court asserting invalidity, unenforceability, and non-infringement of the patent.

The patent discloses a data processing system for implementing an investment structure used as an administrator and an accounting agent for mutual funds. Here, the mutual funds pool their assets into an investment portfolio organized as a partnership, providing the administrator of the mutual fund with the combination of economies of scale in administering investments and the tax advantages of a partnership.[2]

The claimed invention is a business method which is implemented on a machine by means of a mathematical algorithm. The federal court ruled that the claimed method is within the statutory limit on patentable inventions as defined by 35 U.S.C. § 101 (1994) which recites “any process, machine, manufacture or composition of matter” as patentable subject matter. Further, the court stated 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.

With this case, the Federal court concluded that the business and software methods that transform data are patentable subject matter under U.S.C 101 of the Patent Act, even when there is no physical transformation of an article. Further, it was asserted that software or other processes that yield a useful, concrete and tangible result should be considered patentable.

Impact of the verdict on Software & Business Method patent filings

software-and-business-method-patentsBeginning 1998 and right up to 2008, the subsequent allowance of patents on computer implemented method of doing business has been challenged and has affected many business method patents issued by the USPTO. In fact, several patents were deemed patent-ineligible due to the federal court’s decision in the Bilski vs. Kappos (2008) case, where the court ruled that the machine-or-transformation test was the sole test to determine patent eligibility for business methods.

Interestingly, India hasn’t witnessed any major amendment in patent eligibility guidelines for business and software method patents since the Indian Patent Act 1970. In its recent amendment made in 2002, Section 3k allows a patent grant if a software is novel, inventive or tangible, and has proper technical effect or industrial application.

It seems that with the advent of patent applications on internet or computer enabled methods the US patent law has changed or amended to address new technologies.  Further, the decisions of the United States Supreme Court and United States Court of Appeals for the Federal Circuit (CAFC) have clarified the boundary between patent-eligible and patent-ineligible subject matters for a number of new technologies, including computer and software. Whereas, in India there have been a mere clarification in the interpretation of software/Business method through amendments. It will be interesting to see how the two patent landscapes pan out over the next few years.

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Shailesh Kandpal
Shailesh Kandpal

Shailesh's passion for new technologies in mobile communication, user interface and automobiles, and his expertise in patent analytics make his blog posts interesting reads.

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