Case No. 2011-1467 (Lourie, Prost, Wallach)
If anything solid can be dredged from the ? 101 swamp, it is that financial methods are particularly suspect as patent ineligible subject matter. The Federal Circuit in Bancorp Services v. Sun Life strikes claims to a life insurance management regime, while also adding to a growing consensus that the ability to perform a method entirely in the mind is a strong indicator of invalidating abstractness and preemption, and reciting such methods as computer systems or media will not save them under ? 101. It looks like there are getting to be a lot of invalid business method patents floating around out there.
The case has been going on in some form since 2000, when Bancorp sued on US Patent 5,926,792. Another patent, 7,249,037, was amended into the complaint in 2009. These patents disclosed and claimed ways of managing life insurance policies where the holders invested beyond the required premium so as to minimize risk of loss between investment value and surrender value in the total investment. The claims included methods as well as computer systems and media aping those methods, like this:
A life insurance policy management system comprising:
a policy generator for generating a life insurance policy including a stable value protected investment with an initial value based on a value of underlying securities of the stable value protected investment;
a fee calculator for calculating fees for members of a management group which manage the life insurance policy;
a credit calculator for calculating credits for the stable value protected investment of the life insurance policy;
an investment calculator for determining an investment value and a value of the underlying securities of the stable value protected investment for the current day;
a policy calculator for calculating a policy value and a policy unit value for the current day;
digital storage for storing the policy unit value for the current day; and
a debitor for removing a value of the fees for members of the management group which manages the life insurance policy.
The asserted method claims looked strikingly similar, mostly just omitting the ?[hardware X] for? phrase and starting each step with the gerund.
Following the conclusion of proceedings in Bilski, the district court found the above claim, as well as corresponding method and media claims, as failing the Machine-or-Transformation test, because the steps could be performed manually and any computer recited in the claims was a mere general-purpose add-on. The district court did not engage in formal claim construction before invalidating all claims under ? 101, leading to the first issue on appeal ? is claim construction indispensable for summary judgment of invalidity under ? 101? No, it?s just recommended:
claim construction is not an inviolable prerequisite to a validity determination under ? 101. We note, however, that it will ordinarily be desirable?and often necessary?to resolve claim construction disputes prior to a ? 101 analysis, for the determination of patent eligibility re-quires a full understanding of the basic character of the claimed subject matter.
Because claim construction is a desirable component of a subject matter eligibility determination and a question of law, the panel decided to construe the claims itself in the first instance. The big question was whether method claims not reciting hardware nonetheless required a computer for their execution (the panel agreed the above-quoted system and media claims must be construed to include hardware under their plain language). For the method claims, despite the specification disclosing only computerized embodiments and the methods being highly inefficient to do by hand, the Federal Circuit relied on plain language and claim differentiation to construe the independent method claims to not require hardware, whereas dependent claims reciting the methods being ?performed by a computer? did require hardware.
Turning to the merits of patentable subject matter, the parties framed the debate as complex-computer-programming-limited-process-and-structure versus mathematical-formulas-with-computers-thrown-in antipodes. The panel saw the claims here as the patent-ineligible latter. The opinion really focused on the now familiar steps of 1) discerning an abstract idea in the claims and 2) ascertaining whether a sufficiently specific application of the idea was present. As for identifying the abstract idea, the court saw little difference between the claims here, reducible to managing a stable value protected life insurance policy, and the abstract idea of hedging energy market risk in Bilski:
Here, Bancorp?s patents ?attempt to patent the use of the abstract idea of [managing a stable value protected life insurance policy] and then instruct the use of well-known [calculations] to help establish some of the inputs into the equation.? Id. As in Bilski, the claims do not effect a transformation, and the fact that the required calculations could be performed more efficiently via a computer does not materially alter the patent eligibility of the claimed subject matter.
The panel further highlighted two indicia of insufficiently-limited abstractness emerging from Research Corp. and CyberSource: that the asserted patents did not describe how their methods improved on existing technology; and that the claimed financial method could be performed mentally or at least manually. Thus, the claims could be more easily analogized to CyberSource (invalid) than Research Corp. (not invalid):
the claimed processes in Research Corp. plainly represented improvements to computer technologies in the marketplace. For example, as compared to the prior art, the ?inventive mask produce[d] higher quality halftone images while using less processor power and memory space.? Id. at 865. No such technological advance is evident in the present invention. Rather, the claims merely employ computers to track, reconcile, and administer a life insurance policy with a stable value component?i.e., the computer simply performs more efficiently what could otherwise be accomplished manually. Bancorp, 771 F. Supp. 2d at 1065.
Second, the method in Research Corp., which required the manipulation of computer data structures (the pixels of a digital image and the mask) and the output of a modified computer data structure (the halftoned image), was dependent upon the computer components required to perform it. See CyberSource, 654 F.3d at 1376 (?[T]he method [in Research Corp.] could not, as a practical matter, be performed entirely in a human?s mind.?). Here, in contrast, the computer merely permits one to manage a stable value protected life insurance policy more efficiently than one could mentally. Using a computer to accelerate an ineligible mental process does not make that process patent-eligible.
Having found some ?abstractiness,? the panel looked at whether the computers recited in the system, media, and dependent method claims could confer subject matter eligibility by representing a specific application. They could not. Under SiRF, to ?salvage an otherwise patent-ineligible process, a computer must be integral to the claimed invention, facilitating the process in a way that a person making calculations or computations could not.? While Bancorp argued that computers were significant here by enabling the claimed precise and repetitive calculations, the court said ?[t]hat misses the point. It is the management of the life insurance policy that is ?integral to each of [Bancorp?s] claims at issue,? not the computer machinery that may be used to accomplish it.? The panel here also continued the CyberSource trend of treating system and computer readable media claims no differently from counterpart method claims that recite insufficient application on specially-configured computers.
The patentee also argued specific application was present here because the claims operated in the life insurance market and because the defendant had plead that their similar methods did not infringe, and thus were not preempted by, the claims at issue. The panel rejected both these arguments ? the first as a mere field of use limitation entitled to no ? 101 weight under Bilski and Flook, and the second as a mere artifact of alternative pleading.
Lastly, the opinion threw some support behind the majority in the recent CLS Bank v. Alice Corp., finding the facts there distinguishable. Particularly, the panel here (including the dissenter from CLS Bank) seemed to agree that the computer limitations there played a ?significant part? in the claimed method of a specific financial application. Here, however, the computer was just a facilitator to using an abstract concept. Invalidity of all claims affirmed.
Lessons: Where Bancorp Services provides the most ? 101 guidance, it is in its definition/detection of an abstract idea and treatment of computers as sufficient applications or a preemption avoiders. First, it?s undeniable from this case, CLS Bank, Dealertrack, Fort Props., and Bilski that anything approaching a business method/system/program is nowadays highly susceptible to a ? 101 attack. Panel after panel have had zero qualms with labeling a market or legal transaction as ?abstract.? Thus, at a minimum, carefully consider the facts and outcomes in these cases when drafting such applications ? and in determining if patent protection is even available to one?s innovation in these sectors. If a method or structure can operate in a non-financial or legal setting, focus on those other more technological settings.
Second, Bancorp Services reemphasizes past recommendations for avoiding abstractness to begin with. Consider the specification as prime real estate for demonstrating improvement on an existing technology, limited application of an abstract idea, and the necessity of extra-mental specific machines and transformations. In the background one might be able to identify existing technology as a very broad abstract idea. (?Several existing accounting programs track the worth of insurance policy profiles?) Then example embodiments might be disclosed as specific improvements on aspects of the concept. (?The example embodiment computer program of FIG. X supplements policy monitoring with specific calculations of current, future, and group-based valuations in order to yield improved portfolio protection that is uniquely responsive to portfolios with protected investments.?) One may be able to avoid overly-narrow descriptions by phrasing the existing abstract ideas quite generally. These tactics may help avoid the first step of toward ? 101 invalidity of identifying an abstract idea, but they are not slam dunks. The ?037 patent in particular did a good job of describing its systems as improvements over existing specific methods in the background and summary to no avail.
Where abstractness is a concern, consider demonstrating in the specification how a claimed structure or transformation is both specific and central to the claim. In the computer program space, describe example embodiments that that require a computer programmed or configured in a specific manner to flat-out work. Don?t leave room for ?any computer? to perform the method or for anyone to suspect that the method could be performed, even inefficiently, by hand or in one?s mind. (From previous advice example: disclose results of a calculation are useful only in real-time and can only be achieved by computer, coupled with a claim to real-time computer-implemented calculation, or disclose a process that depends on information remotely input or gathered from several sources simultaneously, coupled with a claim reciting a computer specially networked to the various remote sources). Don?t rely on a structural or medium claim, or incidental recitation of ?with a computer,? to save a claim that can be reduced to an abstract idea from ? 101. As seen in Bancorp Services and so many other recent patentable subject matter cases, claim validity arbiters are very much looking at just how much a computer gives life to any type of claim in determining if the claim impermissibly preempts.
Comment: The claims here seem comparable to those in CLS Bank. The CLS Bank majority really zoomed in on the ?shadow debit/credit? terms as evidence of a specific implementation of a settlement that required a computer programmed for handling these shadows. The panel here could have probably similarly focused in on the recited storage of the specialized value types and disclosure of such storage with computers to do the same. But they didn?t, and I?m not completely sure what the stopper was. It may be that claims at issue here had such little step-interactivity and dependency among the various terms; that is, the Bancorp claims do look more like a list of independent calculations of unrelated terms that could be done mentally. I?m also more than willing to admit my deficiencies in Wall Street wizarding knowledge on this one ? I can?t confidently speak as to how involved or specific the recited calculations were beyond typical estate management ideas.
The ?792 patent was subject to challenges in two earlier cases in 2004 and 2008, but only indefiniteness was raised as an invalidity in the prior cases. I think it reflects just how much has changed in the last four years on the ? 101 front. Given the courts? lumping of system, media, and method claims together for ? 101 purposes, I?m pretty sure even State Street?s ?data processing system for managing a financial services configuration? would not be patent eligible these days. A whole slew of issued patents of similar mid-90s to mid-aughts vintage are likely not nearly as valid as they once were.
Two final observations. First, the court disposed of the argument that the claims were not preemptive because of non-infringment. The court dodged this ?clever? argument by saying non-infringment was merely plead as a defense in the alternate. Does this suggest the court might be of a different opinion if the case arrived on appeal with an actual verdict/finding of non-infringement and invalidity? Second, Judge Lourie used claim differentiation to broaden a claim, despite the specification?s disclosure of only the subject matter of the dependent claim (i.e., computer systems) in a fairly limited fashion. This is rare for him. Even though the dependent and system claims ultimately fell, would construing the independent method claim narrowly, as requiring a computer, perhaps admitted that computers were more central to the method for 101 purposes?
Source: http://alleylegal.com/2012/07/bancorp-services-v-sun-life/
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