"State Street" Decision Causes "Boom" in Software Patent Filings

The "boom" is not surprising. The lower court in the State Street case had held the software patent involved (U.S. Patent No. 5,193,056) to be invalid on the grounds that (i) it was directed to an unpatentable "mathematical algorithm" and, in the alternative, (ii) it was directed to an unpatentable "method of doing business." The software industry was understandably concerned that if the lower court's decision was upheld, the value of patent protection for software inventions would be diminished. This uncertainty no doubt dampened the enthusiasm for filing patents. The State Street decision, however, removed this uncertainty.

The patent at issue in the State Street case pertained to a data processing system for managing mutual funds. The system, identified by the registered trademark HUB AND SPOKES®, facilitates a structure whereby mutual funds (Spokes) pool their assets in an investment portfolio (Hub) organized as a partnership. This investment configuration provided, among other things, certain tax advantages.

In affirming the patentability of software-related patents, the Federal Circuit in State Street rejected both (i) the mathematical algorithm, and (ii) the business method exceptions to patentability. Historically, some courts have held that "mathematical algorithms" do not define patentable subject matter because they seek merely to protect abstract ideas. However, the Federal Circuit held that since the claims of the patent-at-issue were directed to a machine programmed with the HUB AND SPOKES® software, and such a machine produced a useful, concrete, and tangible result, the software constituted patentable subject matter. The Federal Circuit so held even though the useful result was expressed in numbers (i.e.,in "mathematical" terms), such as price.

With regard to the so-called "business method" exception, the Federal Circuit flatly rejected the theory, laying this "ill-conceived exception to rest."

The State Street decision, while pertaining generally to methods of doing business via software, will likely have particular application to e-commerce, which is predicted to expand to $425 billion by the year 2002. While some e-commerce companies, for example Amazon.com Inc., have forged ahead, and now have issued U.S. patents, there remains no legal obstacles to obtaining valid U.S. patents for computerized business methods.

Intellectual Property Patent Subjects 4604

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