The Federal Circuit has upheld a District Court decision invalidating, as patent-ineligible under 35 U.S.C. § 101, patent claims directed to calculating an amount that a third-party guarantor must pay based on market and book values of an insurance policy in the event the policy is paid out prematurely. Bancorp Services, LLC. v. Sun Life Assur. Co., No. 2011-1467 (Fed. Cir. July 26, 2012). The Court's opinion, authored by Judge Lourie, and joined by Judges Prost and Wallach, rejected Bancorp's “primary argument . . . that because its claims are limited to being performed on a computer, they cannot claim only an abstract idea.” Addressing an obvious question, the Court also stated that its decision here was consistent with its recent ruling in CLS Bank International v. Alice Corp. (from which Judge Prost vigorously dissented), holding that claims directed to using an intermediary in financial transactions to eliminate settlement risk recited patent-eligible subject matter.
The claims of U.S. Patents 5,926,792 and 7,249,037 are directed to “a computerized means for tracking the book value and market value of the [insurance] policies and calculating the credits representing the amount the stable value protected writer must guarantee and pay should the policy be paid out prematurely.” The “stable value protected writer” is a third-party who allows companies to protect themselves against the volatility of insurance policies' market values by guaranteeing the book value of an insurance policy regardless of its market value.
The District Court had waited to determine patent eligibility until after the U.S. Supreme Court decided Bilski v. Kappos. Then, applying the machine-or-transformation test, the District Court noted that the claims could be executed without the assistance of a computer, and that there were no transformations of physical objects. Further, the District Court “analogized the asserted claims to those that the Supreme Court found unpatentable in Bilski, Gottschalk v. Benson, and Parker v. Flook, and concluded that the claims were invalid under § 101 as directed to patent-ineligible abstract ideas.”
Before addressing the question of patent eligibility, the Federal Circuit discussed whether claim construction was a prerequisite to evaluating Section 101 validity. Although the District Court had not construed the patent claims, a remand for claim construction was not necessary, as Bancorp argued. The Court's statement in Ultramercial, LLC v. Hulu, LLC, that there is no bright line rule requiring claim construction prior to a determination of patent-eligibility was not undermined by the Supreme Court's recent remand of the Ultramercial case. Claim construction before performing Section 101 analysis may be desirable, or even necessary, but there is no inviolable rule requiring it.
The Court then went on to perform the only claim construction it found necessary, concluding “that the asserted system claims require 'one or more computers,'" and that recited “computer readable media” should carry their plain and ordinary meaning as described in the specification. The independent method claims, on the other hand, did not recite use of a computer, while claims depending from them did. Applying the doctrine of claim differentiation, the Court concluded that the method claims did not require a computer.
Also before conducting its Section 101 analysis, the Court considered whether that analysis should be different for method claims, as opposed to system and computer media claims. The District Court had recognized no such difference. Citing CyberSource Corp. v. Retail Decisions, Inc., and CLS Bank, the Court explained that it was proper to look to the underlying invention and “not just to the type of claim.” Accordingly, “a machine, system, medium, or the like may in some cases be equivalent to an abstract mental process for purposes of patent ineligibility.” The District Court did not err in treating the different classes of claims here as not different from one another for patent-eligibility purposes.
With all this preamble, the Court's actual patent-eligibility analysis was relatively brief. Bancorp contended that its claims could not recite an abstract idea because they were limited to being performed on a computer. However, simply adding a computer limitation to a claim, without more, does not make the claim patent-eligible. The “computer must be integral to the claimed invention, facilitating the process in a way that a person making calculations or computations could not.” Here, “[t]he computer required by some of Bancorp’s claims is employed only for its most basic function, the performance of repetitive calculations, and as such does not impose meaningful limits on the scope of those claims.”
Further, the claims here were not materially different than the claims invalidated in Bilski. The claims recited no machine or transformation. Moreover, the claims did not present any improvements over computer technology presently in the marketplace. At most, the claims required simply computing mathematical values. The patentability of the claims could not be saved by a field of use limitation to the life insurance market.
The last paragraph of the Court's analysis may generate the most attention, at least in the short term, stating that the Court's “conclusion is not inconsistent with CLS [Bank].” The CLS Bank majority had concluded that computers played a significant part in the claims there. Here, the Court said, “unlike in CLS, the claims . . . are not directed to a 'very specific application' of the inventive concept; as noted, Bancorp seeks to broadly claim the unpatentable abstract concept of managing a stable value protected life insurance policy."
Some may not see the distinction, but editorial comment is probably superfluous. As discussed in a recent post on the PatentlyO blog, this case, particularly so soon in the wake of CLS Bank, "highlight[s] ongoing ambiguities and difficulties regarding the scope of patent subject matter eligibility for software related patents." As a practitioner continually struggling with how to advise clients wanting help with software inventions, I share the frustration expressed by Dennis Crouch and others that decades of software patentability jurisprudence have left us only with a murky and unpredictable legal framework for evaluating whether software patent claims are valid under Section 101.