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Go Ask Alice . . . If You Can Patent Your Financial Services Process

The United States Supreme Court affirmed the invalidity of four computer-implemented financial services patents in Alice Corporation v. CLS Bank International. The unanimous opinion sets forth a framework for analyzing financial services (and other) patents going forward. On its face it is appears somewhat anti-patent. However, past cases in this area have actually proven to provide guidance that is ultimately helpful to parties seeking to patent their financial innovations, despite initially appearing to create barriers to patenting such innovations.

The Alice Patents

Alice Corporation owns four patents that the Court treated as being related to a single invention. The Court described the invention as “a computerized scheme for mitigating ‘settlement risk’—i.e., the risk that only one party to an agreed-upon financial exchange will satisfy its obligations.”

The Court determined that the claims are directed to “the abstract idea of intermediated settlement.” Because abstract ideas are ineligible for patent protection, this first step placed the invention, at least initially, in the not-patent-eligible category. The Court then checked whether the claims added other features such that the claims as a whole were nevertheless directed to more than just the idea of intermediated settlement. However, the claims include nothing more than generic recitations of standard computer hardware and well-known computing process. Therefore, the Court struck down all of the claims of the patents.

Framework for Analyzing Financial Services Patents

The Court used a two-step process to analyze the invention. The first step is to determine whether the claims are directed to a patent-ineligible concept. The second step is to determine whether despite including a patent-ineligible concept, the claims as whole include features that assure that the patent in practice amounts to “significantly more than a patent upon the ineligible concept itself.”

Therefore, graphically, the analysis for a claim in a financial services patent looks like this:Image

Read more…

Much-Anticipated CLS Bank v. Alice Corp. En Banc Decision Fails to Provide Guidance on Computer-Implemented Patents

In 1967 Arlo Guthrie wrote Alice’s Restaurant Massacree, an 18-and-one-half minute rambling, confusing, wonderful song.  In 1974, Congress subpoenaed tape recordings of Richard Nixon in the Oval Office, 18-and-one-half minutes of which were missing because they were “accidentally” erased.  Guthrie’s song and the 18-plus minutes of buzzing and static on the Nixon tapes are both models of clarity compared to the Federal Circuit’s 2013 en banc Alice Corp. decision.

The purpose of rehearing the CLS Bank v. Alice Corporation case en banc was nominally two-fold: (1) to determine what test to apply to determine whether computer-implemented inventions are directed to patent eligible subject matter; and (2) to determine whether it should matter if an invention is claimed as a method, system, or programmable medium.

Unfortunately, the members of the Federal Circuit could not come to any consensus on these issues.  The court issued six (SIX!) separate opinions, none (ZERO!) of which was joined by a majority of the judges.  Instead of cleaning-up the murky waters of patent-eligibility jurisprudence, the Federal Circuit danced around on the muddy bottom. Read more…

Patent Office Continues to Issue Financial Services Patents at Historically High Rates

As the graph below illustrates, 2012 saw record numbers of patents issued by the United States Patent Office in the sub-classes related to insurance (334), finance (1034) and portfolio selection (494).  So far, 2013 is on pace to basically match the number of patents from 2012 in these sub-classes.

Patents Issued in Financial Services Sub-Classes Since 2002*

2013 Finance Portfolio and Insurance Sub Classes

*2013 numbers are based on patents issued through April 26, extrapolated to 12-month rates.

The rates have remained pretty steady since 2010 when the Supreme Court decided the Bilski case and the Patent and Trademark Office issued their Interim Guidance for Determining Subject Matter Eligibility.  Despite the guidance being somewhat anti-patent on its face, the relative security of having specific guidelines appears to give the Examiners more confidence to allow cases and practitioners a better idea of how to craft their claims to meet the requirements.

Read more…

List of Most Prolific Financial Services Patent Owners Since 2012

Below is a list of the financial services companies that have been the most successful in obtaining patents over the last sixteen months.  Bank of America has received 137 patents since the beginning of 2012, followed by American Express with 114 issued patents.  Other active companies include USAA, Visa, The Hartford, and Goldman Sachs.

Bank of America has really ramped up its filings over the last few years.  For example, just four years ago, in the sixteen months starting in January 2008 and ending April 30, 2009, Bank of America received only three patents.

It’s interesting to see the different strategies employed by companies that seem to be somewhat similarly situated.  Among credit card companies, Visa received eighty-one patents, Mastercard twenty-four, and Discover only one.

Top Ten Financial Services Companies Receiving Patents Since 2012

Rank

Company

Patents Since 2012

1 Bank of America

137

2 American Express

114

3 USAA

96

4 Visa

81

5 The Hartford

57

6 Goldman Sachs

48

7 MasterCard

24

8 Citigroup

21

9 PNC

20

10 Wells Fargo

18

CBOE

18

  Read more…

Updated List of Top 15 (and then some) Financial Services Patent Owners

Below is an updated list of the top fifteen owners of patents related to financial services.  American Express remains the industry leader.  The biggest gainer was Bank of America, which jumped to second on the list, all the way from seventh a year ago.

Top 15 Financial Services Patent Owners

2013 Rank

2012 Rank

Change in Rank

Company

Patents

1

1

American Express

363

2

7

+5

Bank of America

217

3

2

-1

Visa

215

4

4*

USAA

211

5

3

-2

Citigroup

155

6

5

-1

Goldman Sachs

150

7

8

+1

The Hartford

113

8

6

-2

Morgan Stanley

103

9

10

+1

MasterCard

70

10

9

-1

Capital One

68

11

11

FICO (Fair Isaac)

59

12

NR

General Electric

55**

13

15

+2

Wells Fargo

48

14

12

-2

JP Morgan Chase

41

15

13

-2

Freddie Mac

38

If you are aware of any financial services companies I should add to the list, please let me know.  The list only includes assignments that appear on the faces of the patents and does not account for any assignments after the patents issued.   For companies where I was aware of related entities, I combined results.  For example, Citigroup includes Citibank and Citicorp, and Wells Fargo’s total includes four patents that were originally issued to Wachovia.  Some companies use holding companies to own their patents whose names don’t match the parent company, which may explain some rather large companies appear not to have any assigned patents.  The results are limited to patents in class 705–which relates to data processing in business and finance.  So, if an insurance company had a mice problem and solved it by inventing a better mouse trap, that patent is not included in the list.  The results are based on a search of the http://www.freepatentsonline.com database.

*Last year I missed a bunch of the USAA (United Services Automobile Association) patents—they should have ranked fourth last year as well.

**I should also note that I added General Electric to the list this year.  The total patents I listed for GE does not represent all of their patents in class 705, because many of their patents in that class do not seem to relate to financial services.  Instead, I limited the GE patents to those in the insurance, portfolio, and finance subclasses.

A complete list, totaling 75 companies, is provided after the break. Read more…

Supreme Court Analysis of Drug Dosing Patent May Affect Financial Services Patents

Today’s Supreme Court decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc. provides additional guidance on how to determine whether a new and not obvious method is patent eligible subject matter.  On its face, the opinion relates to the specific question of whether a claimed invention is directed to a law of nature.  However, the analysis appears to have more universal application and is likely to be applied in financial services cases where the issue is whether an abstract idea is being claimed.

The Prometheus Patent

The patent at issue claims a method for optimizing the dosage of a medicine used to treat Crohn’s disease and colitis.  Specifically, the claimed invention recites administering the medicine to a patient, testing the patient’s blood for a metabolite, and then determining whether the current dosage is too high, too low, or just right, based on the metabolite level.  The use of the medicine to treat these conditions was well-known before the patent was filed, as were the tests for the metabolite level and the existence of a correlation between the metabolite level and the dosage of the medicine.  What was not known, was the precise metabolite levels that were so high as to cause harm or so low to be ineffective.  Therefore, the inventor was the first to accurately determine metabolite levels that indicated a need to increase or decrease the dosage of the medicine for a patient.

The Analysis

The Supreme Court found the patent to be invalid under 35 U.S.C. § 101 because it is directed to a law of nature.  The Court reasoned that the correlation between the level of metabolites in a patient’s blood and the efficacy of the drug was merely a law of nature because the correlation exists in nature and was not created by the inventor.  The additional steps added to this law of nature—administering the drug, testing for a metabolite level, and realizing the correlation—were not enough to make the claim an application of that law of nature as opposed to a mere re-statement of the law.  Of great significance was the fact that the steps, other than the correlation, were all conventional steps.  Skilled people already knew how to administer the drug and check for the level of the metabolites in blood.  The only thing skilled people did not know before this invention was the specific levels of the correlation.  Furthermore, the only use for the correlation is to properly optimize dosage of the medicine.  Therefore, the claims are a complete monopoly over the law of nature.  Said another way, the claims amounted to nothing more than simply “apply the correlation.”

Application to Financial Services Inventions

Supreme Court decisions have generally identified three types of innovation that are not eligible for patent protection:  laws of nature, physical phenomena, and abstract ideas.  While Mayo relates specifically to the “law of nature” analysis, the Court seemed to be setting forth an analysis that would be applied in abstract idea cases.  In particular, it purported to derive its analysis from the Diehr and Flook cases, which were mathematical formula cases, rather than laws of nature cases.  Furthermore, the Court also circled back after its primary analysis to confirm that the decision comported with the Bilski hedge fund case.  Therefore, the analysis of financial services patents is likely to follow the Mayo model—at least in so far as the claims include mathematical calculations or mental steps.

The Mayo analysis appears to require a consideration of whether the claims–apart from the law of nature, mathematical formula, or (presumably) abstract idea–include anything novel and not obvious.  The recited steps of the claim need to include some unconventional step over and above any new abstract idea or mathematical formula.  This will likely be a stumbling block for several existing financial services patents that are in essence applying a new formula for calculating account values or payment amounts.   In these financial calculation patents, the issue will become whether there are any unconventional steps or structures recited that convert the claims into a patentable application of the formula rather than just a re-statement of the formula.

The Take-Away

This case will likely be a popular tool for patent examiners to reject pending applications.  In new and pending cases, we will want to craft claims that include steps or structures apart from any mathematical formulas or mental steps that can be characterized as being unconventional.  On its face, it seems like a bad case for patent owners and patent applicants, and good case for patent defendants.  However, if it can be applied in a bright-line fashion such that it provides some certainty about what is an abstract idea and what is not, it may ultimately be good for patent applicants who can craft their applications to meet a known standard, rather than a moving target.

University of Iowa to Host Forum on America Invents Act

Professors Dennis Crouch (University of Missouri) and Jason Rantanen (University of Iowa) will be speaking at the University of Iowa College of Law at 3:30 on Thursday February 16, 2012, about the recently enacted America Invents Act (AIA).  A panel of practicing attorneys, including yours truly, will also be offering our thoughts.  The forum is free and open to the public, so if you’re near Iowa City, and interested in learning more about the AIA, please attend.

Professor Crouch founded and edits the blog www.patentlyo.com.  Prof. Rantanen is a frequent contributor and co-editor of the PatentlyO blog.  For those not familiar, PatentlyO is the most widely read and influential patent blog.  I’m excited to meet these celebrities of the patent world.  It should be an interesting forum.

Top 15 (and then some) List of Financial Services Patent Owners

Below is a list of the top 15 assignees of patents related to financial services.  The credit card industry is heavily represented with American Express owning more patents than any other financial services entity, and Visa owning the second most.  MasterCard is also in the top ten.  Among insurance companies, The Hartford has been the most active, with 60 issued patents.

The list shows a wide variation in patent activity among companies that seem to be similarly situated in terms of size and industry.  For example, Discover only has two (2) issued patents as compared to American Express with 246, Visa with 134, and MasterCard with 50. I may try to breakout the results by industry (e.g., insurance, banking, credit card) in a later entry.

Top 15 Financial Services Patent Owners


Company

Patents

1.

American Express

246

2.

Visa

134

3.

Citigroup

133

4.

Goldman Sachs

110

5.

Morgan Stanley

86

6.

Bank of America

85

7.

The Hartford

60

8.

Capital One

56

9.

MasterCard

50

10.

FICO (Fair Isaac)

47

11.

JP Morgan Chase

38

12.

Freddie Mac

34

13.

Merrill Lynch

33

14.

Wells Fargo

30

15.

UBS

27

A few disclaimers are probably necessary.  It’s not a very scientific list–I just searched every financial services company I could think of to see how many patents they have.  I’m sure I have missed some important companies.  If you are aware of any financial services companies I should add to the list, please let me know.  The list only includes assignments that appear on the faces of the patents and does not account for any assignments after the patents issued.   For companies where I was aware of related entities, I combined results.  For example, Citigroup includes Citibank and Citicorp, and Wells Fargo’s total includes four patents that were originally issued to Wachovia.  Some companies use holding companies to own their patents whose names don’t match the parent company, which may explain some rather large companies appear not to have any assigned patents.  The results are limited to patents in class 705–which relates to data processing in business and finance.  So, if an insurance company had a mice problem and solved it by inventing a better mouse trap, that patent is not included in the list.  The results are based on a search of the www.freepatentsonline.com database.

After the break, is a complete listing of all the financial service entities I could find.

Read more…

Computer-implemented Method of Managing Credit Applications Found to be Abstract Idea

Last week the Federal Circuit court added to the slowly growing body of law defining the limits of patent-eligible subject matter in light of the Supreme Court Bilski opinion.  In Dealertrack v. Huber, the court found a computer-implemented financial services method not to be patent eligible because the claimed method was merely an abstract idea.  Specifically, the court stated that use of a general purpose computer, without more, is insufficient to convert an otherwise abstract idea into a patent-eligible method.  Also central to the court’s ruling was its opinion that the claim foreclosed all uses of the concept, not merely a specific application of the concept.

The Facts of the Case

The invention at issue relates to a method for obtaining automobile financing.  The actual claim language reads as follows:

A computer aided method of managing a credit application, the method comprising the steps of:

receiving credit application data from a remote application entry and display device;

selectively forwarding the credit application data to remote funding source terminal devices; [and]

forwarding funding decision data from at least one of the remote funding source terminal devices to the remote application entry and display device

The claim further recites that the selectively forwarding step can include either sending to more than one funding source at one time, or more than one funding source sequentially.  Therefore, in essence, the claim recites receiving credit application data, sending the application data to more than one lender, and then sending a notice of whether the credit application was accepted by any of the lenders.

The Federal Circuit’s Analysis

The Federal Circuit described the claimed invention as “the basic concept of processing information through a clearinghouse.”  This rendered the claims invalid under 35 USC § 101 because they are “preemptive of a fundamental concept or idea that would foreclose innovation in this area.”

The court rejected two primary arguments as why the claims are not directed to an abstract idea.  First, the court was not persuaded that because the steps were “computer aided” they are limited to an application of the clearinghouse idea, rather than to the idea itself:

[T]he ‘427 Patent does not specify how the computer hardware and database are specially programmed to perform the steps claimed in the patent. . . . The claims are silent as to how a computer aids the method, the extent to which a computer aids the method, or the significance of a computer to the performance of the method.  The claims here do not require a specific application, nor are they tied to a particular machine. . . . the claims cover a clearinghouse process using any existing or future devised machinery.”

Second, the patent owner argued that the claims were not directed to a basic concept, because they did not cover the entire field of clearinghouses, but were limited to a specific application related to the automobile lending process.  Again, the court was not persuaded:

The restriction here is precisely the kind of limitation held to be insufficient to confer patent eligibility in Bilski II.  The notion of using a clearinghouse generally and using a clearinghouse specifically to apply for car loans, like the relationship between hedging and hedging in the energy market in Bilski II, is of no consequence without more.

The Lessons of Dealertrack

The most helpful instructive portion of the opinion states that the claims are invalid because they fail to identify how the hardware is programmed, how a computer aids the method, the extent to which a computer aids the method, or the significance of a computer to the performance of the method.  Therefore, going forward, it will be beneficial to include in the claims themselves, not merely the specification, limitations that illuminate why the computer is necessary, helpful or significant.

For example, in the Dealertrack claims, the computers were recited as receiving data, but not as performing any specific manipulation of the data.  Perhaps some additional limitations requiring the application entry and display device and the remote funding source terminal device to manipulate, store, or display the data would have been sufficient.

Read more…

Patents Issued for Financial Services Inventions Up Sharply Since 2009

The Patent Office continues to issue patents for financial services inventions at much higher rates than in the past.  The last two years have seen an especially sharp increase in the number of financial-services related patents issued.

For example, patents in classification 705/4, which is titled “Insurance” have increased from a rate of about 25 per year over the first five years of the decade to a rate of about 275 patents per year during 2010 and 2011.  Similarly, patents in the classification 705/36R, which relates to “Portfolio Selection” have risen from an annual rate of about 35 per year at the beginning of the decade to an average of 440 per year over the last two years.  The “Finance” classification (705/35) has seen a twenty-fold rise from about 50 per year to about 1000.  The graph below shows the number of patents issued in these classes for the years 2002 to 2011.

The numbers of applications published in each of these classifications has increased only gradually over the decade, and cannot account for the recent uptick in issued patents.  Some of this uptick is undoubtedly due to the Patent Office working through a backlog of filings under new new Director David Kappos.  However, it also seems likely to be the result of an increase in the allowance rate.

Similar increases can be seen over the last two years for issued patents that include the terms “annuity,” “hedge fund,” “life insurance,” and “exchange traded fund” or “etf.”

Whatever the reason, patents for financial services inventions are being issued at rates several times what they were during the early 2000s.  For a brief period after the Federal Circuit decision in Bilski, and after some negative non-binding comments by the Supreme Court, it looked as though patents related to financial services might be an endangered species.  However, the last two years have represented a significant proliferation of such animals.  Insurance companies and other financial services companies will do well to imitate “hard” industries by monitoring their own innovations for possible patentable inventions, and by performing freedom to operate searches before implementing new products in order to avoid patents owned by third parties.