The grant rates for patents in the financial services subclasses for the first few months of 2015 more or less match the rates from the last few months of 2014. As the graph below shows, the grant rates took a severe dive from June to September, after the Alice decision. The grant rates have not rebounded, and if anything have continued to dwindle slightly.
On an annualized basis, the grant rates have retreated to about where they were in the 2005-08 period. The graph below illustrates the annual grant rate in the financial subclasses since 2002, with 2015 pro-rated based on the first 20 weeks of the year.
Everything is relative. While the rates are significantly lower than a year ago, they still match and exceed the rates from the early 2000s. There was a lot of hand wringing and ink spilled at that time about the proliferation of financial services patents. So, the bottom line is that grant rates are greatly reduced from where they have been, but financial services patents are still alive.
For the first half of 2014, the Patent Office issued patents related to financial services at historically high rates. Then Alice happened. The last quarter of 2014 saw a significant decline in granted patents for financial services. The numbers are striking.
In the Patent Office class for Data Processing: Financial, Business Practice, Management, or Cost/Price Determination (Class 705), the Patent Office issued patents at an average rate of 172 patents per week for the first six months of the year. Over the last four months, the average rate dropped to 73 per week, a decrease of 57%. This decrease can be seen in the graph below showing the average grant rate in Class 705 over the last three years.
As can be seen in the graph below, the reduction in grants is even more pronounced in some of the financial services subclasses. In the Finance (705/35) and the Trading, Matching and Bidding (705/37) subclasses, the grant rates declined by 76% from the first half of the year to the last third. Similarly, in the Insurance Subclass (705/4) the grant rate in the last four months was 80% lower than the average rate in the first six months. The Portfolio Selection Subclass (705/36R) saw an 85% reduction between the same periods. These sharp drops lagged the Supreme Court Alice decision about about six to eight weeks (roughly the time it takes for an allowed patent application to be issued).
The grant rate for the last few months may not accurately predict the rate going forward. It could be that that the Patent Office has been reviewing fewer applications in these classes. Or it could be that Examiners have been reluctant to grant allowance of claims as the Examiners were becoming familiar with the temporary guidance based on Alice and awaiting more complete guidelines. So far the cases that have been examined have included claims that were largely prepared and submitted before the Alice decision. As patent attorneys have a chance to craft applications that take into consideration the Alice case and the Patent Office’s implementation of Alice, grant rates may increase.
For some perspective, the grant rate for the last four months of 2014 (about 3800 per year) is still higher for Class 705 than any year prior to 2010. Additionally, 2014 saw by far the largest number of published applications in Class 705 ever. So, while the grant rate of patents related to financial services is likely to decrease from recent highs, these patents will remain a significant consideration for financial services companies.
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:
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…
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 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.
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…
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…
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.
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.
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.
Financial Patents Blog 