The Federal Circuit Court of Appeals has invalidated computer method patent claims, computer system claims and computer readable medium claims for a life insurance product. Bancorp Services, LLC v. SunLife Assurance Co. of Canada (U.S.), Case No. 2011-1467 (Fed Cir. July 26, 2012) (available here). Bancorp, the patentee, sued defendant Sun. The court said the claims were nothing more than abstract mathematical algorithms executed by a computer. Although complex, the algorithms could be done manually without the assistance of a computer.
The computer was not integral to the process as compared to a GPS position detector system, a computerized operation for opening a rubber mold, or a method for transforming half tone gray scale pixels for a better computer monitor display. Bancorp’s patent specifications disclosed systems and methods for administering and tracking the value of life insurance. The value of a separate account policy fluctuated with the market value of the underlying investment assets. The asserted patents disclosed a specific formula for determining the values required to manage a stable value protected life insurance policy. For example, the specification disclosed creating and initializing a fund by performing particular “calculations and comparisons” to determine an “initial unit value of the policy.” One of the patent claims is reproduced at the end of this commentary. The district court concluded that there was no meaningful distinction between the asserted “process,” “system,” and “media” claims, and that each would be analyzed as a process claim.
“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. See SiRF Tech., Inc. v. Int’l Trade Comm’n, 601 F.3d 1319, 1333 (Fed. Cir. 2010) (‘In order for the addition of a machine to impose a meaningful limit on the scope of a claim, it must play a significant part in permitting the claimed method to be performed, rather than function solely as an obvious mechanism for permitting a solution to be achieved more quickly, i.e., through the utilization of a computer for performing calculations’).” Slip opn. p. 19-20.
The computer required by some of Bancorp’s claims was employed only for the computer’s most basic function, the performance of repetitive calculations, and as such the recitation of a computer did not impose meaningful limits on the scope of those claims. Bancorp sought to analogize its case to SiRF, contending that a computer “plays a significant part” in its claims because they require “precise and repetitive calculation.” The Court said that 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. See SiRF, 601 F.3d at 1332.
Bancorp also argued that its computer system was more akin to the one in Research Corp. Techs., Inc. v. Microsoft Corp., 627 F.3d 859, 867 (Fed. Cir. 2010). The Court stated that Research Corp. was different from the present case in two critical respects. First, 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 was 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.
Procedurally, Bancorp and Sun Life jointly stipulated to dismiss their case due to collateral estoppel arising from the district court’s invalidity ruling in Hartford. Bancorp’s’792 patent was the subject of two prior appeals to the Court. See Metro. Life Ins. Co. v. Bancorp Servs., L.L.C., 527 F.3d 1330 (Fed. Cir. 2008) (vacating summary judgment of noninfringement); Bancorp Servs., L.L.C. v. Hartford Life Ins. Co., 359 F.3d 1367 (Fed. Cir. 2004) (reversing summary judgment of invalidity for indefiniteness). The parties agreed that if the district court’s Hartford ruling was reversed on appeal then their case would be reinstated. The district court then entered a judgment of conditional dismissal.
The Federal Circuit Court found no error in the district court’s failure to construe the patent claims prior to entering its decision. In Ultramercial, LLC v. Hulu, LLC, the Court stated that “[t]his court has never set forth a bright line rule requiring district courts to construe claims before determining subject matter eligibility.” The Court did state that it is ordinarily desirable—and often necessary— to resolve claim construction disputes prior to a § 101 analysis, for the determination of patent eligibility requires a full understanding of the basic character of the claimed subject matter.” 657 F.3d 1323, 1325 (Fed. Cir. 2011), vacated sub nom. Wild- Tangent, Inc. v. Ultramercial, LLC, No. 11-962, 2012 WL 369157 (U.S. May 21, 2012)(no bright line requiring construing claims before section 101 analysis).
However in this appeal, the Court concluded that the asserted system claims required “one or more computers,” as Bancorp asserted and as Sun conceded. The plain language of the system claims required particular computing devices, such as a “generator,” a “calculator,” and “digital storage.” Regarding the computer-readable medium claims, the specification explained that the term refers generally to a “high density removable storage means,” such as a “compact disc.” The district court’s failure to construe the claims, did not preclude the Court from making that legal determination on appeal. See Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1455 (Fed. Cir. 1998) (en banc) (concluding that claim construction is a pure issue of law). Just as a district court may construe the claims in a way that neither party advocates, Exxon Chemical Patents, Inc. v. Lubrizol Corp., 64 F.3d 1553, 1555 (Fed. Cir. 1995) (“[T]he trial judge has an independent obligation to determine the meaning of the claims, notwithstanding the views asserted by the adversary parties.”), the appellate court may depart from the district court’s decision and adopt a new construction on appeal, Praxair, Inc. v. ATMI, Inc., 543 F.3d 1306, 1323–24 (Fed. Cir. 2008) (adopting “a new claim construction on appeal.”
As for the literal fact that the computer system claims are facially different than the computer method claims, the Court held that the district court correctly treated the asserted system and computer readable medium claims as being no different from the asserted method claims for patent eligibility purposes. Under Cybersource and CLS, a machine, system, medium, or the like may in some cases be equivalent to an abstract mental process for purposes of patent ineligibility. In CyberSource Corp. v. Retail Decisions, Inc. the Court did not just look to the type of claim but also “to the underlying invention for patent-eligibility purposes.” 654 F.3d 1366, 1374 (Fed. Cir. 2011). In CLS Bank International v. Alice Corp., the Court held that the format of the various method, system, and media claims asserted in that case “d[id] not change the patent eligibility analysis under § 101.” No. 2011-1301, 2012 WL 2708400, at *10 (Fed. Cir. July 9, 2012).
Bancorp owns the ’792 and ’037 patents, both entitled “System for Managing a Stable Value Protected Investment Plan.” The patents share a specification and the priority date of September 1996. The ’792 patent has been the subject of two prior appeals to this court. See Metro. Life Ins. Co. v. Bancorp Servs., L.L.C., 527 F.3d 1330 (Fed. Cir. 2008) (vacating summary judgment of noninfringement); Bancorp Servs., L.L.C. v. Hartford Life Ins. Co., 359 F.3d 1367 (Fed. Cir. 2004) (reversing summary judgment of invalidity for indefiniteness). An example of the claim follows.
“9.A method for managing a life insurance policy on behalf of a policy holder, the method comprising the steps of: [a] generating a life insurance policy including a stable value protected investment with an initial value based on a value of underlying securities; [b] calculating fee units for members of a management group which manage the life insurance policy; [c] calculating surrender value protected investment credits for the life insurance policy; [d] determining an investment value and a value of the underlying securities for the current day; [e] calculating a policy value and a policy unit value for the current day; [f] storing the policy unit value for the current day; and [g] one of the steps of: removing the fee units for members of the management group which manage the life insurance policy, and accumulating fee units on behalf of the management group.” USPN ‘792, clm 9 (alpha designators added).
Commentary: The ruling in the Bancorp case will place many financial patents at risk. The courts are carefully scrutinizing all computer patent claims and the boundaries of patentable subject matter are being re-drawn with considerable speed. See Dealertrack, Inc. v. Huber, Case No. 2009-1566 (Fed. Cir. Jan. 20, 2012).