Don’t Dismiss State Street: Ancora Decision Reiterates Relevance of Concrete and Tangible Test for Software

By Gene Quinn
January 8, 2019

Judge Rich was attempting to articulate a test that would allow the decision maker to determine whether there is in fact an innovation; an invention that we recognize as one that can and should be patented if it is in fact novel and nonobvious.”

CAFC Reiterates Relevance of Concrete and Tangible Test for SoftwareOn November 16, 2018, the United States Court of Appeals for the Federal Circuit issued a decision in Ancora Technologies, Inc. v. HTC America, Inc. that underscores the continued relevance of the holding in State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Circ. 1998) that business method inventions must produce a “useful, concrete and tangible result” in order to be patentable.

Since State Street, business methods have been technically patentable in the United States. The decision categorically and unceremoniously did away with what had previously come to be known as the business method exception to patentability. Essentially, the business method exception held that no method of doing business deserved patent protection. The rule excluding business methods was at least somewhat ridiculous when taken to its logical extreme, since all patent methods are used for some business purpose.

In the ensuing 20+ years after the State Street decision, there were various attempts to reinstate the business method exception. Among the problems, however, was defining what constituted an offensive business method versus a non-offensive method that might be used in commerce. For example, manufacturing methods that at their heart were solely to facilitate business purposes were usually considered acceptable.

Of course, another problem faced by advocates of the business method exception over the years was that Congress in 2011 specifically wrote business method patents into the Patent Act and even created an entirely new mechanism for challenging this category of patents.

[[Advertisement]]

The Business Method Boom and Bust

In the early days after the State Street decision issued, the volume of business method patents filed at the United States Patent and Trademark Office (USPTO) became staggering. This was in no small part a function of the fact that business methods were only patentable in the United States and because practically everyone could come up with a process that in some way facilitated the doing of business. Everyone could be an inventor. And since business methods had never been patentable, there was a lack of readily findable prior art in the usual databases examiners searched. It led to some questionable patents being issued.

But gone are the days of the business method wild west. Truthfully, it hasn’t been easy to get a business method patent since at least 2002. The laws have changed numerous times since then, most directly with the Supreme Court deciding Bilski v. Kappos, 130 S.Ct. 3218 (2010), which specifically addressed the issue of whether business methods are patentable, and again with Alice Corp. v. CLS Bank, 134 S.Ct. 2347 (2014), which further illuminated the Court’s Bilski analysis.

Although the law has changed significantly since the early days after the Federal Circuit’s decision in State Street—and the Supreme Court has technically overruled the Federal Circuit’s formulation of the test established in State Street—those seeking to understand how to write a software-related patent application would do well to start with the test Judge Rich set out in State Street and truly attempt to understand what he meant. The meaning behind the test is as good a guide as ever for software-related patent applications; in fact, the Federal Circuit has seemingly acknowledged the value of this test in the precedential Ancora decision.

Assess the Odds

First, it is worth noting that if the invention at issue is a pure business method, the odds of obtaining a patent hover in the 1 to 3 percent range. Indeed, it does not likely make sense to file a patent application on pure business methods unless the client is a very large entity with deep pockets. A pure business method that is not associated with any kind of unique system, computer architecture or other tangible features will struggle mightily. The Federal Circuit recently recognized that a particular mathematical financial modeling method was innovative, but simply not the type of thing the U.S. patent laws allow a patent to protect. See SAP America, Inc. v. InvestPic, LLC, 898 F.3d 1161 (Fed. Circ. 2018).

However, if the invention relates to more than just a pure business method, there is hope—assuming the application is drafted properly, which means a thick technical specification with supporting drawings.

In the words of Judge Rich from State Street, to be patentable, the invention must produce a “useful, concrete and tangible result.” Although the United States Supreme Court did away with that test when it issued its decision in Bilski, for years I have preached that it is still the best test out there if you are really trying to understand the requirements for obtaining a business method patent.

Where State Street Went Wrong

If we reflect on what Judge Rich truly meant by “useful, concrete and tangible result,” we come to the inescapable conclusion that it is the appropriate test. The purpose of the “useful, concrete and tangible result” requirement was to limit patent protection to inventions that possess a certain level of “real world” value, as opposed to subject matter that represents nothing more than an idea or concept (which is not patentable) or is simply a starting point for future investigation or research. The unfortunate aspect of the test was that is used two terms that have no place in the eligibility equation; namely, “useful” and “result.”

The patent statute already has a utility requirement embedded in 35 U.S.C. § 101. Inventions are only patentable if they are useful, which has always been considered to be a separate and distinct requirement when compared with the patent eligible subject matter requirement. Thus, it was unnecessary, unfortunate and even misleading for Judge Rich to have included “useful” in his test. It allowed the test to confuse those who attempted to apply it literally because the term “useful” in the test had to be referring to something other than utility, but what did it mean?

It is likewise unfortunate that his test used the term “result”. If the focus is on the result in any way, shape or form then the process becomes nothing more than a meaningless black box. With business method inventions, however, the process is everything. Today, the process—along with how technology is used to facilitate the process—is everything. Having the term “result” modify “useful, concrete and tangible” led to a test that was largely incoherent and which simply could not be applied with any meaningful consistency. If one was predisposed to believing the invention was patentable, it was patentable, and if one was predisposed to believing no patent should be awarded, that finding could be equally supported under this test. This meant that the State Street test ultimately wound up no better over time than did the tests it sought to replace.

Back to Basics

If we stand back and consider what one is trying to determine with respect to whether the invention in question is patentable, the core of the State Street inquiry is very relevant. Judge Rich was attempting to articulate a test that would allow the decision maker to determine whether there is in fact an innovation; an invention that we recognize as one that can and should be patented if it is in fact novel and nonobvious. So, the key to the “useful, concrete and tangible result” test of State Street is the “concrete and tangible” part of the test. That part of the test must be referring to whether an invention has been articulated sufficiently so that if it is novel and nonobvious a patent could be appropriately awarded. This explanation of the State Street test would be in accord with both the Supreme Court’s decision in Bilski, as well as in Alice v. CLS Bank, as well as the Federal Circuit’s precedential decisions in which the Court discusses the need for an inventive concept under Alice/Mayo Step 2B, and particularly the Ancora Technologies, Inc. decision, where the Court held that the invention in question was patent eligible because the claimed advance was a concrete assignment of specified functions among a computer’s components to improve computer security.

Whether any future case or judge will ever admit that the core holding of State Street was correct and is, in fact, the law today, remains to be seen. Frankly, it is unlikely given how pilloried the decision has become. But that shouldn’t mean that those looking for lessons on how to draft patent applications cannot and should not learn from its meaningful and noteworthy lessons.

 

Image Source: Public Domain

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and President & CEO ofIPWatchdog, Inc.. Gene founded IPWatchdog.com in 1999. Gene is also a principal lecturer in the PLI Patent Bar Review Course and Of Counsel to the law firm of Berenato & White, LLC. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 14 Comments comments.

  1. Anon January 8, 2019 4:22 pm

    Extremely interesting article – especially if one takes the terminology and “translates” it into today’s “politically correct” (if not even more ambiguous) “substantially more” or “practical application” terms.

    As much as State Street has been maligned (including – especially – by members of the Supreme Court), the actual terms of that case — when understood in the context of their legal use — are actually far more clear and UN-ambiguous as the scrivining from the Court.

    I would hasten to add two particular points though to any discussion involving the State Street case:

    1) many of the principles (especially in regards to innovation that may be expressed in software – see In re Alappat) pre-date the State Street case and

    2) given that first panel decision of the CAFC controls unless (and until) an en banc decision of that court dictates otherwise, the first decisions post Supreme Court cases that spoke on the matter reaffirmed that In re Alappat was still controlling law.

    Thus, many of the important positions IN LAW were affirmed as still controlling law in the wake of Supreme Court decisions that otherwise denigrated the State Street Case.

    Too be clear — tracking any of the underlying issues back to the original and controlling law (the words of Congress) will have one arrive in the same place. Unfortunately, (to mix some metaphors in the best Yoggi Berra manner) the Gordian Knot that the wax nose of law has been made into makes understanding the clear intentions of Congress into an impenetrably cloudy cacophony.

  2. Paul Cole January 9, 2019 5:29 am

    Anyone who troubled to look at the eventually granted patent in State Street would realize that the credible and most straightforward objection was lack of support for the functional claim features under 35 USC 112(6). Absent the lack of supporting detail this would have resulted in rejection of the application which would have survived appeal.

  3. Anon January 9, 2019 7:07 am

    As to:

    Of course, another problem faced by advocates of the business method exception over the years was that Congress in 2011 specifically wrote business method patents into the Patent Act and even created an entirely new mechanism for challenging this category of patents.

    I have previously noted that Judge Stevens LOST his majority position (which turned his final “bookend” Court decision into a dissent dressed as a concurrence in Bilski) precisely because his writing would have contradicted the direct words of Congress — at the very point that you present here.

  4. Anon January 9, 2019 7:28 am

    As to:

    Everyone could be an inventor. And since business methods had never been patentable, there was a lack of readily findable prior art in the usual databases examiners searched. It led to some questionable patents being issued.

    There are several points to unwind here.

    Not the smallest of which is that the “egalitarian” Supreme Court (with Justices so far removed from any “common man” connection) continues to deem patents as some type of “Flash of Genius,” these things cannot be for everyone mindset. Never mind the historical fact that the great US experiment in innovation protection expressly wanted a patent system reachable by the masses!

    I will take issue with the second sentence and propose that — as understood in a larger context — business methods have always been patent eligible. This larger context is indeed reflected elsewhere in the article in the notion that all manufacturing related items are also business related items, since manufacturing does not happen in a vacuum and is intrinsically linked TO business. One of the first patent to a process of potash manufacure was directly linked to the business of selling potash (and was geared to making that business more profitable).

    I believe that we (again) have an intrusion of the “egalitarian” mindset that anything as “dingy” as business somehow cannot be a driver for something so “hallowed” as a direct Constitutional apportioning of authority to a specific branch of the government to HAVE a patent system. This “egalitarian” intrusion should be seen for what it is: an intrusion of a socio-political policy viewpoint by a branch of the government NOT allocated that type of authority over the simple, direct words of Congress (and being simple and direct, requiring NO “twist” of “interpretation” — which makes the Court intrusion into 101 suspect on its face).

    Finally, as to the lack of readily findable prior art, we have seen this exact same (canard) of “reasoning” applied directly to software innovation! Recall the 1968 (if I recall the year correctly) paper whining about “lack of established database” in regards to this “new thing” called software.

    The elephant in the room — and why this is a canard — is that ALL initial innovation (and especially the type of innovation most valuable – and most threatening to established entities; that of disruptive innnovation) will necessarily have aspects of “not being established.”

    This is the NATURE of innovation!

    If this “argument” were to be given ANY traction whatsoever, we would be allowing an anti-innovation argument to have a foundational effect on the innovation protection and promotion regime. Such would be the antithesis of why we have a patent system.

    As I note here, your writing reflects (and I use “reflect” not as an indicator that you hold these views) an unholy trinity of anti-patent views.

  5. Anon January 9, 2019 9:13 am

    Mr. Cole’s post crossed in the timing delay from the current posting system.

    While he may have a valid observation (if the optional “means” claim format is not being conflated with the use of permissible terms sounding in function outside of that 112(f) option)**, I have to point out that it Is the Court (rather than practitioners) that pursues its agenda through 35 USC 101.

    We should not let any (additional; even if worthy on its own) OTHER arguments shift the focus of what the Court has wrought with its decision to wield a 101 weapon against patentees.

    ** I will also add that while the patent community’s initial focus has been on the Office Federal Register Notice on 101, that it is the other Office Federal Register Notice that should be receiving the focus.

    That other notice is very much along the lines to which Mr. Cole comments, and represents some subtle — but highly significant — shift in the “attack” on claiming with terms of function.

    Innovation in an area such as software, inwhich PHOSITA more naturally sets claims IN terms of function will be disadvantaged.

    While it has been abundantly noted that terms of function permeate MANY art fields (can you say “screwdriver”?), it it the area of software innovation that has been the target of relentless anti-patent propaganda.

    This is one reason why I would push back TO Mr. Cole as to the difference between mere use of terms sounding in function and claims PURELY written in function.

    Modern day innovation and the pure factual ability to express innovation in any number of “wares” for computing innovation WILL BE used as an attack on the ware that is “soft” as that ware is based in a fully recognized NON-purely functional structure of either the computer or the media in which software may be captured – thereby evading references to PURELY and 112(f) even though courts have already misconstrued that reality.

    I look forward to the careful scolding from Mr. Cole on those that perpetuate either the mischaracterization of software as PURELY functional claiming, or on the application of 112(f) tied merely to attacks on a certain mode of innovation.

    Remember what In re Alappat had to say.

  6. Scott Pierce January 9, 2019 11:18 pm

    The word, “concrete” is applied sporadically in court opinions to what we now consider “eligibility,” generally without definition. One apparent use of “concrete” to supply a definition in this context is provided by the Supreme Court in Burr v. Duryee, 68 U.S. 531, 570 (1863) which distinguished ideas from machines (“We find here no authority to grant a patent for a ‘principle’ or a ‘mode of operation,’ or an idea, or any other abstraction. A machine is a concrete thing, consisting of parts, or of certain devices and combination of devices. The principle of a machine is properly defined to be ‘its mode of operation,’ or that peculiar combination of devices which distinguish it from other machines. A machine is not a principle or an idea.”) Burr was relied upon for this purpose in In re Nuijten, 500 F.3d 1346 (Fed. Cir. 2007) which held that a claim directed to a “signal” for embedding “watermarks” into electronic files was not directed to statutory subject matter under 35 U.S.C. 101.

  7. Paul Cole January 10, 2019 4:33 am

    @ Anon 5

    My grouse in State Street is not about the use of functional claiming but about the total lack of support for these functional features in the description.

    If you look at the State Street patent, what you see is a variety of computer programs shown in a block diagram as black boxes. There is no information given whatsoever about how these black boxes should be populated, and no identification whatsoever as to what programs should be selected for the various elements of the overall system as claimed. Anyone investigating 35 USC 112(f) will learn that the functional claim language is permissible, but that the necessary price is the provision of supporting detail for the claimed elements in the description. The supporting detail in State Street is wholly lacking, and it is surprising that this objection was not pursued first since it would have succeeded as a ground of objection and was virtually unanswerable.

    Those who doubt this proposition are invited to read Atmel Corporation v Information Storage Devices 198 F 3d 1374 (Federal Circuit, 1999) where an element disclosed by way of a balck box was saved by a cross-reference to a publication, but only just.

  8. Anon January 10, 2019 7:07 am

    First, Scott, please realize that In re Nuitjen was simply wrongly decided from a physical reality point of view.

    Resting any premise on a case so blatantly wrong is to court disaster for your attempted legal point.

    Secondly, Paul, I really don’t care what your “grouse with State Street” is, so far as the thrust of my comments here have clearly been to. Please read again my comments and note why the bigger picture here (in law) superceeds the grouse that you appear to want to focus upon.

    And to be directly on point with a point that you appear not yet to grasp, the use of language sounding in function is NOT limited to the option of using PURELY functional language in 112(f).

    On another blog, an editor there coined the phrase “Vast Middle Ground.”

    It is critical to distinguish the law as written (the PURELY) from innovation that is claimed in terms of structure and function. Such claims simply are NOT purely functional, no matter what the courts may have said – and I call upon your “penchant” for correcting people to (once again) correct people that may wear robes. I doubt that if students in your class came in to take their finals wearing robes that you would grade them as lax as you appear to want to with people actually wearing robes.

    Most of the time you share solid advice along the lines of “best practice.” But you also have a tendency to NOT be critical at the point at which being critical is critically important.

  9. Scott Pierce January 10, 2019 2:32 pm

    @Anon:

    I am curious as to what attempted legal point you thought I was trying to make.

  10. Anon January 10, 2019 6:50 pm

    Scott,

    Burr was relied upon for this purpose in In re Nuijten, 500 F.3d 1346 (Fed. Cir. 2007) which held that a claim directed to a “signal” for embedding “watermarks” into electronic files was not directed to statutory subject matter under 35 U.S.C. 101.

    The legal analysis of “signal” in the in re Nuitjen case was abysmally wrong from the viewpoint of reality.

    Any legal view that is used to support such an errant view invites disdain. You wanted to lead into that case with Burr, but I have not verified that Burr must lead to that errant conclusion of in re Nuitjen.

    If it does, then it is every bit as suspect.
    If it does not, then the suspect designation stays with in re Nuitjen (and the attempted use of THAT case.

  11. Scott Pierce January 11, 2019 9:20 am

    Nuijten has been cited over 2800 times since it was decided in 2007.

    I was simply observing that the word “concrete” has been cited in the context of eligibility in a Supreme Court case well before State Street, and that this same case was relied upon relatively recently. As I said, “concrete” has been used sporadically and generally without definition. State Street didn’t mention Burr, and Ancora only used the word once, and without any citation for support.

    Gene’s article is about use of the phrase, “useful, concrete, and tangible result,” and, in that context, I simply thought this was an interesting fact that “respectfully added to the discussion,” as requested by Gene, and was worth sharing, and I still think so, regardless of whatever merit or lack of merit there is to Nuijten, either as generally understood or according to anyone’s personal opinion. I don’t think it “invites disdain,” nor should it, and, if making simple observations such as the one I made does so, then I don’t think this is a forum that is likely to be considered “inviting” by many.

  12. Anon January 11, 2019 12:15 pm

    Cited over 2800 times….

    My lord, the error is that big?

  13. Anon January 12, 2019 10:49 am

    Scott,
    The line of reasoning from Burr to in re Nuitjen is not why “In re Nuitjen” is a bad decision.

    That line from Burr is to machines.

    “Concrete” is not a factor, since the egregious error in In re Nuitjen” is not in regards to the machine category discussion.

    It appears that we are cross-talking here.

  14. Anon January 13, 2019 10:51 am

    Scott,

    While not directly salient to the In re Nuitjen case, I would point out that “machine” in relation to Burr need be updated for the modern era in recognizing that software is a machine component (and to extend to the Nuitjen-required correction, a component that is a manufacture by the hand of man DOES serve as being able to differentiate machines.

    See In re Alappat.