Bancorp Services: Further Fracturing of the Patent Eligibility Landscape for Business Methods and Systems*

Two weeks ago, I wrote about how fractured the Federal Circuit’s patent-eligibility landscape has now become for business methods and systems, as evidenced by the split decision in CLS Bank International v. Alice Corp. Pty. Ltd. See CLS Bank International: A Fractured Landscape of Patent Eligibility for Business Methods and Systems*. In CLS Bank International, I observed that each decision by the Federal Circuit on patent-eligibility under 35 U.S.C. § 101 “appears to hinge completely on the ‘luck of the draw’ as to which Federal Circuit judges make up the respective panel.” The latest ruling by a Federal Circuit panel in Bancorp Services, L.L.C. v. Sun Life Assurance Company of Canada (U.S.) reinforces that view and is yet more evidence of the further fracturing of the patent-eligibility landscape for business methods and systems.

The Bancorp Services case involved two patents, U.S. Pat No. 5,926,792 (the ‘792 patent) and U.S. Pat No. 7,249,037 (the ‘037 patent), relating to methods, systems, and computer-readable media for administering and tracking the value of life insurance policies in separate accounts. Both the ‘792 patent and ‘037 patent share a common patent specification having a priority date going back almost 16 years (September , 1996). Also, this is not the first time the Federal Circuit has grappled with ‘792 patent. There was an earlier 2004 Federal Circuit decision which reversed a grant of summary judgment of invalidity of the ‘792 patent based on “indefiniteness,” as well as a 2008 Federal Circuit decision which vacated a judgment of noninfringement of the ‘792 patent.

Representative independent Claim 9 of the ‘792 patent recites a 7-step method for “managing a life insurance policy on behalf of a policy holder.” Representative independent Claim 9 of the ‘037 patent also recites a 7-step method for “managing a life insurance policy.” As observed by Judge Lourie (who wrote the opinion for the Federal Circuit panel that included Judges Bryson and Wallach), the “plain language of the independent method claims does not require a computer.” Instead, other dependent claims in each of the ‘792 and ‘037 patents recited that the method steps “are performed by a computer.”

The ‘037 patent also included “life insurance policy management system” claims, independent Claim 1 being representative of such system claims. While Claim 1 of the ‘037 patent recites system components such as “policy generator,” “fee calculator,” and “debitor” (these components are not defined by the ‘037 patent and the only structure potentially corresponding to these components is a single computer 2 and a central processing unit 4 shown in FIG. 1), the only clearly identifiable machine/computer component is “digital storage for storing the policy unit value for the current day.” Each of the ‘792 and ‘037 patents also contained “computer readable media” claims “for controlling a computer to perform the steps of the method claims.

The district court granted Sun Life’s (one of the alleged infringers) motion for summary judgment that all of the asserted method, system and media claims were invalid under 35 U.S.C. § 101. First, the district court concluded that there was no meaningful distinction between the method, system, and media claims. Next, after applying the “ghost of abstract idea past” (aka, the “machine or transformation” (MOT) test), the district ruled that the “machine” prong, as well as the “transformation” prong weren’t satisfied by the claimed methods of the ‘792 and ‘037 patents because: (a) the “specified computer components are no more than objects on which the claimed methods operate”; (b) the “central processor is nothing more than a general purpose computer programmed in an unspecified manner”; (c) although inefficient to do so, the “steps for tracking, reconciling and administering a life insurance policy with a stable value component can be completed manually”; and (d) the claimed methods “do not transform the raw data into anything other than more data and are not representations of any physically existing objects.” In fact, the district court analogized the asserted method claims to those found patent-ineligible in Bilski v. Kappos, Gottschalk v. Benson, and Parker v. Flook.

In construing the claims of the ‘792 and ‘037 patents, Judge Lourie’s opinion concluded that the differences in the positions of the respective parties “boils down to whether the claimed systems and methods require a computer.” Judge Lourie’s opinion found that the asserted system claims require “one or more computers,” treating the “generator,” “calculator,” and “digital storage” components as “computing devices.” Judge Lourie’s opinion also found no dispute that the claimed “computer-readable media” were anything other than their “plain and ordinary meaning” (defined in the patent specification as “high density removable storage means” such as a “compact disc”).

But as noted above, like the district court, Judge Lourie found that the method claims did not necessarily require that the steps be performed by a computer, especially given that other dependent claims recited that these steps “be performed by a computer” (relying correctly upon the doctrine of claim differentiation). Then relying upon CyberSource Corporations v. Retail Decisions, Inc., as well as the recent panel decision in CLS International Bank, Judge Lourie concluded that “a machine, system, medium, or the like may in some cases be equivalent to an abstract mental process for purposes of patent ineligibility.” Accordingly, Judge Lourie found that the district court “correctly treated the asserted system and medium claims as no different from the asserted method claims for patent eligibility purposes.”

I find Judge Lourie’s conclusion that there was “no material difference between” the method and media claims, as well as his finding that the method and system claims were “equivalent” for the purposes of patent-eligibility under 35 U.S.C. § 101 to be problematic. That at least some (but not all) of the method claims might arguably be carried out in the absence of a computer cannot be disputed. But as even Judge Lourie agreed, the system and media claims (as well as some of the method claims) were computer implemented. So why did Judge Lourie reach the same conclusion for all three types of claims? Judge Lourie’s answer appears to echo Judge Breyer’s inane statement in Mayo Collaborative Services v. Prometheus Labs about the “draftsman’s art”: “the only difference between the claims is the form in which they were drafted.”

In holding the method, system, and media claims of the ‘792 and ‘037 patents to “cover no more than abstract ideas and therefore do no recite patent-eligible subject matter,” Judge Lourie’s opinion trivializes the relevance of computer implementation in these claims. That’s brought out when he later says that the “interchangeability of certain mental processes and basic digital computation” makes the “use of a computer in an otherwise patent-ineligible process for no more than its most basic function” (i.e., making calculations or computations) inadequate “to circumvent the prohibition against patenting abstract ideas and mental processes.” In fact, Judge Lourie went even further by saying that “a computer must be integral to the claimed invention, facilitating the process in a way that a person making calculations or computations could not” to “salvage an otherwise patent-ineligible process,” citing the 2010 case of SiRF Technology, Inc. v. ITC (method for calculating the position of a GPS receiver satisfied the MOT test). In other words, computer implementation of the claimed business method (or system) must be absolutely necessary to its usefulness to satisfy Judge Lourie’s criteria for reaching the patent-eligibility zone.

In reviewing Judge Lourie’s opinion, Bancorp Services (the patentee) appears to have made a tactical error by primarily relying upon Research Corp. v. Microsoft Corp. for asserting the patent-eligibility of the method, system, and media claims of the ‘792 and ‘037 patents. As Judge Lourie correctly observed, the claimed process in Research Corp. (digital imaging for halftoning gray scale images for computer displays and printers) is significantly different subject matter. In particular, the claimed process in Research Corp. “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” and thus was “dependent upon the computer components required to perform it.” By contrast, as Judge Lourie saw it, in the claimed method of the ‘792 and ‘037 patents, the “computer merely permits one to manage a stable value protected life insurance policy more efficiently than one could mentally.”

Unfortunately, Judge Lourie’s opinion also engages in Mayo Collaborative Services type “claim dissection”: “When the insignificant computer-based limitations are set aside from those claims that contain such limitations, the question under [35 U.S.C.] § 101 reduces to an analysis of what additional features remain in the claims.” Again, such “claim dissection” by Judge Lourie cannot be squared with the Diamond v. Diehr requirement that “the claim must be considered as a whole” under 35 U.S.C. § 101. There is also a regrettable reference in Judge Lourie’s opinion to the claimed method and system of the ‘792 and ‘037 patents “preempting” “the mathematical concept of managing a stable value protected life insurance policy.”

Even worse, Judge Lourie says “our conclusion is not inconsistent with CLS [Bank International] which we decided after hearing oral arguments in this appeal.” But unlike Judge Lourie’s view that computer implementation was essentially irrelevant to patent-eligibility, Judge Linn’s opinion in CLS Bank International relies heavily upon the claimed business method and system there being computer implemented to reach the patent-eligibility zone. In my opinion, there is simply no logical basis for Judge Lourie to say that “our conclusion” in Bancorp Services of patent-ineligibility is “consistent” with the reasoning supporting Judge Linn’s holding of patent-eligibility in CLS Bank International. That’s particularly true because CLS Bank International relies upon the Diehr standard that the claim be considered “as a whole” in judging patent-eligibility, while Bancorp Services obviously does not.

In a pattern repeated all too often by the Federal Circuit panels, nowhere does Judge Lourie’s opinion in Bancorp Services provide (or at least point to) a definition for what an “abstract idea” is when evaluating business methods and systems for patent-eligibility. Instead, Judge Lourie simply concludes that the claimed method and system in Bancorp Services is “an attempt to patent the use of the abstract idea of [managing a stable value protected life insurance policy] and then instruct[ing] the use of well-known [calculations] to help establish some of the inputs into the equation” because the claimed method in Bilski is “an abstract idea [for] hedging risk in the energy market and then instruct[ing] the use of well-known random analysis techniques to help establish some of the inputs into the equation.” Such reasoning by Judge Lourie is simply circular because it never says why “managing a stable value protected life insurance policy” in Bancorp Services and “hedging risk in the energy market” in Bilski are “abstract ideas” in the first place. Even more maddening in my opinion, Judge Lourie never adequately explains why “managing a stable value protected life insurance policy” in Bancorp Services is any more “abstract” than the “trading platform for exchanging business obligations” in CLS Bank International.

In my view, Bancorp Services is simply a continuation of the ever fracturing and chaotic patent-eligibility landscape we have seen since the Bilski decision came out in 2010 when evaluating business methods and systems under 35 U.S.C. § 101. Like CLS Bank International just before it, we are again left to guess by Bancorp Services what is (or is not) an “abstract idea” when it comes to claiming business methods and systems. There is simply no rhyme, or especially reason in these opinions for what is an “abstract idea,” other than a purely subjective “I know it when I see it” standard. We are also frankly reaching a “crisis point” on patent-eligibility determinations for business methods and systems. The Federal Circuit needs an en banc ruling (and sooner rather than later) that provides an objective, logical, and rational standard for evaluating claimed business method and systems under 35 U.S.C. § 101 (and especially defines what is (or is not) an “abstract idea”) before these patent-eligibility determinations become nothing more than the “luck of the Federal Circuit panel draw.”

*© 2012 Eric W. Guttag. Posted July 27, 2012 on


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4 comments so far.

  • [Avatar for patent litigation]
    patent litigation
    July 29, 2012 02:59 pm

    This line of patent cases certainly does seem rather arbitrary and haphazard. It seems to me that, if courts are determining the patent-eligibility of an invention by evaluating whether or not it is an “abstract idea,” then at some point someone needs to offer a satisfactory definition of that term.

  • [Avatar for step back]
    step back
    July 28, 2012 03:28 pm

    Court of **Appeals** for the Federal Circuit.

    The CAFC is supposed to be an **appeals** court, not a court for findings of fact.
    Yet the three judges sitting on this Bancorp panel fancy themselves as expert witnesses on how the human brain works, fancy themselves as expert witnesses on what a “computer” is, and based on these unchallengeable findings after the trial, conclude that what a human brain does and what a computer does are interchangeable carrying outs of abstract mental processes. Ergo, anything done by a computer is abstraction and not subject matter eligible.

    (Moreover, there is no mention whatsoever of 35 USC 112 and the provision therein that it is up to the applicant to determine by way of the claims what the invention is.)

  • [Avatar for EG]
    July 27, 2012 01:31 pm

    “My view is that the court may have acted hastily and made legal error by treating the dependent claims the same as the independent claims.”

    Very true, anon. My concern is that there is a disconnect in how Judge Lourie in Bancorp Services approached the computer implementation issue versus how Judge Linn in CLS Bank International approached this issue. (I favor Linn’s approach.) As I state in my post, Lourie trivializes computer implementation in the method claims and basically says that, unless the computer implementation is virtually mandatory to make the process work, exchanging what could be done manually for computer implementation does not lead to patent-eligibility for the claimed method. And Lourie still doesn’t provide you with a definition of what is meant by “abstract idea” other than by comparison to earlier cases, or adequately explain how the claimed method in Bancorp Services is more “abstract” than the claimed method in CLS Bank International. In my view, both claimed methods achieve a useful, concrete and tangible result.

    If the concern is whether the claimed method potentially could be carried out manually or would cover “mental steps,” then why not a bright line rule (as I suggested in my post on CLS Bank International) that if one or more steps are computer/machine implemented AND you achieve a useful,concrete and tangible result, the claimed method is patent-eligible under 35 USC 101 (and thus not, by definition, an “abstract idea”). That would save squandering so much judicial energy on what I view as the lesser validity concern than whether the claimed invention is novel and unobvious under 35 USC 102/103. My thoughts for what they’re worth.

  • [Avatar for Anon]
    July 27, 2012 12:56 pm


    While there is no doubt a fracture, I think this case is not as fracturing as you might think. It takes some nuance understanding, but this decision does not (fully) go against the recent CLS decision.

    The best comment I have seen so far comes from the other blog and reprinted here (sans snark):

    This case is of limited value and easily distinguished (elements of tax related and reporting of such).

    [ ] The case actually reinforces what has been posted be 101 Integration Expert.

    This case easily falls to the “do it on a computer side (computerized means for is non-integrated, as the means exist in material form outside of the “computerized”) side of the CLS decision (it is in dependent claims that the “computerized” limitation appears – “The plain language of the independent method claims does not require a computer). And later “To salvage an otherwise patent-ineligible process, a computer must be integral to the claimed invention” And also “Here, in contrast, the district court evaluated the limitations of the claims as a whole before concluding that they were invalid under § 101.”

    The post goes on to discuss Beauregard claims and the Courts’ admonitions on “skill of the draftsman.”

    My view is that the court may have acted hastily and made legal error by treating the dependent claims the same as the independent claims. I do believe that in court, each claim can stand on its own (I am not sure if the applicant argued them separately and saved this distinction). A reviewing court may find that the dependent claims requiring a computer(s) may in fact be patent eligible.