BANCORP SERVICES v. Sun Life Assur. Co. of Canada

Citations: 771 F. Supp. 2d 1054; 2011 U.S. Dist. LEXIS 14272; 2011 WL 665679Docket: 4:00-CV-1073 (CE J)

Court: District Court, E.D. Missouri; February 13, 2011; Federal District Court

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Bancorp Services, LLC holds two patents, U.S. Patent No. 5,926,792 and Patent No. 7,249,037, which detail a system for managing and tracking separate-account life insurance policies tied to Corporate Owned Life Insurance (COLI) and Bank Owned Life Insurance (BOLI) plans. These plans enable corporations and banks to insure employees' lives to fund post-retirement benefits in a tax-efficient manner. The value of these policies is subject to market fluctuations, complicating reporting and making some companies hesitant to engage in such plans. To mitigate this volatility, the patents introduce a mechanism where a third-party guarantor, termed a "stable value protected writer," guarantees a set "book value" for the life insurance policy, irrespective of market value, upon premature payout.

Bancorp alleges that Sun Life Assurance Company of Canada infringes specific claims (9, 17, 18, 28, and 37) of the '792 patent, with claim 9 serving as the primary independent claim. This claim outlines a method for managing a life insurance policy that includes generating the policy, calculating associated fees and values, and storing data. Dependent claims 17 and 37 specify that the steps in claims 9 and 28 are executed by a computer, while claim 18 pertains to a computer-readable medium designed to direct a computer in performing these steps. The case is currently being adjudicated in the United States District Court for the Eastern District of Missouri, with motions for summary judgment filed by both parties.

Bancorp asserts a variety of claims (1, 8, 9, 17-21, 27, 28, 37, 42, 49, 52, 60, 63, 66-68, 72-77, 81-83, 87, 88, 91-95) from the '037 patent, focusing on a life insurance policy management system. Claim 1 outlines a system that includes components such as a policy generator, fee calculator, credit calculator, investment calculator, policy calculator, digital storage, and a debitor for fee management. Other independent claims describe various systems for managing life insurance policies and controlling related computer functions. Claims 9, 28, and 52 detail methods for managing such policies, with dependent claims adding features like targeted return calculations and fee adjustments.

Defendant Sun Life contends that these claims do not qualify as patent-eligible subject matter under § 101 of the Patent Act, referencing the Bilski v. Kappos case, arguing that they are abstract ideas rather than patentable inventions. 

The legal standard for summary judgment under Rule 56(c) of the Federal Rules of Civil Procedure requires that the court evaluate facts favorably for the non-moving party, with the burden on the moving party to demonstrate the absence of genuine issues of material fact. If the moving party fulfills this requirement, the non-moving party must present specific evidence to show a genuine issue exists. Summary judgment can be granted if a party fails to establish an essential element of their case, per Celotex Corporation v. Catrett.

Lastly, § 101 of Title 35, U.S. Code delineates what can be patented, including processes, machines, and compositions that are new and useful.

Congress intended for patent laws to have a broad scope, as indicated by the expansive terms used in the statute. The Supreme Court has delineated three exceptions to patent eligibility under § 101: laws of nature, physical phenomena, and abstract ideas, which cannot be patented since they are foundational tools for scientific and technological work. Bancorp contends that Sun Life must provide clear and convincing evidence to establish invalidity, but the question of whether claims lack statutory subject matter under § 101 is a legal issue. Bancorp argues that Sun Life's motion is premature, citing incomplete claims construction, with Bancorp proposing limited constructions for specific terms of the '792 patent and Sun Life proposing numerous constructions. For means-plus-function claims, Bancorp asserts that the Court should consider the underlying structure as computer components, while Sun Life argues these claims must be tied to the disclosed algorithm. This aligns with the law establishing that a computer-implemented means-plus-function term is limited to the disclosed structure and its equivalents. If no corresponding structure is disclosed, the claim fails to meet the definiteness requirement. The Court plans to address Sun Life's § 101 arguments before completing claims construction, noting that it is not mandatory to finalize claims construction prior to reviewing patentability. The Court finds the patent terms clear and does not see any reasonable construction that would render them patentable. Additionally, Bancorp's argument that there is a significant distinction between 'process' and 'system' claims is rejected, as 'system' is not listed among the patentable subject matter categories in the statute.

To obtain a patent, an invention must be a new and useful process, machine, manufacture, or composition of matter, as outlined in 35 U.S.C. § 101. The claimed subject matter must fit into at least one category of statutory subject matter, and the particular focus here is on process claims, which are defined under 35 U.S.C. § 100(b) as including methods and new uses of known processes or materials. 

In Bilski v. Kappos, the Supreme Court reviewed a process claim related to hedging investments in the energy market. The Federal Circuit had ruled the patent invalid under the 'machine-or-transformation' test, which determines patent eligibility based on whether a process is tied to a specific machine or transforms an article into a different state. The Supreme Court concurred that the patent was not eligible under § 101 but based its decision on the grounds that the claims were attempts to patent an abstract idea, specifically the concept of risk hedging, which is not patentable. This ruling emphasized that allowing a patent on such an abstract idea would unduly restrict its use across various fields.

The Court clarified that while it disagreed with the Federal Circuit's assertion that the 'machine-or-transformation' test was the sole test for process patent eligibility, it remains a valuable tool for assessing whether an invention qualifies as a process under § 101. Subsequent rulings have affirmed the continued relevance of this test in evaluating patentability. The U.S. Patent and Trademark Office (USPTO) also recognizes the 'machine-or-transformation' test as a significant indicator of patentability post-Bilski.

The Guidance is regarded as persuasive authority and outlines factors for patent examiners to consider when evaluating if a process claim should be rejected as an abstract idea. Key factors favoring patent eligibility include satisfying the machine-or-transformation test or demonstrating practical application of the abstract idea. Conversely, factors against patent eligibility do not meet these criteria. The USPTO emphasizes that method claims should involve a specific machine rather than any machine, and the machine's role must be more than nominal. Claims involving the transformation of a specific article are more likely to be patentable than those involving general transformations, especially when the transformed item is tangible rather than conceptual.

The Board of Patent Appeals and Interferences (BPAI) has consistently applied the machine-or-transformation test in determining claims related to abstract ideas, as seen in various cases where claims were rejected for lacking patentability under § 101. The machine-or-transformation test is affirmed as a relevant tool for assessing abstract ideas' patentability.

In examining the precedent cases from the Pre-Bilski Trilogy—Benson, Flook, and Diehr—the Bilski majority concluded that the claimed hedging method was invalid as it pertained to an abstract idea. The Supreme Court's decision in Benson highlighted the rejection of a patent application involving a method for programming a general-purpose computer, where the process was characterized as a generalized formulation for solving mathematical problems, lacking the requisite specificity for patent eligibility.

Programs can be developed from generic formulations into specific applications. The method in question altered traditional arithmetic operations by rearranging steps, modifying the representation of multipliers, and calculating subtotals after each operation. This process could be executed by existing computers or entirely without them. The Court found the claim to be abstract, potentially covering a wide range of applications, including diverse scenarios from train operations to legal research, and noted that it could be performed with any current or future machinery, or without any machinery. The Supreme Court denied a patent that would effectively monopolize a mathematical formula and thus the algorithm itself.

In Parker v. Flook, the patent involved a method for monitoring variables during catalytic processes, which included a new approach to updating alarm limits through an algorithm. While the claims described a broad range of potential uses, they did not preempt the mathematical formula entirely, distinguishing it from the precedent set in Benson. However, the Court rejected the idea that adding specific post-solution activities could render an unpatentable principle patentable, emphasizing that an arbitrary post-solution step could not transform a mathematical formula into a patentable process.

The Court clarified that while laws of nature or mathematical algorithms themselves are not patentable, a novel and useful structure that utilizes scientific knowledge may be patentable. In Diamond v. Diehr, the Supreme Court analyzed a rubber curing process that used a mathematical formula to determine cure time, highlighting that the process involved continuous temperature measurements and recalculations, which allowed for practical application beyond just the formula itself.

The patent examiner rejected the claims under Benson, asserting they defined a computer program for operating a rubber-molding press. The Supreme Court overturned this rejection, ruling that the claims actually described a physical and chemical process for molding rubber that incorporated a mathematical equation and a computer. Unlike previous cases (Benson and Flook), the applicants did not seek to patent a mathematical formula or preempt the Arrhenius equation's use, but aimed to limit its use alongside the full process they claimed.

The key issue for the Court was whether the patents claimed a patentable 'process' or an abstract idea. The Court planned to first evaluate the claims against the machine-or-transformation test and then analyze their abstractness using precedents from Bilski, Benson, Flook, and Diehr. It was emphasized that not all patents mentioning a machine or transformation satisfy this test; any such mentions must not be reduced to mere 'insignificant post-solution activity.'

The patents in question were not deemed tied to a specific machine, as the definition of a 'machine' requires it to be a concrete assembly of parts or devices that performs a function. The claims of the '792 patent involved steps like generating and calculating various insurance-related values through a computer, while the '037 patent mentioned similar steps with references to a generator and calculators. However, these machines were characterized as general-purpose devices, lacking specific structural limitations that would differentiate them from generic computers. Consequently, the claims were viewed as potentially invalid due to their failure to demonstrate a unique application beyond general computing processes.

Bancorp's argument for patent eligibility under the machine prong relies on Ex Parte Moyer, which involved a method and system for generating immediate values by a processor. The BPAI distinguished Moyer from other cases, noting that it was not simply a mathematical formula but involved a specific combination of elements in a data processing system. In contrast, Bancorp's patents focus on making and storing calculations, which Moyer does not address. The mention of "computer readable media" does not meet the machine requirement of § 101, as merely citing data or instructions on such media does not render a claim statutory. Furthermore, the tasks associated with managing a life insurance policy can be performed manually, indicating that the claims do not satisfy the machine prong of the machine-or-transformation test. Bancorp's assertion that terms like "storing" tie the claims to a physical apparatus is ineffective, as these actions are mere data handling and do not specify a distinct machine beyond a general-purpose computer.

Regarding transformation, a process is patent-eligible if it transforms an article into a different state, but this transformation must be central to the process's purpose. Bancorp claims its process transforms raw data into values, but the Federal Circuit has deemed data gathering as insignificant extra-solution activity that does not make a claim statutory. Bancorp's reliance on In re Abele is misplaced; the relevant invention in that case involved an improvement in computed tomography and was partly deemed invalid due to being directed to a mathematical algorithm. Valid claims in Abele were those that specified physical data, demonstrating that a transformation of tangible objects is necessary for patent eligibility.

The court evaluates the patentability of the asserted claims in light of established precedents. Unlike the valid claims in Abstrax, Inc. v. Dell and Abele, which pertain to physical objects, the claims in question merely convert raw data into more data without representing any tangible entities. The court emphasizes that the processes of fetching and processing data are not patentable, considering them mathematical algorithms rather than innovative processes.

The analysis references the Supreme Court's decisions in Bilski, Benson, and Flook, noting that the claims resemble those deemed abstract in these cases. Bancorp's claims, which involve tracking various values related to a life insurance policy, are fundamentally mathematical calculations and abstract ideas, thus nonstatutory. The court distinguishes these claims from those in Diehr, which were patentable due to their focus on a physical process involving continuous monitoring and assessment.

Bancorp argues its claims are similar to Diehr due to the use of a computer, but the court asserts that mere computer implementation does not confer patentability. The claimed improvements in managing policy values are insufficient to qualify as patentable inventions. Bancorp's reliance on Research Corp. Technologies, Inc. v. Microsoft Corp. is dismissed; that case involved specific technological improvements in image processing, contrasting with the abstract nature of Bancorp's claims. Ultimately, the court concludes that the asserted claims do not satisfy the machine-or-transformation test and remain abstract ideas, thus unpatentable.

The district court initially ruled some claims invalid under § 101 as abstract ideas. However, the Federal Circuit found that the claims sought patent protection for the halftoning process, asserting that the use of algorithms and formulas did not change this classification. Bancorp argued that the presence of hardware elements in its claims made them patentable, citing Research Corp., where hardware was integral to improving digital image displays. The court distinguished this case, stating that Bancorp's claimed hardware was merely insignificant post-solution activity and could not make an abstract idea patentable. Additionally, the court rejected Bancorp's claim that its invention improved computer functioning, asserting it merely facilitated the management of life insurance policies. The court referenced prior cases, indicating that addressing a need in the art does not automatically confer patentability, as exemplified by Bilski, Benson, and Flook. The Supreme Court warned against assuming that a specific implementation of a principle qualifies as patentable subject matter under § 101. Ultimately, the asserted claims failed the machine-or-transformation test and were deemed abstract ideas, leading to the granting of summary judgment for defendant Sun Life Assurance Company, with all other pending motions denied as moot.

The majority found that there should not be a blanket rule deeming all business methods ineligible for patent protection. A new process, rather than just a new algorithm, is required for patentability. The novelty of the mathematical algorithm itself does not influence eligibility; it is considered part of the prior art irrespective of its known status at the time of invention. A specific patent, U.S. Patent No. 7,734,898, issued on June 8, 2010, falls under Class 712, which pertains to electrical computers and digital processing systems. This classification includes various components of processors and digital data processing systems, such as individual complete processors and multiple processors. Further details can be found in the United States Patent and Trademark Office's Manual of Patent Classification.