Breaking New Ground

With all this background in mind, here's why the State Street Bank decision has proved to be such a landmark case. U.S. Patent No. 5,193,056, titled "Data Processing System for Hub and Spoke Financial Services Configuration," was issued to Signature Financial Group Inc. in March 1993. The patent covered a business structure wherein mutual funds (the spokes) pool their assets in an investment portfolio that's organized as a partnership (the hub). This structure allows fund administrators to monitor and record financial information, and make necessary calculations and allocations within the partner fund structure.

State Street Bank & Trust Co. wanted to use Signature's patented business procedure, but its licensing negotiations with Signature failed. Subsequently, State Street sued to declare Signature's patent invalid. In his ruling, Federal Circuit Court Judge Giles Sutherland Rich declared "anything under the sun that is made by man" to be patentable subject matter. He went on to say that the courts should not take it upon themselves to create limitations on what is and isn't patentable.

Additionally, the court also cleared up the mathematical algorithm issue. Courts are now instructed to focus on whether an algorithm is applied in a useful way and not look at algorithms as just abstract ideas.

This article was originally published in the May 1999 print edition of Entrepreneur with the headline: Breaking New Ground.