Federal Circuit Invalidates Financial Analysis Patent, Suggests Trade Secret Protection

Since the Supreme Court decided Alice Corp. v. CLS Bank International in 2014, companies have had a difficult time patenting software and business methods. I am not a patent lawyer and this is not a patent blog. But a recent Federal Circuit case shows how companies with this type of IP may want to look to trade-secret laws for protection.

Last week, the Federal Circuit decided SAP America, Inc. v. InvestPic, LLC (a pdf of the opinion can be downloaded here). In this case, a judge in the Northern District of Texas granted judgment on the pleadings in favor of SAP, which filed a declaratory-judgment action seeking to invalidate InvestPic’s patent. The Federal Circuit affirmed.

InvestPic’s patent involved a technique that “utilizes resampled statistical methods for the analysis of financial data[.]” InvestPic claims this is superior to typical financial-market forecast methods that rely on the flawed assumption that “financial data follows a normal or Gaussian distribution.” (This reminds me of The Black Swan’s chapter on “The Bell Curve, That Great Intellectual Fraud.”)

Citing Alice, the Federal Circuit invalidated InvestPic’s patent, finding that it was directed to an abstract idea and did not contain an innovative concept.  This is not an uncommon post-Alice result. But at the end of its opinion, the Federal Circuit made a comment that caught my attention:

There is, in short, nothing “inventive” about any claim details, individually or in combination, that are not themselves in the realm of abstract ideas. . . . [P]atent law does not protect such claims, without more, no matter how groundbreaking the advance. An innovator who makes such an advance lacks patent protection for the advance itself. If any such protection is to be found, the innovator must look outside patent law in search of it, such as in the law of trade secrets, whose core requirement is that the idea be kept secret from the public.

Given the current state of patent law, many companies face a dilemma when trying to monetize potentially abstract ideas: make the disclosures necessary to seek a patent and risk having the patent rejected or invalidated, or adopt a business model that allows for trade-secret protection. This is a complicated analysis that involves many business and legal factors.

As the Federal Circuit noted, trade secrets cannot be publicly disclosed, and they must be reasonably protected. Business models can incorporate these restrictions. For example, it may be possible for a company to license its technology and include confidentiality obligations in the licensing agreement. Companies facing this choice need to involve trade-secret lawyers in strategy discussions and decisions.

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