The key litigated issue in Bancorp Services, LLC v. Sun Life Assurance Co. of Canada (US) was whether the system, method and medium claims relating to administering and tracking the value of life insurance policies in separate accounts were patent eligible under Section 101 of the Patent Act.

At issue in this case were two patents owned by Bancorp Services, LLC (Bancorp) relating to a system for managing a stable value protected investment plan (the '792 patent and the '037 patent). These patents' specifications disclose:

The asserted claims are directed to:

In 2000, Bancorp sued Sun Life Assurance Co. of Canada (US) (Sun Life) for patent infringement of the '792 patent. In 2009, Bancorp filed an amended complaint adding a claim for infringement of the '037 patent. Before the district court construed the disputed claims, Sun Life moved for summary judgment under Section 101 of the Patent Act, alleging failure to claim patent-eligible subject matter.

The district court evaluated the system and medium claims in the same way as the method claims, finding no material differences among the claims. Employing the machine-or-transformation test to evaluate the subject-matter eligibility of Bancorp's claims, the district court found that:

Based upon these conclusions, the district court held Bancorp's claims were invalid under Section 101 as patent-ineligible abstract ideas and granted Sun Life summary judgment.

In its July 26, 2012 decision, the Federal Circuit affirmed the district court's grant of summary judgment.

Writing for the panel, Circuit Judge Lourie, joined by Circuit Judges Prost and Wallach, noted that for a court to fully understand the character of claimed subject matter, it ordinarily is desirable or necessary to resolve claim construction disputes before analyzing invalidity under Section 101. Despite the district court's decision to rule on validity without construing the claims, the Federal Circuit made that legal determination on appeal.

Focusing its analysis on the issue of subject-matter eligibility, the Federal Circuit agreed with the district court's treatment of the asserted system and medium claims as no different than the method claims for determining patent eligibility, finding no material difference between the categories of claims in the asserted patents.

The Federal Circuit determined that the claims asserted by Bancorp covered abstract ideas, which are not patent eligible. The court reasoned that for a computer limitation to make an otherwise patent-ineligible process patentable under Section 101, the computer must be integrated into the process by facilitating the process in a way that a person could not. Regarding Bancorp's claims, the court concluded that:

The Federal Circuit distinguished this case from its recent decision in CLS Bank v. Alice Corp. (see Legal Update, Federal Circuit Creates More Uncertainty with Latest Patent Eligible Subject Matter Decision). In this case, unlike in CLS Bank, the computer-based limitations contained in Bancorp's claims:

This case is noteworthy because it highlights the continuing confusion the Federal Circuit is creating by its Section 101, subject-matter eligibility decisions. For example, this case is difficult to reconcile with CLS Bank, which the Federal Circuit decided after hearing oral argument in Bancorp Services. Despite the temporal proximity, these cases took different approaches to the subject-matter eligibility analysis. Counsel should review the Supreme Court's decision in Bilski v. Kappos, and subsequent Federal Circuit decisions when evaluating business-method claims under Section 101. For more information, see Practice Note, Patent: Case Tracker: Subject Matter Eligibility for Patent Protection.