The US court responsible for hearing patent appeals is showing fresh signs of disarray over the question of when software-based "inventions" can be patented. We recently covered a decision by the United States Court of Appeals for the Federal Circuit that upheld a patent on the idea of using a computer to perform a particular kind of financial transaction. Now, just a couple of weeks later, the same court has reached the opposite conclusion about a patent on using a computer to manage a particular type of life insurance policy.

The patent in question dates to the late 1990s and is held by a firm called Bancorp Services. Because the courts have traditionally been skeptical of "business method" patents that merely claim a sequence of financial transactions—the Supreme Court invalidated one such patent in 2010, for example—Bancorp's patent also claims a "system" for carrying out the necessary steps using a computer. It consists of a "policy generator," a "fee calculator," a "credit calculator," and so forth.

A similar gambit paid off for Alice Corporation, the firm whose patent was upheld by a two-judge majority of the Federal Circuit earlier this month, albeit over the objections of a dissenting judge. But a different set of judges from the same court were not as impressed by Bancorp's claim that tying its idea for a new type of life insurance policy to a computer made it eligible for patent protection.

Humans vs. computers

The courts have long ruled that "abstract ideas" and "mental processes" are not eligible for patent protection. And that has implications for the patentability of software.

"Prior to the information age, a 'computer' was not a machine at all; rather, it was a job title: 'a person employed to make calculations,'" the Federal Circuit wrote. "Those meanings conveniently illustrate the interchangeability of certain mental processes and basic digital computation, and help explain why the use of a computer in an otherwise patent-ineligible process for no more than its most basic function—making calculations or computations—fails to circumvent the prohibition against patenting abstract ideas and mental processes."

The court reasoned that Bancorp's patent, which envisions a computer making calculations required to administer a life insurance policy, doesn't qualify since the same calculations could have been performed by a human being.

But wait, doesn't the same point apply to all computer calculations?

"To salvage an otherwise patent-ineligible process, a computer must be integral to the claimed invention, facilitating the process in a way that a person making calculations or computations could not," the court held. "The computer required by some of Bancorp’s claims is employed only for its most basic function, the performance of repetitive calculations, and as such does not impose meaningful limits on the scope of those claims."

In contrast, the court held, the use of a computer played a "significant part" of the Alice Corp. invention the court upheld a few weeks earlier. And, according to the court, that patent claimed only a "very specific application" of the underlying mathematical formula.

Clear as mud

This doesn't make much sense. Every computer application, no matter how sophisticated, consists of nothing more than "the performance of repetitive calculations."

And the distinction the court is trying to draw between the Bancorp and Alice patents is extremely murky. It's probably true that the financial transactions described in the Alice patent are slightly more complex than those in the Bancorp patent. But the difference between the patents, complexity-wise, seems modest. Figuring out which mathematical calculations are complex enough to merit patent protection is going to be a huge headache for the courts in the coming years.

At root, the judges of the Federal Circuit appear confused about how computers work. They seem to believe that computers have both a "basic function" of performing "repetitive calculations" and more complex computations that can't be done with pencil and paper. For example, the court ruled last year that a software invention was eligible for patent protection because it "required the manipulation of computer data structures." But a "data structure" is just a way of organizing basic numbers and symbols. Performing calculations on data structures might be more tedious than ordinary arithmetic, but it's entirely possible to perform such calculations with a pencil and paper.

This confused understanding of how computers works seems to have caused the court to draw a spurious distinction between mere arithmetic and more elaborate computation that, they imagine, cannot be performed by human beings. But this distinction doesn't make sense in theory and it's making a mess of patent law.