“Non-Statutory Subject Matter”:  Those are the dreaded words in a 101 rejection.  What they mean is that you are trying to get a patent on something the government doesn't give patents on.  If you can't get past this threshold, there is no point in even asking the question as to whether or not your invention is new, useful or not obvious.  Even if it is, you can't get a patent on it.

101 rejections used to be rare, now they are almost guaranteed in business methods.

When an examiner rejects a claim based on non-statutory subject matter, he/she starts off the office action with a form paragraph that reminders the inventor of the threshold all inventions must cross in order to be patent eligible:

35 U.S.C. 101 reads as follows:

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requires of this title.

This is followed with the declaration that “because the claimed invention is directed at non-statutory subject matter” the claims are rejected.  The phrase “non-statutory” means “it's not in the law”.

The law provides for only four things (as noted in the above quote) you can get a patent on: a “process”, “machine”, “manufacture”, or “composition of matter”.  An invention in the field of insurance or broader financial services will, typically, be in the first of these categories, a process.

Not just any process qualifies, however.  The examiner will continue in the office action with an indication of what sort of processes qualify:

In order for a process to be considered statutory under 35 U.S.C. 101, the claimed process must either: (1) be tied to another statutory class (such as a particular apparatus) or (2) transform underlying subject matter (such as an article or materials).

This is the so called “machine or transformation” test.  Financial inventions generally don't transform anything in the sense of, for example, literally changing lead into gold – although, metaphorically, that's often exactly what they do.  Instead, they must be “tied” to another statutory class.  The only other statutory class that is normally available is a “machine”, such as a computer – hence the name “machine or transformation test”.

Insurance & Computers 

A computer is a machine which, notably, transforms data physically stored in memory circuits in the computer hardware into transformed versions of the data physically stored in other memory circuits.  A process for doing this transformation exists in computer programming code which serves to instruct a general purpose microprocessor what to do.

All insurance and all financial services processes rely in some way for at least a portion of the work they do on computers.  This may not have always been the case but in the modern world in which we all now live the insurance or financial services we rely on, expect, demand, or depend on would be impossible without computers. 

Insurance companies, banks, and other financial service providers have huge data processing centers which, process data.  Nearly every desk in the offices housing these companies has a programmable computer on it now where once, in the olden days, stood a Marchant or Frieden calculator.  And, these desk top computers do much more than the old manually operated calculators did.  In fact, they do things the old calculators could never do in a million years – literally. 

It's kind of like this.  You can make a phone call with two tin cans and a piece of string.  You just yell at your buddy to pick up his can, pull the string taut, and begin to talk.  And, to think of it, you might have been able to patent that technology if you had invented it since there is a lot of science involved.  But modern times are more demanding and a tin can phone was never really more than a novelty.  Cell phones do the same thing only much, much, much better. 

Just as communication processes have leaped tall buildings, so too has computing technology.  You can do today on computers things that could not be done without computers.  Actuaries can run proprietary programs on desk top computers to price or value insurance products more exactly than they could ever do on the old Marchant – or Frieden, if taking a square root was involved.  Insurance companies can process data, claims, bill premiums, keep track of clients, and service clients more efficiently.

So, what is the problem with the examiner who tells you that your invention which does one or more of the things that insurance companies must do to stay in business better does not pass the “machine or transformation” test?   Clearly, there is a disconnect someplace.

Lay the Groundwork

What could possibly explain this cavalier treatment of your greatest thing since sliced bread invention?  Clearly, it would have been nice to be able to claim to be the first person to have gotten all claims allowed on the first pass.  The reality, however, particularly with respect to insurance and financial services business method applications, is that the examiner needs more enlightenment before he or she can make the big jump to allowance.  Either you did not explain things well enough in your description in the application or the examiner did not understand what you wrote.  It is, probably, a little bit of both.

One thing an inventor of new insurance processes should ever forget to do is to build into the invention description the obvious – that insurance business methods operate on computers.  They require computers to function in some part or measure.  If an inventor forgets to describe this in the patent application specification, all hope is lost.  But, the good news is that if you have enough money to trot through the Board of Patent Appeals and Interferences and the Court of Appeals for the Federal Circuit on your way to the Supreme Court so you can be as famous as Bernard Bilski.