Legal Definitions - algorithm exception

An algorithm exception is a rule that says you cannot patent an abstract mathematical function, like an algorithm. This rule was first established by the U.S. Supreme Court in 1972 in the case of Gottschalk v. Benson. However, in 1998, the rule was weakened by the State St. Bank & Trust Co. v. Signature Fin. Group case.

The State St. Bank & Trust Co. v. Signature Fin. Group case decided that a machine's transformation of numerical data into a calculated share price was a practical application of a mathematical algorithm. This was because the final share price was a useful, concrete, and tangible result. This means that if an algorithm is used to produce a useful and tangible result, it may be eligible for a patent.

For example, if someone creates an algorithm that can accurately predict the weather, they cannot patent the algorithm itself. However, if they use the algorithm to create a weather forecasting system that is useful and tangible, they may be able to patent the system.