Business Method Patents Online

By William Fisher, Dotan Oliar, Cyrill P. Rigamonti, Alixandra Smith, Geri Zollinger and Elliott Davis

Table of Contents

Introduction
Readings
Examples
Discussion Topics
References

Introduction

As its name suggests, a business method patent grants to its holder exclusive rights to a particular way of doing business.  Until recently, it was widely assumed that business methods were not patentable due to the judicially created "business methods exception" to patentability.  As a result, firms enjoyed only limited intellectual property protection against imitation of their business strategies by competitors.  To the extent that they managed keep their strategies secret, they could rely on trade secret protection, which prevents competitors from using trade secrets obtained by "improper means."  In practice, however, most business strategies could not be effectively concealed, and competitors were thus free to mimic them.  The 1998 decision by the Court of Appeals for the Federal Circuit in State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998) altered this situation dramatically.   The Court did away with the "business methods exception" to patentability and upheld a patent on a software program that was used to make mutual-fund asset allocation calculations. 

In the wake of that decision, companies have been seeking -- and obtaining -- business method patents at a remarkable pace. It is difficult to determine exactly how many business method patents have been issued, however, as such patents can be classified in a number of different ways. Generally, patent class 705 -- which covers, in part, data processing for business practice -- is considered a good proxy for business method patents, as the majority of such patents are filed under this category (and especially given that methods of doing business online tend fall under this category).[1] The U.S. Patent and Trademark Office (USPTO) reports that, in 1998, there were 1340 class 705 patent applications, and 420 such patents were issued.  In 2000, applications for business method patents rose dramatically to 7800, with 899 such patents issued.  In 2001, applications increased again (8700), but the number of issued patents decreased sharply (433), probably as a result of the USPTO's heightened attention to the "quality" of business method patents. Over the last few years, this trend has continued, with about 6300 class 705 applications each year, and only 500 or so issued annually. Since a large percentage of those patents involve methods of doing business online, they merit our attention.

The frenzy over business method patents is by no means confined to the United States.  Both the European and Japanese Patent Offices, which together with the United States cover 83% of all patents worldwide as of 2000, similarly recognize some form of the business method patent. However, while the Japanese have embraced the concept (albeit with stricter patentability standards), there remains a strong movement within Europe to reverse earlier policy decisions and eliminate business method patents altogether.  Many other countries are in the process of forming their policy toward this new category of patents.  Meanwhile, controversy over business method patents in the United States has begun to die down; while the process for obtaining a business method patent was recently made more rigorous, legislative challenges to the availability of such patents have proved unsuccessful.  In sum, business method patents are here to stay (at least in the United States), but their availability or character may continue to change.

Readings

Note:  The following materials assume an understanding of the main features of patent law.  If you are unfamiliar with this field, you might find helpful the attached brief summary or the more extensive outline provided by Michael Neustel.

Defining and Enforcing Business Method Patents

Business method patents (hereinafter "BMPs"), like all other patents, are defined by their claims -- the language, typically resulting from a tug of war between the patent applicant and the patent examiner, that identifies the products or processes to which the patentee can lay exclusive claim.  In the context of patent litigation, the judge will have to interpret those claims, which is – due to the importance and difficulty of claim interpretation – usually done in a separate hearing, called a "Markman" hearing (named after the Supreme Court's decision in Markman v. Westview Instruments Inc., 517 U.S. 370 (1996)). In the past few years, federal courts, when engaged in Markman hearings, have often interpreted BMPs fairly broadly.  Here are two examples:

o                    E-Data had a patent on remote imprinting of information into material objects (such as songs into records) at points of sale, arguably a significant improvement on the traditional method of centrally producing such objects with the information, and shipping them to points of sale. This new way of doing business saved both the cost of the shipping mechanism, and the costs of over- and under-production that stemmed from the need to estimate demand at points of sale initially and produce accordingly. E-Data sued 18 defendants, who distributed information by way of download via the Internet, rather than sale of content on floppy disks or CD-ROMs, for infringement.  Judge Jones of the Southern District of New York interpreted E-Data's claims narrowly, so as to exclude most forms of electronic commerce and then dismissed the case without making any findings of fact.  On appeal, the U.S. Court of Appeals for the Federal Circuit – the court with exclusive appellate jurisdiction in patent cases – determined that the district court had adopted an excessively narrow interpretation of the patentees' claims.  The Federal Circuit therefore remanded the case for further proceedings.

o                    The dispute between Amazon.com and Barnesandnoble.com -- the most famous of the BMP cases -- also involved, among other things, a Markman hearing.  Amazon.com was granted a patent for a "1-click" e-commerce ordering system, which enabled a repeat customer to purchase an item with a single click of his or her mouse (i.e., without having to provide his or her address, shipping preferences, credit-card number, etc.).  Relying on this patent, Amazon.com sought to prevent its competitor, Barnesandnoble.com, from employing a similar system.  The district court found that Amazon had shown "a likelihood of infringement" by Barnesandnoble.com and consequently issued a preliminary injunction.  The Federal Circuit approved the District Court's generous interpretation of Amazon's patent. However, (for reasons considered in the next section), the appellate court found that Barnes and Noble had raised sufficient questions concerning the validity of the patent that the issuance of the preliminary injunction was improper.[2]

Legal Controversy over Business Method Patents

For lawyers, the key question is whether business method patents are patentable under the United States Patent Act of 1952, as amended.  As a general matter, inventions must be statutory subject matter and need to be useful, novel, and nonobvious in order to qualify for patent protection.  Each of these requirements will be addressed below.

Statutory Subject Matter and Utility: Can I patent this?
35 U.S.C. § 101 defines patentable subject matter as to include any process, machine, manufacture or composition of matter.  The U.S. Supreme Court has construed this provision broadly by establishing the principle that "anything under the sun that is made by man" is potentially patentable (see Diamond v. Chakrabarty, 447 U.S. 303 (1980)).  Laws of nature, natural phenomena, and abstract ideas, however, are unpatentable (Diamond v. Diehr, 450 U.S. 175 (1981)) -- the first two because they are not man-made, and the third because abstract ideas, by themselves, are not useful.

Computer-implemented business methods were traditionally considered to be outside the scope of patentable subject-matter for two reasons.  First, software programs of all sorts were, for many years, considered unpatentable, because they were thought to be merely elaborate mathematical algorithms, a sub-category of abstract ideas.  Second, courts had developed another exception to patentability, namely that business methods were not patentable.  The State Street Bank decision changed the law in both respects.  As to the mathematical algorithm exception, it followed a recent line of cases (e.g., In re Alappat , 33 F.3d 1526 (Fed. Cir. 1994)) which rejected the traditional view and instead took the position that an algorithm is reduced to a practical application and produces a useful, concrete and tangible result.  As to the traditional understanding that business methods were not patentable, the State Street Bank court went even further by laying to rest what it described as the "ill-conceived" business method exception to patentability.  Applications for patents on business methods, the Federal Circuit held, did not differ from applications for patents on other processes.  The United States Supreme Court refused to review the ruling, and the following year, the Federal Circuit reiterated its position (see AT&T Corp. v. Excel Communications, 172 F.3d 1352 (Fed. Cir. 1999)).  As a result, computer-implemented ways of doing business can now be patented in the United States.

Novelty and Nonobviousness: Haven't we seen it somewhere before?
Much of the controversy over BMPs is fueled by the impression that the USPTO issues patents on old methods of doing business that are now being implemented on the Internet.  Critics often express the concern that the BMPs issued by the USPTO are of "bad quality," which is to say that many patents are invalid due to lack of novelty or due to obviousness in view of the prior art.  A notorious example is U.S. Patent No. 6,329,919 (issued to IBM on December 11, 2001) entitled "System and Method For Providing Reservations for Restroom Use."  Its broadest claim reads as follows: "A method of providing reservations for restroom use, comprising: receiving a reservation request from a user; and notifying the user when the restroom is available for his or her use."  Although this patent has been disclaimed by IBM, in the meantime, it is an illustrative example of the frequently raised claim that many business method patents are actually invalid.

The legal provisions underlying these claims are two further statutory requirements for patentability, namely novelty (embodied in 35 U.S.C. § 102) and nonobviousness (embodied in 35 U.S.C. § 103).  As a general matter, "novelty" means that the invention must contain something not already reflected in the body of prior art.  The mere fact that the invention was not anticipated, however, does not suffice.  The invention also has to be "nonobvious," which means that its subject matter would not have been apparent to a person having "ordinary skill in the art" at the time the invention was made (see Graham v. John Deere , 383 U.S. 1 (1966)).  An examiner can infer the obviousness of a BMP from established business practices, or from the automation of known practices normally done manually.  Once the examiner makes a prima facie case of obviousness, the applicant has the opportunity to rebut it in any of several established ways.[3]  Even if the patent applicant succeeds and ultimately obtains a patent, the issues of novelty and nonobviousness may be raised anew later during the lifetime of a patent.  For instance, if the patentee subsequently attempts to enforce the patent in court, the defendant may invoke invalidity of the patent as a defense.  A successful argument of this sort enabled Barnes & Noble, in the case described above, to persuade the Federal Circuit to overturn a preliminary injunction that had been granted to Amazon.com to protect its "one-click" checkout system.  The case was later settled.

To make a claim of invalidity based on either lack of novelty or obviousness, the patent examiner must first identify relevant "prior art."  The USPTO has had a difficult time identifying prior art in business method cases.  Since companies kept their business methods secret until recently, the USPTO's traditional printed resources (such as patents, journal articles, academic dissertations, company literature, etc.) are not good sources of prior art for this type of patent application.  Additional difficulties arise from the fact that, whereas patent office examiners are highly skilled in some fields of technology (e.g., electrical and/or computer engineering), they are not required to have any background in business -- thus examiners may not necessarily recognize or know where to look for established practices in different business environments. Faced with these problems, the USPTO sought to solicit public input on how to improve their prior art databases. Based on the feedback it received, issued a prior art memo for class 705 in 2002 that helped clarify what can serve as prior art for business method patents, and detailed changes that the USPTO has implemented to improve identification of prior art.

Policy Aspects of Business Method Patents

What is the Role of the Legislature?
In April 2001, Democratic representatives Howard Berman (CA) and Rick Boucher (VA) introduced the Business Method Patent Improvement Act of 2001.  Although the Act was not passed, it is an example of how one could address some of the perceived shortcomings of the current business method patent practice.  In an attempt to ensure the high quality of newly-issued BMPs, the Act proposed to create an administrative opposition proceeding that could have been initiated by anyone within 9 months after a patent issued – a faster and cheaper alternative to litigation.  The Act would have required publication of all BMPs 18 months after filing, and would have allowed the public to submit relevant prior art to any published application.  The bill also would have lowered the burden of proof for challenging business method patents, required the applicant to disclose his or her prior art search, and created a rebuttable presumption that a business method invention constituting a non-novel computer implementation of a pre-existing invention is obvious, and thus, not patentable.

Hearings conducted by the Subcommittee on Courts, the Internet, and Intellectual Property indicate that it is unlikely such legislation will be revived. The general tone of the hearings indicated a consensus that a number of the problems that arose when business method patents were initially introduced -- concerns about quality and the availability of prior art, for example --  are the same problems which initially accompanied the patenting of software and genetically engineered products. Over time, several practitioners testified, these problems were reduced as the scope of the patentable subject matter became better defined, and as understanding and availability of prior art improved. The committee determined to “deal with some of these discrete issues involving quality and process” and “make the system better,” rather than treating business method patents in the sort of substantively different fashion as the Act had suggested.

Is the Quality of Business Method Patents Suspect?

As discussed earlier, one policy argument against granting business method patents has been that the quality of such patents -- due to a lack of novelty or due to obviousness in view of the prior art -- is poor.  Certainly, some of the initial patents (including the IBM “restroom” patent) were markedly overbroad.  In an article entitled “As Many As Six Impossible Patents Before Breakfast: Property Rights for Business Concepts and Patent System Reform”, leading intellectual property scholar Robert Merges – a self-described “agnostic” as to whether or not business method patents are worthwhile – details some of these arguments. His conclusion, in the spring of 1999, was that the patent office was ill-equipped to handle the influx of business methods patent applications, and he offered a number of suggestions about how the USPTO might improve its procedures regarding such applications.

 

However, a recent study of business method patents by John Allison (a professor of law and business at the University of Texas-Austin), and Emerson Tiller (a professor at the Northwestern School of Law) indicates that the quality of such patents may far better than initially thought.[4]  The study measured “patent quality” with a rubric that included considerations of novelty and number of prior art references.  After examining hundreds of Internet-related business method patents and comparing them to 1,000 randomly-selected patents issued in the same time period, the authors concluded that their “data demonstrate[s] that Internet business method patents were no worse than patents in general in the late 1990s … [and, in fact] our empirical evidence suggests that they may have been better than average.”  While the authors admit that the study in no way proves that business method patents are a “godsend” and that it will take time before it becomes clear how valuable these patents actually are, “efforts to treat them differently upon entry to the patent system will be ineffective at best and counterproductive at worst.”  For additional information, consider a similar empirical study published by MIT’s Sloan School of Business.

 

As indicated above in the discussion of recent legislative hearings on this subject, the position taken by this Allison/Tiller study seems to be gaining credibility among practitioners and legislators alike, although the debate about business methods patent quality continues. It remains to be seen whether procedures instituted by the USPTO (including the “second examination”) in combination with improvements in prior art databases will continue to validate the study’s findings.

 

Change at the USPTO
The USPTO has responded to the public and industry concerns.  On March 29, 2000, it released an action plan to revamp the examination procedures for this class of applications ("Class 705").  It also released a white paper, which outlines its new examination procedures.  Another white paper published by the American Intellectual Property Law Association (AIPLA) proposes similar changes.

One goal of the USPTO is to obtain better information concerning relevant prior art for each application.  To that end, it is hiring and retaining examiners who have significant business experience and expertise.[5]  It is also updating its electronic databases to include non-patent literature (NPL) that would be relevant to this class of patent applications.  The USPTO has additionally been working to establish partnerships with industry associations and corporations to continually address new industry concerns.  The first business methods partnership meeting was held on March 1, 2001.  Approximately 90 participants attended, and identified a number of areas on which to focus discussion in the future.  Among those areas were the potential for different legal standards for different types of inventions, the cost of prosecution under the new rules, and issues surrounding the patenting of non-computer implemented business methods.  To address these concerns, as well as to keep the industry abreast of the USPTO changes, there is now a website exclusively for business method patents.  The most recent Business Methods Partnership meeting took place on May 4, 2005. As noted above, the USPTO has also made efforts to improve prior art databases.

Other procedural safeguards, such as a mandatory second exam for all allowed applications, have been put in place to increase the quality of the issued patents in this class.  The second exam is intended to ensure that the prior art search was conducted correctly and that the scope of the claims is appropriate.  To incorporate these changes, the "Examination Guidelines for Computer-Related Inventions" have been updated (see the revised § 2106 of the Manual of Patent Examining Procedure (MPEP)), and an increased percentage of business method applications will be reviewed by the quality control unit at the USPTO (see Office of Quality Management and Training). Recent legislative hearings have indicated the success of this second exam, and the intent of the USPTO to apply the procedure to other areas of technology.[6]

Business Method Patents and Software
There is a close connection between BMPs and software patents, since many of the business methods that are being patented are implemented with software.  Are these two types of innovation really different from machines, articles of manufacture, and other things on which the patent office has granted patents for hundreds of years?  Some have proposed that business methods (and software) ought to be patented for a shorter period of time.  Unfortunately, this suggestion would most likely violate the World Trade Organization's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs), to which 148 nations, including the United States, are signatories.  Article 33 of the agreement requires utility patent terms to be no shorter than 20 years from the filing date.

 

The International Perspective

The Patent Cooperation Treaty enables inventors to file one single patent application to obtain protection in several different countries.  The PCT application leads to a preliminary prior art search, which results in a provisional assessment of the patentability of an invention.  However, countries are not bound by the provisional review that the PCT conducts.  Typically, individual national patent offices also conduct their own assessments – in light of their own legal standards – of the novelty and inventiveness of each application.  In sum, substantive patent law remains national in coverage.  Consequently, the patentability of BMPs is determined on a country-by-country basis.  Here are the ways in which BMPs are handled in a few important jurisdictions:

Canada
In Canada, business methods are not officially patentable.  See Lawson v. The Commissioner of Patents (1970), 62 C.P.R. 101. The Lawson decision states that for an invention to be patentable it must "be one that offers some advantage which is material, in the sense that the process belongs to a useful art as distinct from a fine art."  The Canadian Intellectual Property Office has interpreted this principle to mean that computer methods or systems that are directed to a useful end result, and are not merely directed to making calculations or to the presentation of an algorithm and its solution, are patentable subject matter.  As a result, some patents for computer software inventions, including computer implemented business methods, have been granted in Canada.  A recent decision involving a method of playing poker, suggests that a process that (a) has a commercially useful result or effect, (b) is a practical application of an idea, and (c) is a new and innovative method of applying a skill or knowledge may be patented (see Progressive Games, Inc. v. Commissioner of Patents, appeal dismissed).  For more information, see the website of Smart & Bigger/Fetherstonhaugh, a Canadian patent law firm.

Russia

No specific provision of Russian patent law prohibits the patenting of business methods as a general rule, but Article 4, paragraph 3 of the Russian Patent Law does prohibit the patenting of (1) business administration and management methods, (2) programs for computer and algorithms, and (3) intellectual operations performance methods. Though (2) would seem to bar patents on any software-based methods, the Russian Patent Office has interpreted the statement in an increasingly liberal fashion. Given a dearth of litigation in the area of business method patents, however, and specifically in the area of Internet-based BMPs, it is unclear exactly how these provisions are to be interpreted. Business methods that do not qualify for patent protection may qualify for protection under trade secret or unfair competition law. For more information, see the website by Gowling.

Japan
Japan has also recently reexamined its procedures for examining BMPs.  The Japanese Patent Office (JPO) has adopted specific policies that make its examination procedures stricter, requiring "more specific descriptions" and a clearer description of the "inventive step" (the analogue to nonobviousness in the United States).  Japan, like the United States, is committed to increasing the "prior art" databases and utilizing industry experts, so that BMP applications with a firm foundation in the prior art, lacking novelty and/or nonobviousness will be denied.  In effect, the JPO has said that business method patents per se are not patentable, unless they fall within the scope of software-related inventions generally and have the necessary inventive step required of all patentable inventions. As a result, the majority of Internet-based business methods are patentable in Japan because their claims tend include a software component. For more information, see the report entitled “Patentability of Business Methods in Japan Compared with the US and Europe” presented at the USPTO in November 2003 by a Japanese patent attorney, Hideo Furutani.

Europe
The European Patent Office (EPO) has historically not granted patents for either computer programs or business methods, because Art. 52(2)(c) of the European Patent Convention (EPC) specifically says that "methods for ... doing business, and programs for computers" shall not be considered inventions within the meaning of the EPC.  However, following a number of EPO Boards of Appeals decisions, which construed this provision narrowly, the EPO amended its Guidelines for Examination in the EPO to extend patent protection to software that is of a 'technical nature' or that has the character of a 'concrete apparatus.' Computer implemented business methods that lack a 'technical effect' and only process data are, therefore, still not patentable.  However, if the computer program brings about a technical effect beyond the mere electric pulses inside the computer – such as the control of an industrial process or speeding data-transfer rate – it may be patented.

There remains a strong movement in Europe to outlaw business method patents (as well as software patents) altogether. On September 24^th, 2003, in an attempt to harmonize patent regimes within individual member-states, the European Parliament voted for a proposal that tightened patentability standards for software, and – as a result of a last-minute amendment – explicitly barred business method patents. Arlene McCarthy, one of the members of European Parliament responsible for the legislation, was quoted in the Financial Times as stating that the proposal was intended to “avoid going down the US or Japanese route” of patenting “new … business methods.” It unclear, however, what tangible impact the vote will have. Due to the multitude of last-minute amendments and the ambiguity of some of the provisions, the directive was returned to its working group in December 2003 rather than being forwarded to a council of individual member-states.

In May 2004, the European Union Commission and Council of Ministers agreed on a draft that would reinstate much of the original patent protection stripped from the original proposal, but failed to address explicitly the patentability of business methods.  The Council approved the draft last March, and Parliament will vote on it in early July.  Some do not expect the Parliament to agree with the Council’s draft, since the Commission refused Parliament’s request to withdraw the original draft and start again from scratch.  Should the proposal pass, however, it is unclear what effect it will have on the legality of business method patents.  For more information, see the report entitled “Software and Business Method Patents in Europe,” written by an attorney at Kirkland & Ellis; and the news article “Patents Directive Proceedings Begin Again” from law firm Pinsent Masons.

Trilateral Cooperation
The Trilateral Offices – the USPTO, EPO and JPO – have cooperated since 1983.  They exchange views and information as to patent administration, documentation, classification and examination.  In recent years, after concluding that globalization of industry and trade would soon call for a worldwide patent-grant system, the Trilateral Offices devoted considerable time and effort to examining ways to coordinate and improve their search and examination practices.  In mid-June 2000, the Trilateral Offices convened in a technical meeting to attempt to harmonize their patent practices.   At the meeting, the three offices agreed that a "technical aspect is necessary for a computer-implemented business method to be eligible for patenting" (either claimed expressly by the EPO and JPO or implicitly by the USPTO) and that to "merely automate a known human transaction process using well known automation techniques is not patentable."  This opinion may overstate, somewhat, the extent to which the policies and practices at the three offices are congruent.  The offices agreed that the next stage should be focusing on collaboration in BMP prior art search.  In November 2001, at the end of a program dedicated to this end, the offices concluded that it would be beneficial in the future to exchange information as to search tools, strategies, and databases. Since that time, however, the Trilateral Offices has reported little progress towards these goals. 

 

Examples

Home Gambling Network

Patents have always been issued and enforced on a country-by-country basis.  Since the Internet is a global medium, disparity between different countries' standards for issuing patents give rise to difficult substantive and jurisdictional problems.  Those problems become acute when a website in a country that does not recognize BMPs is alleged to infringe a patent issued in a country that does recognize BMPs.  In one such case, an American judge in Nevada enforced U.S. Patent No. 5,800,268 against an "infringing" website that, in his view, was "targeted to U.S. customers," even though the infringing company was based in the Caribbean.  The assignee of the U.S. patent, Home Gambling Network (now i2corp) was therefore awarded a permanent injunction against First Live Casino, a Caribbean company, which subsequently shut down its business operations.  See Home Gambling Network, Inc. v. First Live Casino et al., Case No. CV-S-98-01506-HDM (RLH) (D. Nev. Feb 18, 2000). 

Interconnectivity

Allan Konrad (from U.C. Berkeley) claimed to own the rights by way of three U.S. patents ('444, '320, and '901) to the manner in which interactive Websites operate.  He contended that his patented methods generically describe a computer user requesting information from a web page and getting it back from a server.  Therefore, he sued 39 corporations in Texas (possibly because Texas courts have the reputation of being sympathetic to claims "off the beaten path").  Three defendants (Motorola, Boeing, and Eastman Kodak) were at one time paying licensing fees, because they concluded that such fees would be cheaper (and less risky) than litigating the issue.  Litigation, however, has not favored Konrad.  The Texas judge ruled that his claims are narrower than he alleged.  Furthermore, in a separate suit brought by Konrad against Netscape, Microsoft, and AOL, a California judge declared his patents invalid altogether.  Konrad appealed, but the Federal Circuit recently confirmed the invalidity of all three patents (see Netscape Communs. Corp. v. Konrad, 295 F.3d 1315 (Fed. Cir. 2002)).

Hyperlinking

British Telecom (BT) claims to own a U.S. patent on hyperlinking technology.  The patent in controversy was filed over 20 years ago (due to a change in the patent laws, it will be enforceable for a few more years).  BT demanded payment for patent infringement from some American Internet Service Providers (ISPs) and filed a suit against Prodigy for infringing this hyperlinking patent.   Some took this action as evidence for the "absurdity of software patents" (see Eurolinux's reaction to the suit).  In a recent opinion, however, a New York judge decided that Prodigy did not infringe BT's patent, among others because the judge concluded that there were substantial differences in operation between the Internet and the patented invention (see British Telecomms. PLC v. Prodigy Communs. Corp., 217 F.Supp.2d 399 (S.D.N.Y. 2002)).

The Banking Industry

Financial institutions have been particularly galvanized by the State Street decision, filing thousands of patents to protect such processes as foreign-exchange transaction systems and stock-option control systems, many of which are partially or wholly Internet-based. As of April 2005, Citibank had been issued 73 patents. Close behind were such corporations as Visa International, with 54; American Express with 50; and Merrill Lynch, with 35. The benefits of acquiring these patents includes prestige, protection of ideas, and incentives for innovation, but maintaining a patent portfolio comes with the downsides of increased litigation and its associated fees.  Recently, the American Banker’s Association created an advisory group with twin goals of investigating concerns regarding BMPs, and aiding the USPTO in its creation of a more extensive prior art database related to business methods in banking.

Recent Patents

The following are three class 705 business method patents issued in early 2004. They provide examples of the sorts of Internet-based methods the USPTO considers patentable:

Patent # 6,681,212:      Internet-based automated system and a method for software copyright protection and sales. This patent provides a method for copyrighting software by placing an encoding device in the software that “restrains” it to use by a designated machine, identified by a corresponding encoding device. If, at any point while the software is running, the encryption in the two devices does not match (that is, if an attempt is made to run the software on any other machine), the software will be shut down and a warning signal will be sent via the Internet. 

Patent # 6,678,685:      Integrated household management system and method. This patent is for an “Internet-based integrated household management system.” Each household has a unique account in which personal data about shopping habits is entered; based on this data, the system delivers targeted product information and promotional offers (and a separate directory allows users to access information that may have been filtered out because of those preferences). The household is also provided with purchase information and purchase incentives based on their profile and buying patterns.

Patent # 6,697,786:     Integrated audiotext-internet personal ad services. The patent covers a method of indicating which personal ads, published in newspapers, also have additional text, audio or video files available via the Internet. That method entails placing a graphical icon next to each ad to indicate the additional files available.

Discussion Topics

1.  What could/should the U.S. Supreme Court do about BMPs?  Thus far, the Court has not yet decided to hear any Internet-related patent cases.  Why do you think it has not?

2.  Sometimes parties choose to settle instead of litigating potentially invalid patents.  Is this practice socially desirable?

3. Should business method and software patents be treated differently from other patents – perhaps by being protected for shorter terms?  Currently, the United States recognizes two other types of patents besides the standard utility patents: design patents (on the way a product looks, as opposed to the way a product works, with a patent term of 14 years after the date of issue) and plant patents (covers new varieties of asexually reproducing plants).  Should BMPs receive similarly special treatment?  Should an agency other than the Patent Office (analogous to the Department of Agriculture in the case of plant patents) control the issuance of such patents?

4.  Imagine that it is September 1999. You are a patent examiner at the USPTO. You are reviewing Amazon.com's one-click patent application.  Your search for prior art has revealed the following (1) There is one grocery store in a small town, which allows patrons to register their address and billing information once.  Patrons are thus able to buy items merely by presenting them to the (only) cashier, without paying or giving any details. The cashier, who recognizes all of her patrons, updates each patron's record and sends accurate bills at the end of each month. (2) It is a common practice among hotels to ask for guests' addresses and credit-card numbers when they check in.  Any goods or services a guest subsequently orders (such as snacks from the mini-bar, room-service, and parking privileges) are charged to her credit card. (3) Many people use credit cards and "debit" cards to buy groceries and other retail items.  A single "swipe" of the card is sufficient to identify such a customer to the retail store and to initiate the billing process.  Against this backdrop, do you find Amazon's patent application to be novel and nonobvious?

5. Consider the online business method patents detailed in “recent patents” (for more information, examine the patent itself via hyperlink). Do these seem novel and nonobvious? From a policy perspective, do these patents tend to support the assertion that the quality of business method patents have improved since they were first introduced in the late 1990s? Or do they tend to indicate that business method patents remain overbroad and poorly delineated?

Additional Resources

General Materials

Patent Law Primer, by NEUSTEL LAW OFFICES, Ltd. – Brief overview of patent law.

General Information Concerning Patents – This resource, created by the American Bar Association, contains a vast amount of general information concerning the application for and granting of patents.  It is written in non-technical language given that its stated audience is inventors, prospective applicants for patents, and students.  In particular, the resource discusses the role of the USPTO, general conditions of patentability, and the parts of a patent.  Moreover, it contains an excellent discussion of the patent examination process.

USPTO Patent Database – This website, maintained by the USPTO, contains a free, fully searchable patent database.

Nolo's legal Encyclopedia – Entry on Internet business method patents.

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U.S. Patent Office, Laws, and Databases

United States Patent Act of 1952 – consolidated version (PDF)

United States Patent and Trademark Office – Main Website

United States Patent and Trademark Office - Business Method Patent Site

Manual of Patent Examining Procedure (MPEP) –  Online version of the entire manual.

National Association of Patent Practitioners –  Website for this non-profit organization dedicated to supporting patent practitioners and those working in the field of patent law in matters relating to patent law, its practice, and technological advances.

A user-friendly USPTO presentation on patentable subject-matter in relation to computer-implemented business methods.

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Protest and Opposition Sites

http://www.bustpatents.com – Gregory Aharonian's web-site.

Protecting Information Innovation against the Abuse of the Patent System –  European protest website.

The Anatomy of a Trivial Patent –  Short column by Richard Stallman, President of the Free Software Foundation.

League for Programming Freedom - An initiative of the Massachusetts Institute of Technology (MIT).

Patently Absurd – Short column by Simson L. Garfinkel, Wired Magazine 2.07.

The Patent Busting Project – A project by the Electronic Frontier Foundation aiming to challenge patents.

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Case Law

In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994) (en banc) - Shaped the requirements for patentability of computer software, and served as a foundation for the State Street Bank case.

State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998) –  The Federal Circuit case that is generally credited with laying the foundation for business method patents.

AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999) –  In this decision, the Federal Circuit reaffirmed its opinion in the State Street Bank case and explicitly stated that "[i]n our recent decision in State Street, this court discarded the so-called 'business method' exception and reassessed the 'mathematical algorithm' exception."

 

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International Materials

Strategic Concerns When Pursuing Foreign Patents In The Computer Arts – Details about filing patents in foreign countries.

Basic Patent Cooperation Treaty (PCT) Principles – Section 1801 of the Manual of Patent Examining Procedure describes the general principles behind the PCT.

Basic Facts About the Patent Cooperation Treaty (PCT) –  Information on the PCT from the USPTO's website.

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