In the last couple of years, companies have been filing a phenomenal volume of patent applications with the U.S. Patent & Trademark Office (PTO), and the PTO has been issuing patents in record numbers. During fiscal 1998, the PTO processed an estimated 203,000 patent applications, and issued a record 154,579 new patents. [1] This recent rise in patent applications can be attributed in part to three factors: the Federal Circuit’s July 1998 decision in State Street Bank & Trust Co. v. Signature Financial Group Inc.; [2] the rise of the Internet; and greater patent savviness among companies.

The State Street case afforded the Federal Circuit the occasion, in declaring the patentability of Signature Financial Group’s "hub and spoke" method and system for managing mutual funds, to narrow the scope of the prohibition on patenting "mathematical algorithms" and to lay permanently to rest the already moribund prohibition on patenting "methods of doing business." Although many patents had issued covering methods of doing business before the State Street decision, that decision greatly increased the awareness of the possibility of patenting methods of doing business or "business models." This new awareness, coupled with the meteoric rise of the Internet in the last few years and the new business models that it has engendered, has led to a rising tsunami of patent applications seeking to cover new business paradigms and methods. Because most modern business models are implemented and managed through software systems, there has been a corresponding rise in the filing of so-called "software patents." Indeed, the patent at issue in State Street was a software-based method and system for managing mutual funds.

In the months since the State Street decision was handed down on July 23, 1998, the effect of that decision on the numbers and types of patent applications filed has been both swift and palpable. The Acting Commissioner of the PTO, Q. Todd Dickinson, stated recently that in the past year the number of applications with claims similar to those at issue in State Street increased over 40 percent. He also reported that during fiscal year 1998, the PTO expected to issue over 300 "business method" type software patents. [3] Indeed, the number of issued software patents in general has skyrocketed. Software patents are examined in the PTO’s data processing and computers and communications group. That group had the largest increase in issued patents last year, up 40% to 22,930 issued patents. "Internet" patents also escalated from nine issued in fiscal 1991 to 1,595 in fiscal 1998. [4] In 1998 alone, there was an increase of more than 500% in the number of Internet-related patents over 1997. [5]

B. Electronic Commerce Patents

        1. Advertising Methods

        5,794,210
        Title: "Attention Brokerage"
        Priority Filing Date: Dec. 11, 1995
        Issue Date: Aug. 11, 1998
        Held By: Cybergold, Inc. (Berkeley, Calif.)

Synopsis: Covers a method for compensating computer users for paying attention to an advertisement or other "negatively priced" information distributed over a computer network such as the Internet. "Attention Brokerage" is the business of brokering the buying and selling of the "attention" of users, in which an attention broker offers negatively priced information (information for which the user gets compensated for paying attention to) from an information provider through a visual link (such as the Cybergold coin), then compensates the user after the user has paid attention to the negatively priced information in a prescribed way (such as reading an advertisement, filling out a survey, taking an attention test, or the like). Software agents may negotiate over the delivery of an item of negatively priced information and the associated compensation. The method allows advertisers to take advantage of "Orthogonal Sponsorship," which means detachment of messages from program content (in contradistinction to sponsorship of a television program, for example) and explicitly targeting messages to an audience, such as by demographics or through software agents that actively seek out users on a digital network by comparing stored user profiles with the characteristics of the negatively priced information being offered.

        5,799,285
        Title: "Secure System for Electronic Selling"
        Priority Filing Date: June 7, 1996
        Issue Date: Aug. 25, 1998
        Held By: Edwin E. Klingman (San Gregorio, Cal.)

Synopsis: Covers a method and system for enabling a small seller to register to sell goods through a third party distributor, such as through an electronic "classified advertisement" system of the distributor. The seller retrieves a registration form from the distributor through the Internet, fills out the form with identifying information, then obtains from the distributor a toll free telephone number. The seller establishes a toll telephone connection with the distributor, uploads its input registration data and its product through the telephone connection to the distributor’s system. After uploading, the uploaded product is then offered for sale to the general public through the distributor’s system.

        5,848,396
        Title: "Method and Apparatus for Determining Behavioral Profile of a Computer User"
        Priority Filing Date: Apr. 26, 1996
        Issue Date: Dec. 8, 1998
        Held By: Originally issued to Freedom of Information, Inc. (Cambridge, Mass.); now held by Be Free Inc.

Synopsis: Covers a method and system for targeting information to users by determining their behavioral profiles. Information, such as stock quotes, sports scores, and weather reports, is transmitted to users over a network, and their responsive activity is recorded, including physical activity (such as clickthroughs) and specific responses to the information, from which psychographic user profiles are developed using a regression analysis. The user profiles provide an indication of categories of interest to the users and display format preferences for each category. After repeated analyses and refinements of the profiles over time, the adjusted user profiles become better targeted to users having an interest in particular information, and can then be used to target advertisements or other information to those most likely to be interested in them.

*Chairman of Intellectual Property Practice Group, Fenwick & West LLP, Palo Alto, California. B.S.E.E. (Summa Cum Laude), Rice University (1978); M.S.E.E., Stanford University (1980); J.D. (Cum Laude), Harvard Law School (1984).

1.  Brendan Sandburg, "Speed Over Substance?", The Recorder (Feb. 2, 1999) 1, 1.  [Back]

2.  149 F.3d 1368 (Fed. Cir. 1998), cert. Denied, 119 S. Ct. 851 (1999). [Back]

3.  Sandburg, supra note 1, at 14. [Back]

4.  Id. In conjunction with the increase in applications, the PTO added 725 new examiners last year, bringing the total staff of examiners to 2,594. The PTO plans to add another 1,200 examiners in the next two years. Id. Twenty new examiners were recently hired fo the division responsible for reviewing most electronic commerce patents. Theresa Riodan, "New Technology Revives Old Debate," New York Times on the Web (Jan. 4, 1999). [Back]

5.  James Evans, "Pushing for ‘Net Monopolies: Patenting How Cyberspace Works Leads to ‘Gold Rush,’ Straining PTO," San Francisco Daily Journal (Jan. 27, 1999), 1,1. According to a search of the PTO’s patent database based on the keyword "Internet," 509 patents were granted in 1998, whereas only 90 such patents were issued in 1997. In 1996, there were 38 such patents, and in 1995 there were 18. Id. [Back]