Business Method Patents

Unearthing Your Company's Hidden Assets

While the first covered shopping mall was opened in Minnesota in 1956, it wasn't long before practically every region in the United States had something similar. But what if that first entrepreneur had obtained a patent for his or her invention, characterizing it as a "method for operating retail stores"? Sound impossible? Back in the '50s, it might have been, for such so-called "business methods" were presumed to be unpatentable, along with such things as natural phenomena, abstract mathematical algorithms, mental steps, and items found in nature.

However, with the advent of computers and the information age, that presumption gradually weakened, and was put to rest in 1998 by the Court of Appeals for the Federal Circuit (the "Federal Circuit") with the case of State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368, and still further, in 1999, with the case of AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352. Now that the status of business method patents is no longer clouded, companies should take advantage of a potential strategic and financial boon by obtaining patent protection for all the unique aspects of their businesses.

State Street Bank and AT&T Corp.

In State Street Bank, the patent at issue involved a computer-implemented "hub-and-spoke" arrangement for administering mutual funds. In a patent infringement suit, the federal district court held the patent invalid as being an unpatentable business method. The Federal Circuit reversed, noting that while it was sometimes thought that business methods were not patentable (because of old case law, dicta, and the fact that certain business-related patents had been struck down as not being new), there was no per se restriction against patenting business methods under current U.S. law. The spirit of this holding was reaffirmed in AT&T Corp., driving the point home that business methods are and have been patentable subject matter, and opening a floodgate of new patent applications at the Patent Office.

What is a "Business Method?"

In a broad sense, a "business method" is just that: a process or series of steps for conducting, organizing, or managing a business or related activity. For example, a method for selling ice cream (a business) might include the steps of: (i) transporting ice cream through residential neighborhoods in a refrigerated vehicle; (ii) broadcasting music over a loudspeaker to announce the vehicle's presence; and (iii) selling ice cream to those who come out to meet the vehicle. Other business methods might involve sales procedures, customer service, product quality assurance, data management, employee training, and billing systems.

These days, the vast majority of patent-eligible business methods, like the one in State Street Bank, involve computers and/or the Internet. This is because most Internet- and computer-related business methods are new, while most other business methods, like selling ice cream out of a refrigerated truck, are old and well known. However, there is no requirement that a business method invention involve computers, software, or the Internet to be patentable, as long as it is new, useful, and non-obvious.

Why Patent a Business Method?

All patents allow the patent owner to prevent others from practicing (making, using, selling) the claimed invention for twenty years from the filing date of the patent application. Offensively, if the invention relates to the core of your company's business plan, e.g., to a key product or the way in which business is carried out, a patent can protect or increase your company's market share (imagine if someone had obtained a patent for drive-thru banking or fast food in the 1970s!), or give you an advantage over your competitors (e.g., in a recent case, Amazon.com was able to temporarily prevent Barnesandnoble.com from using 1-click ordering on the Internet, as discussed further below).

Defensively, a patent can reduce the chances of your competitors obtaining patents that might be used against you, although there is a limited defense to infringement available for companies that were the first to invent, but not patent, a business method. More importantly, however, even if a business method invention is only peripherally related to your business, or if you are not interested in gaining market exclusivity, a patent can be an excellent source of income from licensing. This is especially true considering that the real value of a patented invention may not be known for several years.

Identifying Business Method Inventions

Given the potential benefits of securing patent protection for qualifying business methods, it is incumbent on companies to identify potentially patentable inventions. Here are some suggestions for doing so:

Take a close look at everything your company does related to conducting business, both internally and externally, such as: products, services, internal organization and operations, information flow and management.

Don't assume something is unpatentable - even conceptually simple inventions may meet the requirements for patentability.

Draw on your (and others') common sense and business experience - frequently, you will have an idea if what your company is doing has been around for a long time, or if it might be something new.

Do some research - review industry literature (business texts, technical journals, etc.), check online to see if other companies are already doing something similar, and take a look at what others have patented. Good sources for the latter include: the national system of Patent and Trademark Depository Libraries (at the Hartford Public Library, the Physical Sciences Library at UMass. Amherst, and the Boston Public Library); the U.S. Patent Office's web site at www.uspto.gov and the European Patent Office's patent search web page at www.epo.org.

Finally, consult your patent lawyer. He or she can act as an effective "sounding board," and may even have some idea right off the bat if an idea looks promising. Additionally, further, more extensive patentability searches can be performed to further determine whether or not it is worth it to file a patent application.

Recent Developments

While the Federal Circuit held that business methods constituted patentable inventions in State Street Bank and AT&T Corp., it wasn't clear how patent applications and resulting patents for business methods would continue to fare in the Patent Office and federal courts, and whether the State Street decision would elicit a response from Congress. Now that several years have passed, despite this uncertainty, business method patents remain viable and potentially valuable business assets, meriting continued consideration by the business community.

Presently, it appears that Congress is not poised to enact any legislation curtailing business method patents. This is because the federal courts and the Patent Office have sought to ensure that only truly innovative business methods receive patent protection. More specifically, the Patent Office is working to particularly thoroughly examine all business method patent applications. The resulting patents will be more likely to withstand challenge in court, and, therefore, will be of more value to patent owners.

Additionally, in Amazon.com Inc. v. Barnesandnoble.com Inc., No. 00-1109 (Fed. Cir. 2001), the Federal Circuit found that Amazon.com's patent for its "one-click" ordering system might be invalid because others had developed similar systems in the past, e.g., a single operation system for obtaining stock information by computer. While this decision went against the patent owner, it shows the federal courts' continued willingness to uphold business method patents provided they meet the general requirements for patentability (e.g., novelty, usefulness, non-obviousness).

Conclusion

Even before the Federal Circuit's decisions in State Street Bank and AT&T Corp., shrewd companies realized the potential for business method patents. Since this acumen has largely been affirmed, it is incumbent upon companies to at least assess the strategic and other benefits of identifying and patenting their unique methods of doing business. As the marketplace becomes ever more crowded, doing so may provide unique competitive advantages and additional sources of income, further insuring a company's success and longevity.