Arent Fox Kintner Plotkin & Kahn, PLLC 

What's The Deal With All These
Business Method Patents?

By Douglas H. Goldhush   Bio   email 
Arent Fox Kintner Plotkin & Kahn, PLLC
 
 

 

Everyone seems to be asking the question: "What's the deal with all these business method patents?"  Some highly publicized United States patents such as Amazon.com's patents on a single-click ordering system (patent number 5,960,411) and a customer-referral system (patent number 6,029,141), and Priceline.com's "reverse-auction" patent (patent number 5,794,207), have many in the Internet community crying foul, and complaining that some devious businessmen are attempting to stifle the growth of the Internet by improperly monopolizing ways of utilizing this new "tool of the people."  In reality, however, these business method or e-commerce patents are no different from patents which have been issued since United States patent laws were first implemented in 1790.

United States patents will be granted to inventors who invent any new, useful, and unobvious process, machine, manufacture, or composition of matter.  Over many years and through many court decisions, this definition has been interpreted as meaning anything or any process under the sun which is made by man.  Specifically excluded from this definition are pure mathematical algorithms, abstract ideas, or things which occur in nature.  Computer software, and business methods which are implemented on computers or in computer software, were for many years believed by courts and by the United States Patent and Trademark Office to be purely mathematical algorithms or implementations of an algorithm as a series of steps, and were considered to be improper subject matter for patent protection.  In reality, however, many software and even "business-method" related inventions were patented over the years, but the patents were drafted as "computer systems" for performing a particular function or particular practical application.  Non-computer related business methods have been granted for many years, but never received much fanfare due to the fact that they were typically inventions directed to very specific markets and processes and did not come to the attention of the general public.  Due to the fact that the Internet is being considered to be a fundamental building block of the "new economy," and since the free flow of information and commerce is commonly thought to be an entitlement associated with the Internet, any patent which attempts to limit freedom of use of the Internet receives a significant amount of publicity.  In reality, however, the Internet has existed for over 30 years in various forms, and increased computer speeds, communication speeds, and increased availability of cheap computing power has resulted in a significant amount of innovation regarding ways of harnessing the potential power of the Internet.  Inventions in this area of technology, like inventions in any other more mature technologies such as aviation, automobiles, biotechnology, etc., are often aggressively protected by their inventors.

The recent onslaught of business method patent applications was triggered by two recent decisions of the Court of Appeals for the Federal Circuit (CAFC).  Specifically, State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), and AT&T v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999), are two cases that specifically held that business methods are patentable subject matter, and that a method does not need to specifically involve any type of physical transformation in order to be patentable.  In particular, the CAFC held in both cases that as long as the inventions can be shown to be new, useful, and nonobvious, and if they yield a useful, concrete, and tangible result, the inventions should be patentable.

The perceived problem with the recently issuing business method patents are that many people think that these patents recite "obvious" methods of doing business.  In determining obviousness, however, the United States Patent Office will conduct a "prior art search" when examining a patent application.  The prior art search is a search of existing United States patents, trade publications, university resources, and various databases in any effort to find a publication which can be used to effectively show that the invention either existed before the particular patent application was filed, or that the invention would have been "obvious" to a person of ordinary skill in the art.  Since there are very few existing patents on Internet and computer-related business methods, many of these prior art searches are not providing examiners with good bases upon which to reject these claims.  Based on the available references, however, an examiner is free to determine whether a patent application should become an issued patent.  Once a patent examiner determines that claims in a patent application are allowable, a patent issues which is presumed to be valid (35 U.S.C. 282).  The presumption of validity, however, can be rebutted in litigation.  It is very possible, therefore, that when a business method patent is being enforced against a defendant in litigation, the defendant can reopen the question of obviousness by having evidence admitted before the court that shows that the subject matter of the patent was, in fact, obvious at the time it was invented.  It is possible and even likely, therefore, that some of these patents may be found to be invalid in subsequent litigation.  It should be noted, though, that the United States Patent and Trademark Office is taking steps to improve the quality of examination of these Internet and e-commerce patent applications.

The Internet economy, however, seems to move much faster than the patent system.  Typically, after the filing of a patent application, a patent will not issue for a minimum of 18-24 months, and sometimes longer.  During this 24 month period, companies may often be sold, liquidated, or restructured such that the original patent application may have less importance than originally planned.  The filing of a patent application, however, entitles applicants to indicate to investors and potential customers that a patent application is pending on their invention.  While no enforceable rights accompany the "patent pending" notification, knowing that a patent is pending can be very helpful in giving potential investors a higher level of confidence in the innovative ability of a particular company, and puts potential competitors on notice that a patent may issue which could require any infringers to immediately stop any infringing activity, or run the risk of some very expensive litigation.  As in the case of the Amazon.com "single-click" patent, the technology can sometimes be very viable at the time the patent issues, and therefore provide the patent owner with a very powerful legal tool.  Amazon.com was able to obtain a preliminary injunction against Barnesandnoble.com, which caused Barnesandnoble.com to immediately change an ordering method which was implemented on the Barnesandnoble.com website.

So, having said all that, you still ask, "What's the deal with these business method patents?"  The deal is that the United States Patent & Trademark Office is currently issuing many patents directed to different ways of conducting business over the Internet.  Since patents, once issued, are entitled to a presumption of validity, and since pending patent applications can sometimes be helpful with respect to obtaining financing and also increasing market share, we recommend that anyone who has developed a possibly new method of doing business on the Internet, or method of doing business in general, should look into the possibility of preparing and filing a patent application in order to protect the invention.  While it is impossible to forecast the true long-term financial value of a patent application or issued patent, it is in many cases the best way to protect the intellectual property of today's Internet entrepreneurs.

2000 Douglas H. Goldhush


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