How to Guard Against Business Method Patents

In the last couple of years, a new device has emerged on the legal scene to protect novel ways of conducting commerce. It’s called the business method patent, and it typically covers some combination of software and business methodology, like innovative online ordering processes. When you get a business method patented, you stop others from using it for 20 years. And you can exploit it by licensing it out to others for a fee.

At first blush they may not sound so bad, but like pirates barricading sea lanes, these patents could block off avenues of profit that your company has been traveling for years. Meanwhile, companies are scrambling to obtain them to use as both defensive and offensive weapons. Because business method patents are generally tied to computer systems, it’s crucial for CIOs to know where they come from, how they work and how to avoid getting tangled in their web. And as cruel as it sounds, the best defense against these new weapons may be deploying them yourself.

Business Methods Over Time

Business method patents involving computer software functions are a new development; they’ve been around only since the late-1990s, and they’re a product of a long-standing quandary over software’s place in the world of intellectual property law.

Initially, software as a written product that includes elements of expression was protected by copyright law. But software never fit neatly into this sphere because copyright law doesn’t protect the functions that the programs perform. Meanwhile, software never fit neatly into patent law either. Patent law, which is designed to protect "inventions," is what you’d typically use to protect a product with functionality. But the term inventions refers to man-made creations, not the mere discovery of existing principles. Therefore, laws of nature, whether previously known or not, could not be patented because they were not created?and this is still true. This distinction has led to a laundry list of categories excluded from patent protection, including "methods of doing business" and "mathematical algorithms." These two exclusions from patent law have often precluded patents for computer software.

The rationale for the method-of-doing-business exclusion is that business practices are not tangible machines or processes. However, in 1998 everything changed. The Court of Appeals for the Federal Circuit eliminated this exclusion with respect to computer software. In State Street Bank & Trust Co. v. Signature Financial Group, Inc., the court upheld a patent for a method of calculating the net asset value of complex mutual funds. The court determined that patents had to be considered based on the Patent Act’s requirements of a "new and useful process, machine, manufacture...or any new and useful improvement thereof." Because business-related software fell within the "new and useful process" requirement, it could be patented. This significant change in the interpretation of patent law opened the floodgates for business method patents. Combined with the exponential growth of e-businesses (which utilize computerized business methods), this new position on software greatly expanded the number of patent applications and patents on business methods.

As the flood has continued, business method patents have been catching headlines?from Priceline.com’s patent on an online reverse auction to Amazon.com’s patent on the "one-click process"?which has increased the controversy surrounding such patents. A major criticism is that the United States Patent and Trademark Office [USPTO] is issuing too many undeserved business method patents. Part of the USPTO’s challenge is that it lacks "prior art," or known information, relating to this area. To obtain a patent, your computerized business process must be "new." The Patent Office determines whether something is new by comparing it to known information, principally existing patents and publications. But when changes occur in the patent law, such as the Federal Circuit’s allowance of business method patents, it takes some time for the Patent Office to generate reliable information for judging whether something in that realm is truly new. This same challenge arose in the early 1980s when the Supreme Court held that computer software was patentable. To address the recent recurrence of this problem, the Patent Office created a new section for business-related patents this past March and has been hiring patent examiners with the knowledge and ability to judge whether business methods are new and patents should be granted. Until the Patent Office is able to adjust, it’ll take litigation to challenge improperly granted patents.

Steps to Take

Given these tumultuous times, companies need to act carefully. There are several steps CIOs can take to help protect their company from competitors’ business process patents?and to protect their own novel processes.

Determine whether your company has any patentable inventions. Often patents can be used as shields as well as swords. And though it sounds contradictory from a philosophical standpoint, if others are going to use them, maybe you should too. You’re less likely to get sued for patent infringement if you also hold patents related to the industry. Also, additional patents and patent applications give the Patent Office better resources for prior art. Thus, if you patent a particular process, you can more easily prevent later related patents by others. Once you determine whether you have patentable inventions, start your process to obtain a patent.

Help your company take steps to avoid committing patent infringement. Each patent includes claims that define the invention. For a product or process to infringe on a patent, it must incorporate all of the patent’s claims. Your company should compare its processes to patents covering the same processes to determine whether they may be infringing. But be sure to seek the assistance of competent patent counsel in doing this review.

Consider whether to challenge the validity of known patents. The CIO may be in a position to assist in determining whether or not a patent should be challenged. A patent is invalid if the claimed process was known or used by others before the patent application was filed. You can challenge a patent in court, but it’s an expensive process. Fortunately, the Patent Office has a less expensive procedure, called reexamination, in which a company can submit documents challenging a patent’s validity. The Patent Office may then remove or modify the patent.

Rapid technological and cultural changes are transforming the way people conduct business. Patent law is adjusting to these changes?as evidenced by the business method patent?which unfortunately has produced some turmoil. In the meantime, the key is to keep on top of your industry and be prepared to fight this new weapon?or even to wield it yourself.

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Copyright © 2001 IDG Communications, Inc.

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