by Grant Gross

Controversial Business-Method Patents Face New Attacks

Sep 28, 20112 mins

A new law revamps the patent system and gives rivals an eight-year window to challenge IT-related patents in the financial-services industry.

An overhaul of the patent system, signed into law in September, could lead to the invalidation of dozens of business-method patents.

One provision in the America Invents Act creates a new mechanism for challenging business-method patents, which have been used by companies such as American Express, State Street Bank and Amazon to protect automated business processes.

The provision goes into effect next September and allows administrative challenges of business-method patents over the next eight years. However, only companies and people who’ve been accused of patent infringement in a lawsuit or in criminal charges are allowed to challenge the patents. The new ability to contest the patents at the Patent Office expires in 2020.

The business-method patents covered by the provision are limited: Only patents for data processing and other operations used in a financial product or service can be challenged in the new Patent Office reviews.

Still, patent lawyers say the law could open the door to many challenges. The provision allows retroactive challenges to old business-method patents, and the category of financial products could include Web-based payment systems, depending on how the Patent Office writes the rules, says Gary Fedorochko, a patent lawyer at Banner and Witcoff.

In court cases, patents are presumed valid, but not in Patent Office reviews, he says. “You could say [business-method patents] are already out there and they’re of dubious validity as it is, but now we have a mechanism to attack them at the Patent Office,” Fedorochko says.

The new provision will likely lead to successful challenges, and “many companies accused of infringement will take advantage of this procedure to attack business-method patents,” says Michael Murray, a patent lawyer at Winston and Strawn.

The Senate voted 89-9 in favor of the patent legislation, which also grants a patent to the first person to file for it, not the first person to create the invention. But Sen. Maria Cantwell (D-Wash.) opposed the overall bill and the business-methods provision, which she called an earmark for banks that don’t want to pay patent-licensing fees.