Business Method Boot Camp: What Every IP Attorney Should Know About Business Method Patents

Business Method Boot Camp: What Every IP Attorney Should Know About Business Method Patents ^[1]

1.0 INTRODUCTION

2.0 WHAT IS A BUSINESS METHOD PATENT?

2.1 Congress' 1st Attempt

2.2 Famous Examples

2.3 Humorous Examples

2.4 USPTO Reaction to Surge in Business Method Filings

3.0 WHO SHOULD PATENT THEIR BUSINESS METHODS?

3.1 Legal Test

3.2 Practical Considerations

4.0 WHERE CAN YOU PATENT BUSINESS METHODS?

4.1 Present Status of Business Method Patents in The United States

4.2 Present Status of Business Method Patents in Europe

4.3 Present Status of Business Method Patents in Japan

5.0 HOW DO YOU OBTAIN STRONG BUSINESS METHOD PATENTS?

5.1 Finding Business Method Inventions Within a Company

5.2 How to Draft the Specification

5.3 How to Draft the Claims

6.0 WHAT IS CONGRESS DOING ABOUT BUSINESS METHOD PATENTS?

1.0      INTRODUCTION

What is a "Business Method Patent"? Nobody can say for sure. Prior to State Street Bank and Trust Co. v. Signature Financial Group, Inc., (State Street)^[2] and the American Inventor's Protection Act of 1999, calling a patent a "business method patent" was a conclusionary statement of unpatentability. While courts occasionally reasoned that selected patents were invalid if the patents were directed solely to "business methods," Congress had not directly addressed business method patents. Thus, for patent practitioners the game became how to navigate a patent application directed to business concepts through the United States Patent and Trademark Office (USPTO). As late as the mid-1990s, the Manual of Patent Examining Procedure (MPEP), section 706.03(a) allowed patent examiners to reject patent applications as being directed to "a method of doing business," and thus not falling within a statutory class of patentable subject matter as defined by 35 U.S.C. §101.

In State Street, the Court of Appeals for the Federal Circuit (CAFC) clarified the law with regard to computer software and business processes. In particular, the CAFC in State Street concluded that business methods constituted patentable subject matter, provided the claimed process produces a useful, concrete and tangible result.^[3]

With this one decision, a previously "taboo" class of invention became free game for inventors to stake their claim for innovative ideas, whether technical or not. The USPTO bore the brunt of the surge in patent filings after State Street. Then acting Commissioner Q. Todd Dickinson, stated that the USPTO had experienced a 700% increase in the number of filings in software and business method patents, attributing the dramatic increase directly to State Street.^[4]

While there was a stampede of business method patent filings at the USPTO, there was also an outcry in commercial America. A component of the population was concerned that the "land grab" mentality for business method patents would inspire "inventors" to seek patents on traditional business techniques that were merely implemented with computers or used the Internet. In reaction to this concern, Congress enacted the AIPA, and 35 U.S.C. §273(b) in particular, which created a prior user defense that only applied to business method patents. This prior user defense is limited to only method claims regarding a method of doing and conducting business.^[5]

2.0 WHAT IS A BUSINESS METHOD PATENT?

2.1 Congress' 1st Attempt

Congress attempted to pigeon-hole business method patents, restricting the prior user defense to only method claims directed to a "method of doing or conducting business." However, there is no discussion or clarification in the AIPA concerning what is "business." As in State Street, which deals with money, and computer-implemented techniques for accounting for money, financial transactions are certainly one type of business. However, oil producing companies, for instance, are in the business of producing oil. Thus, is a method claim directed to a method of producing oil subject to the prior user defense of 35 U.S.C. §273? One thing that is clear is that the term "business method" is claim-specific because the prior user defense applies only to method claims; apparatus claims are excluded by the statute. Accordingly, using the famous example of the Amazon.com one-click patent (U.S. Patent No. 5,960,411), a number of the claims in this patent are not method claims.^[6] Thus, one has to consider whether the Congress' definition of a business method patent is adequate to address the concerns raised by the public with regard to this new class of patent.

Accordingly, a precise definition of a business method patent is still somewhat elusive. Proposed legislation by the Congress is another attempt to further clarify the definition. Also, the USPTO has created a new classification for selected types of business methods (Class 705). However, the USPTO's classification is the result of having to deal with a new breed of invention, and the surge in new patent filings associated therewith. Accordingly, until Congress hammers out a definition, inventors should avoid calling their own patents "business method patents," since it is these patents (or actually claims in the patent) that are subject to the prior user defense. Thus, an admission by the inventor that the patent is a business method patent, appears to only hurt the inventor.

2.2 Famous Examples

One of the more famous "business method" patents is Amazon.com's one-click patent (U.S. Patent No. 5,960,411), which was asserted by Amazon.com against Barnes&Noble.com, initially requiring Barnes&Noble.com to redesign its website. However, as discussed above, it is not clear that the one-click patent is even a business method patent at all. Other alleged business method patents have been asserted in litigation as well. For example, there is Multi-Tech System's patent (U.S. Patent No. 5,764,627) directed to a method and apparatus for a hands-free speaker phone. This patent has been asserted against several in the industry for providing voice communications over the Internet. There is also U.S. Patent No. 5,761,648, often referred to as the "CoolSavings patent", which is directed to providing coupons over the Internet.

While these patents are most notable for their challenges during litigation, numerous other business method patents are obtained that provide more comprehensive coverage of all aspects of modern business practice. Conventionally, patents have primarily been the fruit of the manufacturing, and the research and development divisions of a company. Business method patents, however, need not be so restricted. For example, it is now possible to obtain business method patents on finance operations.^[7] With regard to sales and marketing, U.S. patents are now issuing in this area as well.^[8] Even legal departments of corporations are obtaining patent protection for their services.^[9] It is even possible to obtain non-technical patents from the human resources department.^[10] While this expansion of patentable subject matter increases the opportunities for obtaining patents, a corporation's "exposure" to patent infringement is much more profound than before. Traditionally, only the patents of primary competitors were of significant interest, because only competitors had similar R&D activities, and thus similar patent portfolios. However, virtually every company has finance departments, sales and marketing departments, legal departments, and human resources departments. Since business method patents enable individuals to obtain exclusive rights to these corporate administrative-type functions, it becomes much more difficult for a company to identify its legal exposure to patent infringement claims against non-traditional competitors.

2.3 Humorous Examples

Clearly, not all of the patents in the business method area are of great commercial value and it would be a mistake not to introduce at least a few of the more recent humorous patents. There is, for example, U.S. Patent No. 6,213,778B1, directed to a method of painting using the posterior of an infant. Key steps in the broadest claim of this patent include (1) providing a paint supply (2) dipping the posterior of the infant in the paint supply, and (3) stamping the posterior on a background media to create stamping prints. U.S. Patent No. 5,851,117 is directed to a pictorial method for teaching a janitor how to clean. U.S. Patent No. 6,007,340 is directed to a method for measuring the leadership effectiveness of people within a company. Among other things, the method includes filling out a form that asks a series of questions such as whether the interviewee "forgets commitments and promises" and "leads by setting a good example". U.S. Patent No. 5,616,089 is directed to a novel method of putting a golf ball.

2.4 USPTO Reaction to Surge in Business Method Filings

In response to State Street, the USPTO created a new technology center, Technology Center 2100, directed to handle computer-implemented business methods (which the USPTO classifies now in Class 705). Filings in that class were virtually non-existent until the State Street. In 1999, the USPTO received 2,821 applications in this class, and in the following year received 7,800 applications.^[11]

The principle function of the USPTO is to compare inventions as described and claimed in patent applications against prior art, and only issue those patents which patentably define over the prior art. A problem that faced the USPTO was that after State Street there was a surge in business method filings, and because the USPTO had not routinely searched for inventions in this area, it lacked an adequate database to perform searches for business method patents. The USPTO has since instituted certain mandatory search criteria that includes searching issued patents, text searching of the USPTO's WEST electronic patent searching system, text searching of foreign patents, and searching of a non-patent literature database. The non-patent literature database includes certain web pages created for the Examiners and serves as a "starting point" for a collection of non-patent literature resources, including databases, digests, articles, books, journals, reference tools, assignees, and associations/corporations. Furthermore, the web page includes direct links to non-patent literature databases such as Dialog, ProQuest Direct, IEEE, ACM, and Corporate Resource Net. A content manager is assigned to each web page and serves as a contact for receiving improvement recommendations and for maintaining the quality of the web page. Furthermore, examiners may perform optional searches, including Internet searches.

Aside from searching, examiners in the business method area are expected to provide "reasons for allowance" in every case at the time of allowance and for each of the independent claims, citing separate reasons. At the time of the allowance, the allowed patent is subjected to a second level of review by a Quality Assurance Supervisor who provides a second check of the allowed application.

As a result of this second level of review, and in light of the attention paid to business method patents in the USPTO, it appears as though examiners in the business method area are becoming more conservative than examiners in other parts of the USPTO. The allowance rate for business method patents is about 43% in Class 705, while it is in the range of 65 to 70% for all other parts of the USPTO.^[12] Given this more restrictive allowance rate, one has to wonder whether the "presumption of validity" of a business method patent that issues from Technology Center 2100, should have in some way a heightened presumption of validity, given the extra scrutiny the application received during examination.

3.0 WHO SHOULD PATENT THEIR BUSINESS METHODS?

3.1 Legal Test

Under State Street, the CAFC provided a new test for identifying statutory subject matter according to 35 U.S.C. §101, namely that an invention is patentable if the invention provides a useful, concrete and tangible result. Of course the claimed invention must also be novel and non-obvious, consistent with 35 U.S.C. §102 and §103. In State Street the claims were apparatus claims, not method claims. However, shortly after State Street the CAFC decided AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999) ("Excel"), which involved a patent with method claims directed towards using a particular number to be appended to telephone records for billing purposes. In Excel, the CAFC determined that the State Street test also applies to whether a claimed method provides a useful, concrete and tangible result. In Excel, the idea of providing a specific number for billing purposes could provide a useful, concrete and tangible result since it allows for the identification of a telephone provider and corresponding service fee.

3.2 Practical Considerations

It is often difficult to interpret the metes and bounds of what is a useful, concrete and tangible result. Typically, many people have the impression that patents are only for highly technical innovations, and thus only appropriate for engineers, computer scientists and the like. However, business method patents expand the availability of patent protection to a much broader range of inventors, especially inventors who are not scientists. In trying to convey the notion that patents are also for non-scientists as well, it is often helpful to use alternative language regarding the test for what is patentable subject matter when talking to such people. One alternative is to explain that useful, concrete and tangible result" means any invention that is (1) new and (2) provides a competitive advantage in the marketplace. This alternative language can easily be translated into particular techniques that are easily grasped by people in a company's sales department when envisioning how company A's novel sales tactics give it an advantage of the sales force of company B.

4.0 WHERE CAN YOU PATENT BUSINESS METHODS?

Patent protection for business methods is available in some countries, but not in others. Many, if not most, countries presently exclude per se business methods as unacceptable subject matter for patent protection. However, due to the different criteria applied in each country it is worthwhile to provide a snapshot of the present rules being applied in a few regions, such as Europe and Japan, as compared to the US. Of course, the law regarding business method patents is evolving very rapidly in most countries. Accordingly, for planning purposes it may not be prudent to conclude that patent protection is unavailable for business method patents in Europe, for example, because by the time an application that is drafted today is actually prosecuted in Europe, the law in Europe may have changed.

4.1 Present Status of Business Method Patents in The United States

The US is often considered the cradle of software and business method patents, possibly because the CAFC in State Street was the first to proclaim that patent protection is available for business methods. However, patents on business methods have been granted in the US for many years.^[13] However, most business method patents were ineffective in court, and thus commercially worthless. In litigation, these patents were uniformly found invalid because of the business method exception. The business method exception was the long-established principle that business plans or systems were not patentable because they were more appropriately characterized as unpatentable abstract ideas. Further, business methods were considered a field restriction, that served to limit patent protection to those things that "push back the frontiers of physics, chemistry, and the like."^[14] The business method exception resulted in the PTO granting few patents for business methods, and litigation was almost uniformly successful in invalidating the few business method patents that were granted.

State Street changed things. In State Street the court found that Signature's patent for a computerized accounting system was valid and enforceable. In rejecting the business method exception, the court held that business methods were subject to the same requirements for patentability as any other process or method. Further, the court addressed another restriction, the mathematical algorithm exception, holding that the use of an algorithm to produce a "useful, concrete, and tangible result" is properly the subject of a patent. In Excel, the CAFC further narrowed the mathematical algorithm exception. The court also rejected prior tests for patentability of algorithms, including the requirement that a claimed method must accomplish a "physical transformation" and that it be "applied to or limited by physical elements." The court held that an algorithm is appropriate if the invention, as a whole, produces a tangible, useful result.

As a result of State Street and Excel, it is likely that any business method that meets the requirements of novelty, utility, and nonobviousness are patentable subject matter in the United States.

4.2 Present Status of Business Method Patents in Europe

Currently, the European Patent Office (EPO) interprets the European Patent Convention as excluding the patenting of business methods. Similarly, the United Kingdom Patent Office has determined that "ways of doing business" should remain unpatentable.

In Europe, business methods themselves are not patentable, but apparatus claims that implement such methods may constitute patentable subject matter. Presently, in Europe, an invention must have "technical character" to be patentable, but this does not mean simply using a technical mechanism to reach a result. In order to be patentable, "technical considerations" must be present, and the invention itself must lie in these technical considerations. If the invention has technical considerations, but the invention is based in business or other non-technical considerations, it is not patentable. If, when compared to the prior art, the only difference is related to business considerations, not technical considerations, then there is no inventive step, and the claimed invention is considered obvious and not patentable.^[15]

When drafting patent applications that may be destined for examination in Europe, patent practitioners should consider what extra technical character can be given to an invention if the invention was conceived as a business method. They should keep in mind that the use of generally known technical components to solve ordinary problems will not likely be patentable subject matter in Europe. On the other hand if the problem is a technical problem and gives rise to an unexpected technical effect, or is directed to some technical innovation, patent protection may be available.

4.3 Present Status of Business Method Patents in Japan

In Japan, business method patents are more commonly known as "business model patents." Pure business method patents are not patentable in Japan, but business methods using the internet or computers are patentable.

To obtain a business method patent in Japan, the method must be considered an invention, where an "invention" is "a highly creative work generated from technological thought employing natural laws." Ideas that exclusively use other than natural laws, such as one using exclusively economic laws, are not an "invention" and are not patentable. However, if a computer or the Internet is a requirement for the use of an idea, then it is considered to sufficiently use natural laws to be an "invention." The way the computer or Internet is used must be stated.

An invention must be novel to be patentable in Japan. Public use or knowledge prior to patent application results in a lack of novelty. However, if a previously known business method is adapted to computer or Internet application, it will be considered novel if the computer or Internet application itself is novel.

Finally, a business method must have an inventive step in order to be patentable in Japan. The obvious use of a computer to carry out a known human act does not have an inventive step. Lack of inventive step is analogous to obviousness in the United States system. In order to be patentable, an invention must incorporate some sort of "ingenious contrivance" to be patentable. What, exactly, is considered an ingenious contrivance is not always clear.

5.0 HOW DO YOU OBTAIN STRONG BUSINESS METHOD PATENTS?

5.1 Finding Business Method Inventions Within a Company

Since business methods need not be technical (in the U.S.) some of the better business methods will not be found in the R&D department, but rather in the sales department, financing department, shipping department and the like. Accordingly, in order to capture potentially patentable inventions for a company, the burden is usually on the legal department to spread the word to other parts of the company so that they too may assist in obtaining valuable patents for the company. Typically, in order to "dredge up" potentially valuable ideas, it is necessary for the patent department to hold tutorial sessions with corporate officers, so as to get "buy-in" with regard to the expanded patenting initiative, and then also with key personnel in other parts of the company where the business method innovations may exist. The tutorial sessions typically include a discussion on what may be patented, and why it is valuable to the employee and the company.

5.2 How to Draft the Specification

In many respects, business method patents are the same as other types of patents and thus should share the same attributes as other powerful patents, including as broad a disclosure as possible, so as to enable the widest scope of claims as possible. There are perhaps two major additional considerations for business method patents. First, if the innovation may be valuable in foreign countries, as well as the United States, the patent specification should be drafted in a way so as to increase the likelihood that a patent will issue in Europe, Japan and other countries with more restrictive laws than the U.S. When preparing a patent application for prosecution in both the US and other countries, it will be necessary to not only present the business method concepts in the patent specification, but also attempt to articulate the invention in terms of a technological problem that the invention resolves and a technological innovation for addressing that problem. Typical inventors of business method patents do not often think in terms of technical embodiments of the invention, so it will be important for the patent practitioner to assist the inventor in articulating the different ways the invention may be practiced, and then recording the same in the patent specification.

Another consideration regarding how to draft the patent specification for business method patents, as compared to other patents, is that business method patents will be scrutinized in the USPTO by more than one examiner. As a consequence, it becomes increasingly likely that the invention will appear obvious to one or more of the examiners. In anticipation of receiving an obviousness rejection, the specification should contain built-in responses to counter or possibly suppress the issuance of an obviousness rejection. These arguments will of course include things such as particular observations made by the inventor regarding the source of a particular problem to be addressed or unexpected results achieved by the inventive process.

As a template for drafting a specification for a business method patent, the patent practitioner may wish to keep the following five goals in mind. Goal 1: Strive to have an interactive invention disclosure meeting with the inventor(s). Goal 2: Recognize the availability of statutory "equivalents" in means-plus-function claims.^[16] Goal 3: Build-in responses to expected obviousness rejections. Goal 4: Provide an enabling description for adding as many types of claims as possible. Goal 5: Draft the patent specification in a way so as to minimize the probability that a court will view particular elements in a claim (or claim elements that are absent) as being "essential."

Having an interactive meeting with the inventor not only helps to flesh out the invention, but also helps to properly counsel the inventor about bar events, best mode and other patent-specific requirements. Many business method inventors have never been an inventor before. Often they may not fully appreciate the breadth with which a patent may be drafted in order to cover the core invention and also expanded embodiments. In the dialogue with the inventor it is important to understand the entire story, including the problem and the solution. A part of the story can be reflected in the Background section of the patent application, which is a key component to "set up" the invention as an innovative solution to a perplexing problem. The inventor should be pressed into articulating as many "real world" results as possible that are applicable to the invention.

A clear and complete set of figures serves as an important visual aide for all readers. Initially, the figures are important in any dialogue with the patent examiner (US as well as foreign) in order to explain the invention. Some of the figures should include not only flowcharts on how the process is implemented, but also technical embodiment that help facilitate getting a business method patent allowed in other countries. Patents are also valuable in a commercial setting, especially when attempting to convince potential licensees to take a license. Thus, if done well, the figures help to quickly show some of the main features of the invention. Finally, the figures may also serve as jury exhibits if the patent is asserted in litigation. As a consequence, figures that are easily understood by non-technical personnel, as well as some technical figures to the extent necessary, help convince non-technical personnel that the inventor did, in fact, capture the essence of the invention and is entitled to royalties for any infringement thereof. The figures should not just be limited to flowcharts and apparatus diagrams. Rather, data structures, signal waveforms, graphical user interfaces and the like may be very useful in helping to completely understand how the invention may be employed.

Practitioners should add as many embodiments as practical to provide support for as many claims as possible and as many different claim interpretations as possible. Since it only takes one claim to win a patent litigation, having a full arsenal of claims will only help in litigation. Examples of embodiments include not only computer-implemented embodiments, but also manually-implemented embodiments. Presently, the law in the US supports patentability of both types of inventions, but one can only guess what the state of the law will be five years or more from when the patent application is drafted, when the patent is enforced in court. For computer-related inventions, the invention can be characterized not only as being hosted in a computer, but also in software held in various memories, implemented in various data formats, implemented as application specific integrated circuits (ASIC) and the like. With regard to communications, support should be provided not only for wired networks, but also wireless networks, in view of the trend toward wireless applications.

Business methods need not be isolated from more traditional inventions. There is absolutely no reason why a "regular" patent application, directed to a technological innovation, could not also include a business method embodiment that describes how the invention could be used, sold, advertised or the like.

In order to avoid having certain elements in an invention be considered as being essential, and thus the basis for a claim being held invalid, patent practitioners need to consider carefully whether certain words (typically imperatives) should be used when characterizing the invention in the specification portion of the patent application. Such words to scrutinize include (1) consists, (2) required, (3) always, (4) never, (5) only, (6) must, (7) mandatory, or (8) essential.

5.3 How to Draft the Claims

Write as many claims as possible/practical, and include as much diversity in the claims as possible. Only one claim is needed to win a patent litigation, and thus the greater number of claims and the diversity of claims increases the likelihood of prevailing in an infringement action. Furthermore, adding several levels of dependent claims makes it more difficult to invalidate all of the claims. Claims to consider include method claims, system claims, individual components of a system (apparatus), means-plus-function claims, computer program product claims and signal claims.

With regard to method claims, a common question is whether the method needs to be implemented in a computer. The Excel case does not appear to compel such an interpretation, but the law in this area is evolving. For contingency purposes, it may be valuable to have both types of claims, in case the courts later rein-in the scope of bus