Business Method Patents

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For many years it was assumed that methods of doing business were not patentable subject matter. However, in the case of State Street Bank and Trust v. Signature, 149 F.3d 1368 (Fed. Cir. 1998), the Court of Appeals for the Federal Circuit ruled that there is no logical basis for the business methods exception, and that a business method constitutes statutory subject matter if it produces a useful, concrete, and tangible result. The business method approved of in the State Street case was part of a computer program that facilitates mutual fund investing. The principle established in the State Street case—that business methods are suitable patent subject matter—was affirmed in AT&T Corp. v. Excel Communications, Inc., 179 F.3d 1352 (Fed. Cir. 1999).

The term “business method patent” has also been used to describe a group of utility patents whose inventions combine software programs and methods of doing business, most of which relate to Internet uses. These are also sometimes referred to as “Internet patents,” and one of the most well-known is’s “One-Click” system, a method that allows a repeat customer to bypass address and credit card data entry forms when placing an online order. (U.S. Pat. No. 5,960,411.)

Although the terms “business method patent” and “Internet patent” have been used interchangeably in the media, these patents may deal with mutually exclusive concepts. For example, a patented method of doing business does not have to pertain to an online application. Likewise, a patent for a process used on the Internet may be more accurately described as a software patent than as a business method.

Regardless of their categorization, all of these patents seem to have one thing in common: They expand ways of doing business in new technologies. Since the State Street case, the number of applications filed in the principal class for business methods (Class 705) has exploded.

In 2008, the existence of business method patents was threatened by a ruling (In re Bilski) by the Court of Appeals for the Federal Circuit (CAFC). The CAFC that stated that any new process must either (1) be tied to a particular machine or apparatus, or (2) transform an article into a different state or thing. In 2010, the Supreme Court held that this “machine or transformation” test was “a useful and important clue, an investigative tool” but that it should not be used as the sole test to determine patentability. The Supreme Court refused to categorically deny patentability to any class or category of otherwise patentable subject matter. In doing so, the Supreme Court basically preserved the status quo and kept alive the concept of software, business method, and other process patents. Kappos v. Bilski, 561 U.S.  ___ (2010).

Sometimes a business may have been using a particular business method prior to another company acquiring a patent on that method. For example, if Business A files for a business method patent, but Business B can show that it implemented and commercially used the method publicly more than a year prior to the filing, Business B has a good defense against the patent. This defense was created under a 1999 amendment to the patent law. (35 United States Code, Section 273(b).)

[Note: The America Invents Act, enacted in September 2011, requires that in September 2012, the Director must establish a transitional post-grant review proceeding to consider the validity of business-method patents. In other words, it will likely become harder to obtain a business method patent.]