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Home About Us Patent Patent Search Trademark Get Funding News/Blog Info/Resources Site Map  
Through our DC office: we offer patent research at USPTO EAST- the same system/methods used by Patent Examiners.
Getting Started

Our Work

The Business Method Patent Controversy
In re Bilski - landmark decision affirming Business Method Patents
Drafting Business Method Patents
Examination of Business Method Patents
Patentability and Validity of Busines Method Inventions
Scope of Business Method Patents

Business Method Patent Overview

A discussion of business method patents should begin with a definition of "business methods." While the phrase "e-commerce" patents seems to allow little ambiguity, no accepted or even proposed definition of "business method" patents exists. Instead, the phrase is used to describe a legion of method and even occasional device 
inventions, spanning the gamut of possible commercial applications. The topic was significant before certain landmark court decisions (e.g., see below State Street, 1998) because of the need to avoid drafting claims directed to nonstatutory subject matter. The issue was reduced to mere academic interest after State Street; in the view of most patent attorneys, State Street's primary effect was to eliminate an unnecessary concern when drafting patent claims.

In general, any invention is eligible for patent protection if it passes the tests of patentability:patentable subject matternoveltyinventive step or non-obviousness, and industrial applicability (or utility).

A business method may be defined as "a method of operating any aspect of an economic enterprise" 

In the United States Class 705 has been used by the United States Patent & Trademark Office to classify patents that claim an "apparatus and corresponding methods for performing data processing operations … uniquely designed for or utilized in the practice, administration, or management of an enterprise, or in the processing of financial data." Specifically, Class 705 includes sub-categories for industries such as health care, insurance, electronic shopping, inventory management, accounting, and finance.

In State Street Bank v. Signature Financial Group, Inc., (47 USPQ 2d 1596 (CAFC 1998)), the court rejected the theory that a "method of doing business" is an excluded category of invention and reiterated that a business process patent may be granted on the same basis as any other invention. The court further confirmed this principle with AT&T Corporation v. Excel Communications, Inc., (50 USPQ 2d 1447 (Fed. Cir. 1999)). These two cases confirmed the nonexistence of the rumored business process exception in the US patent common law.

As of 2001, the USPTO required that business method inventions must apply, involve, use or advance the "technological arts". This was based on an unpublished decision of the U.S. Board of Patent Appeals and Interferences, Ex Parte Bowman, 61 USPQ2d 1665, 1671 (Bd Pat. App. & Inter. 2001). This requirement could be met by merely requiring that the invention be carried out on a computer.

But in October 2005 a majority decision of the board in Ex Parte Lundgren, Appeal No. 2003-2088 (BPAI 2005), ruled that the "technological arts" requirement could not be sustained [2], as no such requirement existed in law.

In light of Ex Parte Lundgren, the USPTO has issued interim guidelines for patent examiners to determine if a given claimed invention meets the statutory requirements of being a process, manufacture, composition of matter or machine (35 USC 101) [3]. These guidelines assert that a process, including a process for doing business, must produce a concrete, useful and tangible result in order to be patentable. It does not matter if the process is within the traditional technological arts or not. A price for a financial product, for example, is considered to be a concrete useful and tangible result (see State Street Bank decision).

The USPTO has reasserted its position that literary works, compositions of music, compilations of data, legal documents (such as insurance policies), and forms of energy (such as data packets transmitted over the Internet), are not considered "manufactures" and hence, by themselves, are not patentable. Nonetheless, the USPTO has requested comments from the public on this position.

Some of the economic effects of software/Internet/business method Patents to society are as follows:

  • Creates an incentive for research and new process/product development.
  • Encourages disclosure of inventions.
  • Provides an entrepreneurial opportunity for small entities to compete against and profit from large companies.
  • Facilitates the entry of new (small) firms with a limited asset base or difficulties in obtaining finance.
  • Creates a neatly packaged negotiable IP right.

The relative economic significance of each of these effects varies strongly from one industry to another. 
Patents can cost tens of thousands of dollars to acquire; patent litigation can cost millions of dollars; and patent licensing could earn companies hundreds of millions of dollars a year. Over half a billion dollars a year is spent on patent applications, and licensing revenues are in the tens of billions of dollars. In many cases, the economics of patenting is often a more important consideration than the legal aspects.

Why patent your software/Internet/business method?

Lawsuits for unintentional software/Internet/business method patent (e.g., e-commerce) infringement can destroy small companies, which is a strong reason to secure a patent first, before your competitor does. Unfortunately, small to mid size companies cannot afford to patent all the software/Internet/business method innovations they may have, as such patent costs, on average, $20,000. Our unique approach enables us to prepare high quality software/Internet/business method patent applications for about $4-5,000, which enables even a small company to selectively build a patent portfolio that has a far greater chance of success over betting all your limited resources on a single aspect or idea of your many innovations. It is very hard to predict, which idea will be the winner in the market place, and the more broad the patent portfolio the more likely you are to secure Venture Capital (VC) funding, own intellectual property (IP) that has a market for licensing, and/or owning IP that can be profitably sold. With regard to VC funding or initial public offerings, software/Internet/business method patents resulting from the production of patentable ideas often increases the valuation of small companies.

Software/Internet/business patents are particularly well suited for creating a licensing and litigation-only company that generates significant patent revenue without incremental capital investment or developmental effort. Many litigation companies are generally available to help small companies who own valuable software/Internet/business patents by providing deep pockets in case a small company's patents are infringed. The litigation company will fund the legal expenses of a lawsuit (typically 2 to 10 million US dollars) so that a small company can afford to bring a patent infringement lawsuit against a big company that is infringing their patents. In exchange, the litigation company receives a substantial fraction of the settlement. Litigation companies also provide a means for investors in small companies to recover some of their investment should the small company go out of business. The litigation company will buy the patents and investors will often recover at least some of their funds. 

Business Method Patents and International Patent Law

The United States has led in creating companies, creating jobs, because it has had the best intellectual-property system. However, protection for software and business methods by patents is limited scope in some other countries. For example, software/Internet/business method inventions can only be patented in Europe if they provide a non-obvious "technical contribution", which reduces the chance of patents being granted on mere algorithms with no technical effect or the granting of "trivial" patents with no inventive step. Other countries such as the US, Australia and Japan do not have the same limits on software/Internet/business method patents and this has put pressure on Europe to expand the scope of protection.

The legal situation as to whether new business methods are allowed as patentable subject matter varies from legal jurisdiction to jurisdiction. The World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) does not specifically address business method patents.

In the 8th edition of the International Patent Classification (IPC), which will enter into force on January 1, 2006, a special subclass has been created for business methods: "G06Q". In the previous editions, business methods were classified in "G06F17/60". This is purely a classification matter and will not change the patent laws however.

The United States, Australia, Japan and Singapore are considered "safe havens" for business method patents. The situation in Canada, Korea and Taiwan is not clear. Patent protection for business method patents in Israel, China, India, Mexico, and most of Europe is difficult.


There is no general prohibition on the patentability of business methods in Australia. Their patentability is determined by applying the tests used to determine the patentability of any type of invention.

However, in a recent decision, Grant v Commissioner of Patents [2006] FCAFC 120, [47], the Full Court of the Federal Court of Australia held that a business method will only be patentable if it has a physical aspect, being a concrete, tangible, physical, or observable effect or phenomenon. Accordingly, 'pure' business methods, being those that do not have a physical aspect, are not patentable in Australia.


Pure business methods cannot be patented in Canada because of its pre-constitutional (in 1982) subordination to British Common Law. Article 1(2)(c) of the Patent Law of 1977 “It is hereby declared that the following (among other things) are not inventions for the purposes of this Act, that is to say, anything which consists of …. a scheme, rule or method for performing a mental act, playing a game or doing business, or a program for a computer.” For example, the Canadian counterpart application of the US patent at issue in the State Street case has been abandoned.

However, a business method patent may be patented in Canada if the patent is claimed in a manner which provides that an apparatus is involved. See Mark B Eisen, Arts and Crafts: The Patentability of Business Methods in Canada (2001), 17 C.I.P. Rev. 279.

European Patent Convention

Under the European Patent Convention, "Schemes, rules and methods for (...) doing business" are not regarded as being inventions and are not patentable, "to the extent that a European patent application or European patent relates to such subject-matter or activities as such". (Article 52(2)(c) and (3) EPC).

But if a new method solves a technical, rather than a purely administrative, problem then it may indeed be patentable. (For example, an improved design of letter-franking machine).


In Japan, business methods are well recognized and accepted as patentable subject matter. The legal standard used to assess whether a business method is patentable requires that inventions be "a highly advanced creation of technical ideas by which a law of nature is utilized."

Patents are not issued solely for business methods. The business method must contain a technical aspect that is both tangible and real.

However this requirement may be satisfied simply by specifying that the method is implemented using a computer.

The first step in getting a patent is to file a patent application. Even at this early stage European patent law differs from American law. In the US, the person who may claim a patent for an invention must be the inventor. This is known as the first-to-invent rule, a rule that, though seemingly fairer on its face, has proved troublesome at times. Europe is more pragmatic; whoever files a patent application first is presumed to be the inventor (first-to-file rule). The purpose of the first-to-file system is to discourage inventors from withholding an invention, while at the same time unburdening the patent office.

Regarding the Application Process, despite the recent addition of inter partes appeals, the patenting process is still primarily an ex parte endeavor in the US, with the Patent Office on the one side and the inventor on the other. In Europe, anyone can oppose a pending patent. Such opposition is handled by the Patent Office's Opposition Division, whose decisions can be appealed to the Board of Appeal. This process helps the Patent Office discovering prior art, working against inventors who would prefer to hide work from the examiner that could endanger the patentability of her invention (behavior that is countered by the duty to candor in the US). Since competitors already had their chance to invalidate, a European patent carries a higher presumption of validity than a US patent. Applying for a patent in Europe also automatically entails publication of the invention. This is not necessarily true in the US

The Best Mode Dilemma

The lack of a best mode requirement in Europe can lead to problematic situations for European inventors, who want to extend their rights across the ocean. Failure to include the non-mandatory best mode in the description of the European patent application may lead to loss of patentability in the US

The Paris Convention provides that "[a]ny person who has duly filed an application for a patent . . . shall enjoy, for the purpose of filing in the other countries, a right of priority." This priority treatment is available for a period of twelve months. The patent is barred entirely in the US twelve months after the foreign patent application has been submitted and the patent has been granted.

The best mode requirement does not only apply to the later application in the US, however, but also to the original, foreign application. Hence an inventor who has filed for a patent in Europe without describing the best mode may lose his chance to file for a patent for the same invention in the US due to intermediate disclosure by another, which renders the invention obvious.

Term of Protection 

Under the TRIPS agreement, the patent term is twenty years from the filing date both in the United States and Europe. The United States has adjusted the term in compliance with the TRIPS agreement from formerly seventeen years from the date of grant. In Europe, the filing date already functioned as the priority date, with terms differing from country to country. Germany, for example, used to have an eighteen-year term while in the United Kingdom it was sixteen years.

Duty to License

No duty to license exists in the US The exercise of a patent monopoly is only limited by antitrust laws. In Europe, national laws apply: A European patent is more like a bundle of patents, one for each country, rather than a single overarching patent. In fact, grantors are required to file applications with the patent office of every member country where protection is sought; those offices simply cannot deny a patent anymore after the EPO has granted it. Still, each country will subject the patent to its own national laws.

At least some European countries such as the UK, France, and Germany have compulsory license statutes. All of these countries - as well as the European Community - also have antitrust statutes, which may impose additional limits on the patent monopoly.

The Business Method Patent Controversy

Although critics of software/Internet/business method patent patents contend such patents allow large companies to drive small competitors out of the market, in practice, the effect is the opposite: strong patent protection allows small organizations to compete with the largest businesses. Unauthorized infringing use of a patented invention can drive the inventor out of the market; often, small entities can compete with the vastly greater marketing and financial muscle of large corporations only by having exclusive rights in their developments, a fact that is recognized by the investment community. Historically, the software and e-commerce industries have failed to recognize the benefits of broadly enforced patent rights.

Acceptance of business method patents evolved slowly from a recognition by the courts that such patents were never really prohibited, and that the 1952 Patent Act cannot reasonably be construed to exclude business methods from patentable subject matter.

The opportunities for unfettered business method patents ballooned with the decision by Court of Appeals for the Federal Circuit in State Street Bank (see State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368, U.S.P.Q. 2d 1596 (Fed. Cir. 1998), cert. denied 119 S.Ct. 851 (1999)) in which the Federal Circuit adopted the view that "business methods" were not statutorily excluded from patentable subject matter. The genesis of the prohibition on business method patents is commonly said to have arisen in Hotel Security Checking Co. v. Lorraine Co., a 1908 case containing dicta saying "[n]o mere abstraction, no idea, however brilliant, can be the subject of a patent irrespective of the means designed to give it effect."68 This was, according to the Hotel Security court, because a "system of transacting business disconnected from the means of carrying out the system is not, within the most liberal interpretation of the term, an art." However, as the Federal Circuit noted in State Street, the decision in Hotel Security did not rely on the "business method exception" to render the patent invalid. Hotel Security nevertheless became the source of judicial statements that business methods were not patentable subject matter, eventually resulting in the PTO's adoption of a policy against granting business method patents. The exclusion of business methods from patentable subject matter was only half of the mid-twentieth century legal obstacles to business method patents. The "Mathematical Algorithm Exception" served for much of the century to place equally
difficult obstacles to patenting such inventions. Based upon the principle that patents cannot extend to "mere abstract ideas" the mathematical algorithm exception operated to preclude patents involving a sequence of definable steps, such as are typically carried out by software. Since many, if not most, modern developments in business methods involve use of computers, the mathematical algorithm exception gave courts additional ammunition to reject patents on commercial activity.

The restraints on algorithm patents began to loosen with Diamond v. Diehr (450 US 175 (1981)) in which the Supreme Court reiterated the prohibition against patents on mathematical algorithms so long as the represent mere abstract ideas, but eviscerated that restriction by agreeing algorithms are patentable when they produce a tangible result. With the decision in State Street, the Federal Circuit removed all doubt as to the patentability of software systems conducting financial activity. Under State Street, the analysis now focuses on "the essential characteristics of the subject matter, in particular, its practical utility." Methods and systems having such practical utility are patentable subject mater assuming exclusivity can be practically enforced.


Drafting Internet Business Method Patents

In the broadest sense, e-commerce and business method patents are prepared using the same principles applicable to other patents. The claims, drawings and specifications are completed with the dual and somewhat inconsistent objectives of obtaining the broadest claims the PTO is willing to allow, while simultaneously ensuring that the patent does not cover the prior art. The patent should be prepared with maximum variety in claims drafted and alternatives disclosed, and the claim language include a careful balance of expressly understood (and therefore limited) terms and deliberate ambiguity. The patent should be prepared, of course, in minimum time and with minimum expenditure of the client's resources, financial or otherwise. Numerous references give fine guidance on effective ways of accomplishing these traditional objectives. Several aspects of e-commerce patents are, however, unique. The growing hostility to patents within the software community and the presence of prior-user rights suggest that some effort should be made to prevent a patent from being successfully characterized as a "business method" patent, an admonition that is doubly applicable to e-commerce patents.

First, business method and e-commerce patents should not necessarily be considered to be software patents. Although many business method and e-commerce patents involve inventions that are implemented in software, the invention can be and often is broader than the software used to carry out the invention. As a result, many of the techniques used in drafting software patents are either inappropriate or too narrow. "computer-readable medium" claims will adequately protect the particular steps of a business or e-commerce method when embodied on a single memory, but are at best limited and at worst unable to capture the steps of a procedure that includes manual activity. Claims directed to software data structures will almost never provide adequate protection. In highly limited circumstances, refined claiming techniques such as "propagated signal claims" and "compatible system claims" might be worthwhile, but will rarely provide other than the most limited protection. An assumption that business method or e-commerce patent developments are merely traditional software inventions can therefore lead to underprotection of the invention. Some traditional "software" claiming techniques are appropriate. Many ecommerce patents lend themselves well to "user interface" claims, directed to the steps performed when a computer interacts with the user. Such claims allow far easier detection of infringement than, for example, claims where infringement cannot be identified without access to information describing the internal operation of the infringing system. Conventional method claims that simply describe the sequence of steps performed in the invention, are not only useful in the software field but form the foundation of most e-commerce and business method patents. Of course, the best approach is to prepare a variety of claims using every possible approach, producing broad, narrow and intermediate claims, as well as claims that vary in the ease with which infringement can be detected.

Second, patents might avoid being characterized as claiming a "business method" if no method is claimed. By so doing, some possibility exists that the claim will not be subject to prior user rights. Although this principal is easy to assert, implementing that guidance can be a more difficult proposition. Even though the Federal Circuit noted in State Street that the claims in issue were not method claims, it still evaluated the business method exception. Moreover, if means-plus-function claims are used, a failure to include supporting structure for the recited means can result in the claim being construed as a method claim.

Third, the claim drafter should be wary of the ability of a potential infringer to move its activity offshore, a possibility with particular relevance to e-commerce patents. Claims should be avoided, if possible, that specify some of the necessary activity occurring in a remote host computer. Doing so creates the possibility that the infringer will move the host to a location outside the United States, and therefore outside the reach of US Patents (while still accessible to customers via the web). Although arguments can be made that such a strategy would not prevent enforcement of the patent because the effects of the host computer are experienced within the US, the need for that argument should be avoided by drafting claims that do not recite a host, unless that host cannot be easily moved abroad. See the below patent infringement discussion for more treatment of off shore issues.

Fourth, some claims should be drafted to ease the detection of infringement. For example, claims that are limited to the details of what occurs when a particular item of software is processed by a computer's CPU are often impossible to assert against an infringer. Absent decompiling all possible software and examining the software's function (an impossible task), the patent owner might never know of an infringement. For ecommerce patents, a good alternative is to focus the claims on those aspects of the invention that are visible through use of a web browser, and no more.

Fifth, some business method patents, involve activity that, in hindsight, can appear enormously simple. While the black letter law surrounding claims drawn to simple inventions emphasizes that they deserve the same respect as complex developments, the law and its application are rarely congruent. Some effort should still be made to inject an aura of technical complexity into the patent, particularly when the claimed invention can be considered to e merely adapting an old business technique to ecommerce. Specifications should not be drafted with deceptive descriptions, but they should also not be drafted without regard to the usually plentiful opportunities to mention the technical details that are frequently present but often overlooked by the attorney drafting the application.

Sixth, e-commerce patents should not be drafted in a fashion that precludes infringement. Surprisingly, some e-commerce patents are written so that neither the ecommerce business nor the consumer using the browser can infringe by themselves; the infringing activity requires action by both, leading to the unfortunate possibility that neither direct nor inducement of infringement can be proved. Care should be exerted to ensure that claims are drafted to focus on the activity of just the e-commerce business or just the consumer. In a somewhat counterintuitive result, claims that focus on direct infringement by the consumer are actually better, since the consumer's activity is easier to detect, and the e-commerce competitor is most likely to be liable for inducement of infringement if direct infringement by a consumer can be proven.

The environment of e-commerce patents is still fluid and rapidly changing. As more patents issue, and more patent suits are initiated, fought and resolved, new issues will arise, and the already burgeoning world of Internet patent litigation will become both more complex and more controversial. Due to the pace of change in the software/Internet/business method world, it is all the more critical for the practitioner to maintain a constant awareness of new legal developments, and adapt as the Internet patent world changes, since the only certainty is unceasing fluidity.

Examination of Business Method Patents

In terms of pendency, software/Internet/business method patents for many years have taken about five to six more months to prosecute than electronics patents in general. Pendency has risen about two months per year for the last six years, meaning that in recent years PTO management has failed to manage to have sufficient numbers of examiners available. Also for at least the last six years, while examiners have about ten percent more claims to process for software/Internet/business method patents as compared to electrical patents, it is taking examiners about twenty percent more time to process the software/Internet/business method patents.

As of 2006, the USPTO is experiencing significant delays in examining business method patents. Projected delays of up to 14 years have been reported. The delays are due to a combination of the step change in business method filings as of the State Street Bank decision and the difficulty in hiring qualified examiners with financial services backgrounds (e.g. insurance and banking). It has also been reported, however, that inventors can get their patent applications examined in as little as six months, if they submit a Petition to make special. A petition to make special is a procedure for getting particular patents examined early.

Patent examiners rarely have a comprehensive knowledge of the specific technologies disclosed in the patent applications they examine. This is in large part due to the enormous number of micro-niches in the software field and the relatively limited number of examiners. Another reason is that patent examiners simply do not have enough time and library resources to do their jobs. As a consequence, patents are often allowed on inventions that appear to be trivial extensions of existing technologies. If any member of the public disagrees with a patent office's granting of a patent, they can challenge the validity of the patent once it issues. This is done by an reexamination in the US and an opposition proceeding in Europe. Other countries have similar proceedings. Currently about 5% of all issued patents in Europe are opposed. Of those, 1/3 are fully upheld, 1/3 are partially overturned, and 1/3 are fully overturned.

To help improve the chances of your software/Internet/business method patent being strong and defensible, it is very encouraged that a thouroughpatent and non-patent novelty search be performed, and that the patent specification be drafted to clearly distinguish the invention from all pertinent prior art found.
Once your patent is pending in the patent examination process the software/Internet/business method is often shared with or sold to the public. It can take some time for the patent office to finally issue your patent. In that time, you run the risk of the public coming to believe that your product or service has become part of the public domain. To avoid this, it is often desirable to allow your patent application to be published 18 months after filing, so third parties are usually made aware of prospective patent rights well before any patent is granted. Granted patents may be very different from the published applications, so the published application may only serve as a guide to the final scope of protection.

Once examination begins, the claims will be evaluated for patentability. The claims define the property rights provided by a patent, and thus require careful scrutiny. The goal of claim analysis is to identify the boundaries of the protection sought by the applicant and to understand how the claims relate to and define what the applicant has indicated is the invention. USPTO personnel must first determine the scope of a claim by thoroughly analyzing the language of the claim before determining if the claim complies with each statutory requirement for patentability.

USPTO personnel will begin claim analysis by identifying and evaluating each claim limitation. For processes, the claim limitations will define steps or acts to be performed. For products, the claim limitations will define discrete physical structures or materials. Product claims are claims that are directed to either machines, manufactures or compositions of matter.

USPTO will then correlate each claim limitation to all portions of the disclosure that describe the claim limitation. This is to be done in all cases whether or not the claimed invention is defined using means or step plus function language. The correlation step will ensure that USPTO personnel correctly interpret each claim limitation.

The subject matter of a properly construed claim is defined by the terms that limit its scope. It is this subject matter that must be examined. As a general matter, the grammar and intended meaning of terms used in a claim will dictate whether the language limits the claim scope. Language that suggests or makes optional but does not require steps to be performed or does not limit a claim to a particular structure does not limit the scope of a claim or claim limitation

Patentability and Validity of Business Method Inventions

Historically, the court required a look at the invention as a whole and denied method patents based on two exceptions : the mathematical algorithm exception (e.g., for software patents) and, arguably, the business method exception.

In State Street Bank & Trust Company v. Signature Financial Group the court found that the mathematical algorithm test misleading and determined that software and business methods should be examined like any other traditionally patentable subject matter. In 1999, the court concluded that algorithms are patentable because they limit a general-purpose computer to a specific purpose, performing functions pursuant to the software. This statement is narrower than State Street's broad holding that mathematical algorithms were patentable as long as their application produced a useful, concrete, and tangible result.

You should keep in mind that granted software/Internet/business method patents can be revoked if found to be invalid, so development of new ideas is therefore not blocked by bad patents. If members of the public feel that an examiner has allowed an overly general claim in a patent, they may file an interpartes examination in the US, an opposition in Europe, or a lawsuit in Court, to argue that claims are overly broad and should not be allowed. Thus, it is always a good idea to have a professional patent novelty search performed to help avoid this issue before filing. Despite the ever increasing volume of non-patent prior art, the average software/Internet/business method patent is citing only 1 to 2 non-patent prior art items, which is far too few. Worse yet, the vast majority of software patents (about 60%) still cite no non-patent prior art. Thus, to strengthen your software/Internet/business method patent it is strongly advisable to find at least 10 pertinent non-patent prior art reference to cite in your patent case and design around in the specification.

Internet and business method/e-commerce patents are also particularly subject to invalidity findings based on lack of enablement and/or utility. The first paragraph of 35 U.S.C. §112 requires an applicant to describe the claimed invention sufficiently to enable one skilled in the art to make and use the invention. 35 U.S.C. §101 requires that the invention have a useful purpose, or Utility. Problems can arise when one or both of these requirements are not met. In one situation, an applicant fails to disclose a credible utility in the specification (referred to below as the "no utility situation"). In the other situation, an applicant provides evidence to address doubts about a utility stated in the specification (referred to below as the "no evidence situation"). Each of these situations has a different consequence. The different consequences can be critical, especially in the context of an interference.
With regard to the "no utility situation," it is well settled that an application must disclose a utility as required in §101, and enable the utility as required in §112, as of the filing date. If a utility is not disclosed and enabled in the application as filed, the application is in violation of §101 and 112, and does not accord the benefit of its filing date to later continuing applications. With regard to the "no evidence" situation, it is equally well settled that an applicant may provide evidence after the filing date to further support a utility already set forth in the specification as filed, and still maintain the original filing date.

In practice, almost no patents in the US are challenged in an interpartes reexamination since it weakens an infringer's ability to defend themselves if they fail in the interpartes reexamination and are then sued for patent infringement. Moreover, because software/Internet/business patents, like all patents, are presumed valid there is a very high, often insurmountable, burden on competitors to work the patent process towards invalidating your patent. The costs of determining if a particular piece of software or business method infringes any issued software/Internet/business method patents is almost always too high and the results are too uncertain to be worth fighting.

Competitors (your potential licensees) usually find that spending time and money challenging software/Internet/business method patents is a waste of valuable resources and tend to license instead. Typically, they conclude that defending against the blocking patent requires that significant funds be diverted away from their research and development and is not worth fighting. This is in part due to the fact that patents can be obtained on relatively small incremental improvements in methodologies. Thus a new innovative product might require hundreds of patents to protect and might in turn be covered, at least to some extent, by thousands of prior issued patents. Any one of these prior issued patents could prevent a new product from being made used or sold in the marketplace. As such, the small to mid sized player can leverage significant opportunity to license even a patent of limited scope to large entities that require that technology to roll out a new product or service.

Any analysis of Internet and business method/e-commerce patents must also included a candid appraisal of their likely enforceability. Despite the success of in enforcing the “1-Click™” patent, real uncertainty exists regarding the overall reception such patents will receive in the courts. Many e-commerce patents represent simple, understandable developments that, while patentable, do not describe and claim pioneering developments. Traditionally, low tech, easily-understood developments, have received less favorable treatment in the courts. Logically, when faced with Internet patents that represent minor adaptations of earlier practices to the web, an unbiased observer would expect a high frequency of invalidity rulings. Indeed, the greatest criticism of e-commerce patents has been directed toward patents that, at least to lay commentators, appear to do nothing except take an old practice and claim the use of that practice on the web as an invention. The reality is that many Internet patents involve the cyberspace equivalent of patenting familiar household implements; the patent’s specification is dressed in the most formal facade the drafting attorney can prepare, but upon close inspection the patent represents a disappointedly trivial development.

A different conclusion, however, is appropriate for patents that describe truly innovative uses of the web, and which could not have been developed before the advent of commercial use of the Internet. Indeed, a key part of evaluating the potential validity of Internet and e-commerce patents is the answer to the question: “Does the patent claim a method that was not possible before the creation of the web?” If the answer is yes, then the patent is likely following in the grand tradition of improvement that represents the bulk of patents world wide, and has a higher chance of surviving an attack on its validity. A contrary answer means the patent is potentially subject to a vigorous validity challenge.

The 1999 “American Inventors Protection Act” returned the subject to the vanguard of patent issues. The act creates a new “First Inventor” defense to a claim of patent infringement, applicable only to patents directed to “methods of doing business.” Neither the act nor the its legislative history provides any hint of a useful definition of the term “business method,” leaving it to the courts to determine which patents are and are not subject to the defense.

Those facing a patent infringement suit will search patent specifications for language or embodiments that might be used to limit the reach of more generally worded patent claims. Furthermore, given the Federal Circuit’s emphasis on nonobviousness and novelty, patent infringement defendants will often examine the portions of the plaintiff’s patent filings detailing those claims. An evidentiary demonstration that the USPTO did not properly consider nonobviousness or prior art, as it relates to novelty, might persuade a court to look more skeptically at the validity of the patent underlying the infringement suit.

Scope of Business Method Patents

There seems to be an increasing trend over the past several years for reading patents narrowly based on
patent specifications. Historically, courts had not really addressed the scope of a business method patent in light of potentially limiting language found in its patent specification. Those whom you assert your patent against will immediately be poring over your patent specification to locate limiting language, which remains a sound but tedious option when faced with a process patent infringement suit.

Thus, Patentees should take care to include in their patent specifications as many embodiments
and permutations of their claimed processes as possible, and do so with language that describes the claimed process with some specificity without reading too narrowly.



The Federal Circuit decides In re Bilski - a landmark decision

In a 9-3 majority decision authored by Chief Judge Paul Michel, the Federal Circuit declared the machine-or-transformation test as the touchstone inquiry for determining patent-eligibility of process claims under 35 U.S.C. § 101 ("§ 101"). The court reaffirmed the patent-eligibility for both business methods and software and carefully avoided overruling its own precedent established in the State Street Bank' and AT&T cases. The majority decision also clarifies other areas of uncertainty by affirmatively rejecting alternative § 101 tests. The Patent Office rejected a petition from applicants Bernard Bilski and Rand Warsaw because it decided that the process described was not confined to a particular machine and amounted to patenting a "mental Leap" or an "abstract idea".

The invention at the heart of the Bilski appeal is a financial method for hedging consumption risk for commodities sold at fixed prices. While the invention could be implemented using a machine such as a computer, the claims are not so limited.

The Board of Patent Appeals and Interferences ("BPAI") found Bilski's claim unpatentable as failing to recite statutory subject matter under three distinct § 101 tests including (1) the "transformation" test, (2) the "abstraction" test and (3) the "useful, concrete, and tangible result" test. Bilski appealed the decision to the Federal Circuit who initially heard oral arguments on October 1, 2007. Soon thereafter, the Federal Circuit sua sponte ordered a rehearing on May 8, 2008 before an en banc court.

In Bilski, the Federal Circuit endeavored to realign its § 101 jurisprudence with Supreme Court precedent. Both the Supreme Court and the Federal Circuit have long recognized that "fundamental principles" such as laws of nature, natural phenomena, or abstract ideas are not patentable. However, the majority struggled to otherwise identify a unifying test common throughout the Benson, Flook, and Diehr trilogy. Upon synthesizing the case law, the Federal Circuit pronounced the machine -or-transformation test as the "definitive test to determine whether a process claim is tailored narrowly enough to encompass only a particular application of a fundamental principle rather than to pre-empt the principle itself."'

According to the machine-or-transfor mation test, a process claim is patent eligible subject matter if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. Thus, the question before the Federal Circuit was whether Bilski's "claim recites a fundamental principle and if so, whether the claim would preempt substantially all uses of the fundamental principle if allowed."

Applying the two pronged machine - or-transformation test to the Bilski facts, the court immediately disregarded the "machine" inquiry as not being ripe for discussion given the absence of machine limitations in Bilski's claims. Therefore, under current law, business methods are patentable subject matter in the USA so long as they are executed on a machine (e.g., a computer) and result in a tangible transformation.

The 2010 Supreme Court Decision

All justices agreed that Bislki’s invention was not eligible for patent protection.

All justices agreed that the machine or transformation test was in general a useful test of when a method was eligible for patent protection but was not the only test..

All justices rejected the “useful, concrete and tangible result” test of State Street, which Breyer J noted had preceded the grant of patents that “ranged from the somewhat ridiculous to the truly absurd”.

However, different Justices had different reasons for their conclusions.

The majority in an opinion by Justice Kennedy ( joined by Roberts CJ, Thomas, Alito and Scalia JJ - often referred to as the Court’s “conservative” wing) held the invention to be an abstract idea and so not patent-eligible

The minority in an opinion by Stevens J (joined by Ginsberg, Breyer and Sotomayor JJ - often referred to as the Court’s “liberal” wing), although agreeing that what was claimed was an abstract idea, would rather have held the invention to lack patent eligibility because business methods should not be the subject of patent protection and Bilski’s method was a business method.

Why “Machine or Transformation” Test is not the only Test

In holding that the “machine or transformation” test was a useful, but not the only test for whether a process might be eligible for patent protection, Kennedy J pointed out that limiting the meaning of the word “process” to those processes that use a particular machine or effect a transformation would be an unjustifiable limitation on the ordinary meaning of the word “process”. Furthermore, it would ignore the fact that the in Gottschalk v. Benson although the Supreme Court had stated that this test was ‘the’ clue to patentability, the Court had also declined to hold that no process patent could ever qualify if it did not meet the test. Kennedy J noted that the amici briefs filed had shown that there were concerns that exclusive use of the machine or transformation test would lead to uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression and the manipulation of digital signals. He commented that

The machine-or-transformation test may well provide a sufficient basis for evaluating processes similar to those in the Industrial Age – for example inventions grounded in physical or other tangible form. But there are reasons to doubt whether the test should be the sole criterion for determining patentability of inventions in the Information Age.

Although this did not mean that the court was holding “that any of the above-mentioned technologies should or should not receive patent protection”.

He concluded this section:

[P]atent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent creative[2] application of general principles. Nothing in this opinion should be read to take a position on where that balance ought to be struck.

Why the Law does not Preclude all Business Method Patents

Three quotes suffice to summarize Kennedy J’s views on this

“A conclusion that business methods are not patentable in any circumstances would render § 273 meaningless”.


“… while § 273 appears to leave open the possibility of some business method patents, it does not suggest broad patentability of such claimed inventions”


If a high enough bar is not set when considering patent applications of this sort, patent examiners and courts could be flooded with claims that would put a chill on creative endeavor and dynamic change. In searching for a limiting principle, this Court’s precedents on the unpatentability of abstract ideas provide useful tools.

Clearly he does not wish to open the lock gates to a flood tide of business method patents such as followed the Federal Circuit’s State Street decision.

So, What is the Test?

Rather than adopting categorical rules that might have wide reaching and unforeseen impacts, the Court resolves this case narrowly on the basis of Parker v. Flook, Gottschalk v. Benson, and Diamond v. Diehr which show the petitioners claims are not patentable because they are attempts to patent abstract ideas. 

These three cases are considered briefly as follows:

Gottschalk v. Benson (Supreme Court 1972)

The Supreme Court unanimously held unpatentable a method for converting binary coded decimal numbers into pure binary numbers. The claims were directed purely to a sequence of steps applied either to numbers themselves or to signals stored in a re-entrant shift register representing the numbers.

Parker v. Flook (1978)

The Supreme Court (6-3) held unpatentable a method for computing updates to an alarm limit (used in relation to a catalytic converter, but the use was not specified in the claim), involving three “determination” steps and a final “adjustment” step based on application of a formula in one of the determination steps. The court commented

“The notion that post-solution activity … no matter how conventional or obvious in itself, can transform an unpatentable principle into a patentable process exalts form over substance.”

Diamond v. Diehr (1981)

The Supreme Court held (5-4) patentable a computerized method for controlling a process for curing rubber that calculated when to open the mold in which cure was taking place by application of the known Arrhenius equation to data obtained from temperature sensors within the mold. In doing so, the Court noted that an application of a law of nature or a mathematical formula to a known structure of process may well be deserving of patent protection. Such application did not pre-empt the use of the formula or law of nature but only one application of it. However, to avoid the possibility of such a preemption, limitation to a particular application had to be a genuine one and not a mere field of use limitation.

It was decided that the Bilski patent claims, cannot be “an abstract idea to one field of use or add[ed] token postsolution components [which] did not make the concept patentable.”

The Court once again declined to impose limitations on the Patent Act that are inconsistent with the Act’s text … and stated the it need not define further what constitutes a patentable process beyond pointing to the definition in §101 and looking to the guideposts in [Parker v. Flook, Gottschalk v. Benson, and Diamond v. Diehr].

Summary and Comments

There is no absolute bar on patent protection for business methods, but to be patent eligible, the claims should be drafted fairly narrowly to avoid claiming all practical applications of the idea underlying the invention (confining the claims to a particular field of use is not sufficient by itself), and avoid having a mathematical formula as the sole point of novelty. If it is the case that the method can only be performed by a computer it is probably also useful to set this out and include sufficient of the logic that the computer must use to meet the requirements of 35 USC § 112 first and sixth paragraphs.

By way of comment, it is worth noting that before Fed Circuit’s decision in Bislki, the test being used was the “useful, concrete and tangible” test enunciated in State Street to distinguish what was patent-eligible from what was “abstract”. All members of the Supreme Court in Bilski said that this test let too much in and most commentators have agreed. Judge Rader in the Federal Circuit and all of the Supreme Court said Bislki’s invention as claimed was abstract - but if one looks up the word abstract in the dictionary (“disassociated from any specific instance”, “insufficiently factual”) it is difficult to see how a method of hedging commodity prices falls within such definitions.  The majority opinion in the Federal Circuit set out the Supreme Court precedents in detail and extracted the one common thing in them namely “machine or transformation”. The Federal Circuit’s decision may well have been a deliberate attempt to force the Supreme Court to recognize that its precedents do not work well in the modern age (Stevens J’s opinion shows why they do not work well) and come up with something better. Unfortunately, the Supreme Court did not, simply saying that Bilski’s invention was “abstract” in a case it was not abstract according to most dictionary definitions of the word and failing to say what abstract meant in this context except “too broad” - an issue which as Stevens J pointed out should be decided under 35 USC § 112 not 35 USC § 101.



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