Navigating the Recent Ebbs and Tides of Business Method Patenting

Predictable intellectual property protection is essential for high technology businesses.

A business charts its course based on estimates of future opportunities, and the ability to predict what technology advantages can be protected with IP is often an essential navigational tool.

Unfortunately, some key types of innovations have suffered from weak and unpredictable protection.

In today’s information age, a company’s most valuable innovations may be the ways it processes data, manages its people, discovers new drugs, generates stock quotes, prices its products, or performs other “business methods.” The method itself is often far more innovative – and far more valuable – than any technology needed to implement it. Yet, protection of business methods has been weak at times and is still unpredictable.

Nonetheless, the importance of business methods makes it necessary to consider how they can be protected. Several recent events in IP law relating to patenting business methods make the time ripe for businesses to reevaluate how they protect their innovations.

A recent decision by the U.S. Patent Office’s Board of Patent Appeals and Interferences (BPAI) should make it possible to obtain business method patents in the short term. However, a case to be heard by the Supreme Court serves as a reminder that the winds of unpredictability can rapidly rise to gale force.

How We Got Here

In the early days of the information revolution, it was widely believed that patent protection was not an option for protecting business methods. Abstract ideas, laws of nature, computational algorithms, and other processes that did not impact something tangible were categorically deemed upatentable, regardless of how innovative. Business methods generally fall within one of these categories.

This thinking changed in the late ’90s, following a landmark holding in State Street Bank and Trust v. Signature Financial Group (1998). In this case and AT&T v. Excel (1999) the Court of Appeals for the Federal Court (CAFC) established that patenting business methods is permissible. The court held that a business method is eligible for patenting if it produces a “useful, concrete, tangible result.”

Following State Street, the tide was clearly rising for business method patents. Business method patent filings increased, and the United Stated Patent and Trademark Office (PTO) made significant strides to improve the quality of examinations for business methods.

However, all was not smooth sailing. Having no library of previously granted patents and no prior experience in non-technical fields made it difficult for patent examiners to distinguish between business methods that were truly innovative and those that did not warrant patent protection.

This resulted in the PTO granting patents for ideas that appeared trivial, creating a storm of protest. The Amazon.com one-click shopping patent is one infamous example of a patent many believed should never have been granted.

In the face of these difficulties – notwithstanding the broad endorsement of business method patents by the courts – the PTO built its own life raft. It began to more frequently reject patent applications directed to business methods, reasoning that business methods were not eligible for patenting because they did not fall within one of the classes of inventions for which the U.S. Constitution and the Patent Act authorize the grant of a patent.

Patent examiners increasingly rejected business methods for not falling within the “technological arts,” unless the method was somehow tied to a computer, system or other device. This practice advanced to the point that business method claims were categorically rejected

It was widely rumored that all business method applications were subject to additional review by a special panel to ensure that no granted patent contained a claim to a business method. These aggressive practices led to a precipitous decline in the percentages of business method patents granted in recent years.

One such rejected business method was filed by Carl A. Lundgren on a method of compensating a manager. Lundgren appealed the rejection to the BPAI, which led to a milestone decision in October 2005 in Ex Parte Lundgren.

Where We Are Now

In Ex Parte Lundgren, the BPAI eliminated the requirement that an invention must be within the “technological arts” to be eligible for patenting. The BPAI held unambiguously that “there is simply no judicially recognized separate ‘technological arts’ test to determine patent eligible subject matter under § 101.”

Within days of the Lundgren decision, the PTO released Interim Guidelines for Examination of Patent Applications for Patent Subject Matter Eligibility, which clearly conforms to the Lundgren holding. The Guidelines explicitly condemns as improper the often used “not in the technologic arts” and “not machine implemented” rejections.

With these developments, the PTO has drastically altered its recent practices and seems to have endorsed the broad patenting of business methods. However, there is still doubt as to whether this is a change in course or a tack that will shortly change.

The underlying issues relating to the difficulty of examining business methods still remain. Moreover, a policy debate on the economic wisdom of patenting business methods continues in Congress, and the Supreme Court has not yet squarely addressed the subject.

Only days after the Ex Parte Lundgren decision and the release of the examination guidelines, the Supreme Court granted certiorari in Laboratory Corp. of America Holdings v. Metabolite Laboratories, Inc., a case with the potential to alter the definition of what can be patented.

Judicial precedent has long held that laws of nature, natural phenomena and abstract ideas cannot be patented, thus defining the boundaries of what is patentable. The claim at issue in Laboratory Corp (a method for diagnosing vitamin deficiencies) is not a business method, but to decide the issue on review, the Court will likely reconsider the boundaries between patentable and unpatentable subject matter, and may provide guidance on how to assess these boundaries in the modern world.

Though this case will likely focus on whether the method of diagnosis in question is an unpatentable “natural phenomenon,” the logic used by the court is likely to provide insight into what business methods are considered unpatentable “abstract ideas.”

Navigating the Uncertainty

How should these changes affect your approach to protecting the value in your business method?

You have three basic options: (i) seek non-patent methods to protect the business method; (ii) pursue patents on the business method; or (iii) pursue patents on collateral aspects of the business patent that are more widely accepted as being statutory.

For businesses that value business methods, a judicious mix of all three options may be best.

Alternate forms of intellectual property protection, such as trade secrets, copyrights, and contracts are available to business innovators. While each of these forms of intellectual property has its own benefits, each generally provides more limited protection than patents.

Trade secrets require secrecy, which is often inconsistent with use of a business method for value. Also, trade secrets provide no protection against other innovators who independently conceive the same innovations or can guess your trade secret from publicly available information.

Copyrights merely protect the expression of an idea, not the idea itself. Because the goal of a business method patent is to protect value in a method as an idea, rather than a specific implementation or expression of that idea, copyright will generally provide little benefit in protecting business methods.

A contract only provides protection relative to the parties to the contract. Obtaining contracts with all parties who you do not want to practice your business method will, in all but the most unusual circumstances, be impractical. Despite the shortcomings of these alternative forms of protection, if important facets of a business method can be identified, those facets may be protected using one of these alternatives.

Pursuing patents directly on business methods is now a more viable option than even a few months ago. The holding in Ex Parte Lundgren and the new examination guidelines suggest setting a course towards more aggressive patenting of business methods. If an individual patent examiner refuses to grant a patent because it claims a business method, recourse to the BPAI or the courts should, under current legal precedent, lead to a reversal of the examiner.

Wrestling a business method through the PTO may create delay and add cost, but using this strategy should allow you to obtain the maximum scope of patent protection to which you are entitled for your innovations.

Even with recent developments that seem to have cleared away all obstacles to business method patents, there are ample opportunities to flounder on the shoals of uncertainty. The underlying problems that led the PTO to categorically reject business method patents have not been resolved, and the PTO may find other ways to limit business method patents.

Further, with the possibility of Congress or the Supreme Court weighing in to change the rules, patents on business methods granted now may not be enforceable when really needed.

Patenting Collateral Aspects of a Business Method

A more certain approach is to focus your efforts on patenting collateral aspects of your business innovations. That is, instead of pursuing patent protection for the broadest conception of your new business method, seek protection for its commercially-valuable implementations.

For example, you can pursue protection for: