Business Method Patents Online

Abstract:

As its name suggests, a business method patent grants to its holder exclusive rights to a particular way of doing business. Until recently, it was widely assumed that business methods were not patentable due to the judicially created "business methods exception" to patentability. As a result, firms enjoyed only limited intellectual property protection against imitation of their business strategies by competitors. To the extent that they managed keep their strategies secret, they could rely on trade secret protection, which prevents competitors from using trade secrets obtained by "improper means." In practice, however, most business strategies could not be effectively concealed, and competitors were thus free to mimic them. The 1998 decision by the Court of Appeals for the Federal Circuit in State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998) altered this situation dramatically. The Court did away with the "business methods exception" to patentability and upheld a patent on a software program that was used to make mutual-fund asset allocation calculations. In the wake of that decision, companies have been seeking -- and obtaining -- business method patents at a remarkable pace. It is difficult to determine exactly how many business method patents have been issued, however, as such patents can be classified in a number of different ways. Generally, patent class 705 -- which covers, in part, data processing for business practice -- is considered a good proxy for business method patents, as the majority of such patents are filed under this category (and especially given that methods of doing business online tend fall under this category).[1] The U.S. Patent and Trademark Office (USPTO) reports that, in 1998, there were 1340 class 705 patent applications, and 420 such patents were issued. In 2000, applications for business method patents rose dramatically to 7800, with 899 such patents issued. In 2001, applications increased again (8700), but the number of issued patents decreased sharply (433), probably as a result of the USPTO's heightened attention to the "quality" of business method patents. Over the last few years, this trend has continued, with about 6300 class 705 applications each year, and only 500 or so issued annually. Since a large percentage of those patents involve methods of doing business online, they merit our attention. The frenzy over business method patents is by no means confined to the United States. Both the European and Japanese Patent Offices, which together with the United States cover 83% of all patents worldwide as of 2000, similarly recognize some form of the business method patent. However, while the Japanese have embraced the concept (albeit with stricter patentability standards), there remains a strong movement within Europe to reverse earlier policy decisions and eliminate business method patents altogether. Many other countries are in the process of forming their policy toward this new category of patents. Meanwhile, controversy over business method patents in the United States has begun to die down; while the process for obtaining a business method patent was recently made more rigorous, legislative challenges to the availability of such patents have proved unsuccessful. In sum, business method patents are here to stay (at least in the United States), but their availability or character may continue to change.

Subject:

Social Sciences

Grade Level:

Post-secondary

Collection:

Harvard Law School