BUSINESS FUNCTIONS, ELECTRONIC COMMERCE AND FINANCIAL INSTITUTION DATA PROCESSING
Patentable Business Methods. Business methods have been explicitly patentable in the United States since the 1998 Court of Appeals decision in State Street Bank & Trust Co. v. Signature Financial Group, Inc. 47 USPQ2d 1596, 1604 (Fed. Cir. 1998). The State Street decision involved the conversion of data using a mathematical algorithm. Business method claims involving the transformation of data using an algorithm must produce a "useful, concrete and tangible result."
Business method patent applications are filed as utility patent applications.
Business method inventions are not categorized in "business method" claims, but rather they are treated like any other invention claiming a process in a series of steps. However, most fall within patent classification 705 and in that classification, about 5,000 U.S. patents issued in the 5 year period spanning 2001 to 2005.
According to the United States Patent and Trademark Office, automated financial/management business data processing method patents did not suddenly spring into being in 1998. Rather, the first cited are 1889 patents (395,781; 395,782; and 395,783) involving automated the tabulating and compiling of statistical information for businesses and enterprises.
However, despite this characterization, the early patents were focused on mechanical devices. In addition, a 2005 U.S. Board of Patent Appeals and Interferences decision (Ex Parte Lundgren) found claims to a business method invention valid even though the claims did not involve a computer, that is, a technological component. Previously, such applications were rejected under a "technological arts" test which required the disclosure or suggestion of computer, automated means, apparatus of some kind.
Recent appellate activity on business method patents suggest that the Patent Office will only approve a business method application if the process is embodied in, operates on, or transforms, another class of statutory subject matter, i.e., a machine, manufacture, or composition of matter. This was the position articulated by an Assistant Solicitor in oral argument before a panel of the Court of Appeals for the Federal Circuit for In re Bilski, Fed. Cir., No. 2007-1130 on October 1, 2007.
The Bilski case did not involve a business method implemented by a computer or other machine. The Sept. 26, 2006 decision by the U.S. Board of Patent Appeals and Interferences (Ex Parte Bilski) concluded that this kind of business method claim is "statutory subject matter [only] if there is a transformation of physical subject matter from one state to another . . . ." The Bilski decision would also find unpatentable any "method that is so broadly claimed that it reads on performing the steps mentally [because it] should be considered an 'abstract idea'."
On September 20, 2007, the Federal Circuit decided In re Comiskey, affirming the Section 101 rejection of a business method patent directed to methods of mandatory arbitration. The court held that business methods employing only human intelligence without involving machines, manufactures, or compositions of matter do not qualify as patentable subject matter.
The 1998 State Street decision focused attention on resolving any uncertainty towards affirmatively declaring that business methods alone are patentable subject matter and Ex Parte Lundgren allowed business method claims without any technological component.
The Lundgren decision would seem to drive the system closer to allowing patentability for almost any process involving a series of steps producing a useful result. However, it is likely to be a costly mistake to assume this is the scope of patentability.
The Bilsky decision narrowed the Lundgren decision to requiring a "useful, concrete and tangible result" for claims to machines and machine-implemented processes and for non-machine implemented processes, to those involving a transformation of physical subject matter from one state to another.
The Comiskey decision and its progeny portend a much narrower business method qualification for a patent to those involving claims to machines, manufactures or compositions of matter.
Patentability of Business Methods. Patentability of business method inventions depends on the method achieving a practical result using an apparatus or transforming data with an algorithm to produce a "useful, concrete and tangible result." As with other inventions, a business method invention to be patentable must be new, useful, non-obvious, and not indefinite.
Some significant retreat from Lundgren's very broad scope of patentability has occurred in March of 2007 with emphasis by the U.S. Patent and Trademark Office Solicitor's Office that the Supreme Court has recognized only two instances in which a method may qualify as a section 101 process: when the process "either [1] was tied to a particular apparatus or [2] operated to change materials to a 'different state or thing.'" Section 101, title 35 of the United States Code is the section of the law that defines patentable subject matter.
DEFINITION OF BUSINESS METHOD
Defining Business Methods. Business methods are loosely defined. Generally they may be categorized as methods for performing data processing or calculation operations in the--
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practice, administration or management of an enterprise;
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processing of financial data; or
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determination of the charge for goods or services.
CONDITIONS FOR PATENTABILITY & EXPECTATIONS
Rigorous Reviews. Partly because of the criticism of allowing too many questionable business method patents and partly because of the tendency of applicants to seek broad claims in their applications, the United States Patent and Trademark Office subjects business method patent applications to two reviews before allowing an application: the first by the examiner who scrutinizes the prior art (secret U.S. patents, patent applications (domestic and foreign), and non-patent literature); and the second by a select group of reviewers (composed of management, quality review examiners, special program examiners, and others).
Rejection Rate and How Long It Takes. As a result of rigorous reviews, about 84% of electronic commerce business method applications and about 43% of the business method patent applications overall, are rejected by the Patent Office. This compares to a rejection rate of about 35% of other patent applications. Additionally, the processing time for a business method application is about three-and-a-half years compared with about two years for others.
Rest of the World. Business method patents in most of the rest of the world face even more significant hurdles than in the United States. Generally, these relate to an invention having a "technical" component.
The European Patent Office, acting for 32 member states, rejects patent applications which do not have a "technical character." An invention must relate to a "technical" problem and have "technical" features. While "technical" is not defined in the law, it has been interpreted to require a physical feature that is useful to solve an industrial problem. Article 52 of the European Patent Convention contains an explicit bar to patenting "methods of doing business."
Perhaps a bit more liberal is Australia, where a process claim on a business method must have "A physical effect in the sense of a concrete effect or phenomenon or manifestation or transformation," according to Federal Court of Australia - Full Court in Grant v Commissioner of Patents (FCAFC 120, July 18, 2006).
In Japan, patentable subject matter involves "a technical idea utilizing a law of nature." Business methods are generally regarded as software related inventions and are considered to have a technical nature.
TYPICAL BUSINESS METHOD CATEGORIES
Patentable Business Methods. The four largest groupings of business method inventions are directed to the general business operations--
1. Determining Who Your Customers Are, and The Products/Services They Need/Want
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Operations Research - Market Analysis
2. Informing Customers You Exist, Showing Them Your Products & Services, and Getting Them to Purchase
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Advertising Management;
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Catalog Systems;
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Incentive Programs; and,
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Redemption of Coupon
3. Exchanging Money and Credit Before, During, and After the Business Transaction
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Credit and Loan Processing;
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Point of Sale Systems;
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Billing;
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Funds Transfer;
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Banking;
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Clearinghouses;
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Tax Processing; and,
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Investment Planning
4. Tracking Resources, Money, And Products
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Human Resource Management;
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Scheduling;
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Accounting; and,
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Inventory Monitoring
SOFTWARE RELATED PATENT
Software. Most business method patents today involve a software implementation. See the Software Patent page for more information on computer program patentability. Visit the page on utility patent applications to understand the costs and next steps.
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This file last modified 01/02/08.
