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Why Business Method Patents

Use of automated tools for conducting business, especially on the Internet in recent times has enormous commercial attraction and potential. Such tools invariably lead to faster, more efficient and cost-effective means of carrying out financial transactions and other business services. These methods evolved from cash register era, through the punch cards generation to present-day paperless, software-driven systems. That's why they became proprietary, and warranted legal provisions, and have come to be known as Internet patents, that enjoy the 20-year exclusivity while also reaping commercial benefits by licensing out the method.

To cite recent examples :

  1. Amazon.com devised a unique 1-click system to process online customer orders (U.S. Patent No 5960411)
  2. Priceline.com came up with a convenient method of reverse auctions to buy airline tickets over the Net. ( U.S. Patent No. 5794207)
  3. A patent has been issued for an online shopping rewards program, called “ClickReward" (U.S. Patent No. 5774870)

The first case that gave business method patent a place of its own under the broader “Utility Patent” Category is the State Street Bank & Trust Co v. Signature Financial Group Inc Case (1998). The State Street Bank had devised a new type of financial instrument, namely a method of calculating the net asset value of mutual funds.

In this pioneering case, the ruling said that patent laws were intended to protect all methods, irrespective of the necessity of a computer, as long as the method resulted in a "useful, concrete and tangible result." In fact, that's how both software patents and methods of doing business came to be legally protected, giving rise to very many Internet-related patents. (Software was considered as mathematical algorithms and therefore didn't warrant protection).

There have been several more cases where alleged infringement needed judicial intervention after it was recognised that business method patents are in fact patentable when they satisfy the other statutory patent requirements of being new (novel), non-obvious when compared to prior art, and useful . The more famous of such cases where court upheld the rights of the originator of the method are AT&T Corporation v. Excel Communications, Inc (1999), the Priceline.com v. Microsoft (2001) and Amazon.com v. Barnes & Noble ( 2002 ).

Thereafter, any novel business method when filed and verified, has earned a patent number, even though being an abstract (but implementable) idea - they are considered as one of the exceptions to types of processes (recall that a utility patent covers statutory subject matter including processes, machines, fabricated articles and composition of matter).

Not only did the USPTO create a new classification (Class 705) for the filing of business method patents under the more generic utility patent applications: "Data processing: financial, business practice, management or cost/price determination", but also had to improve related prior art resources, considered inadequate for this class thus far.

Additionally, it turned out that skills of routine patent examiners were not enough to examine business methods for novelty and non-obviousness; USPTO began to engage the services of specialists and other experts as additional support for patent examiners to investigate finance, e-commerce, insurance and Internet infrastructure related applications. To date, these specialists have helped in the grant of patents for such novel Internet-enabled tools as auction programs, electronic payment transactions, customer referral systems, incentive / reward models, user interface arrangements, and those ubiquitous and unsought pop-ups and links that constitute web advertising.

Nowhere else are business method patent laws so well defined or so expansive as in the US, but there seem to earnest, concerted attempts to make issues clearer and easier for the applicants.

For example, despite popular misconceptions about Europe's business patent definitions, as many as 30000 such patents have been granted, thanks to the ‘technical contribution test' that each application goes through.[Ref]

In Japan , laws for patents included a clause that requires a piece of software to involve a scientific principle, which in turn would necessitate use of physical laws. This initially excluded business methods as potential patent material. Subsequent revision favoring business method patents saw a boom in applications in 2000. Pro-patent policies of the Japanese government post 2002 has been seeing even more companies keen to acquire better business benefits through patent possessions. [Ref]

In Canada , contrary to US requirement, a novel business method need not involve software for implementation, but can still be patentable. In view of strong relations in Canadian and US economies, it is likely that Canada will eventually adapt similar business method patent policies as its neighbor. [Ref]

In India also, trends seem to indicate that business method patents will find favor, given the strength of emerging technology and booming software industry.