Business, Legal & Accounting Glossary
Business method patents are a class of patents which disclose and claim new methods of doing business. This includes new types of e-commerce, insurance, banking, tax compliance etc. There is a sustained debate as to what extent such patents should be granted, particularly for inventions that are essentially legal or contractual in nature as opposed to technological in nature. Nonetheless, they have become important assets for both independent inventors and major corporations.
In general, any invention is eligible for patent protection if it passes the tests of patentability: patentable subject matter, novelty, inventive 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”.
The legal situation as to whether 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.
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.
In a recent decision, Grant v Commissioner of Patents  FCAFC 120, , 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.
However, it has been suggested that Grant v Commissioner of Patents was wrongly decided because the court failed to properly apply the existing law as set out in the decision of the High Court of Australia in National Research Development Corporation v Commissioner of Patents (1959) 102 CLR 252 and that the court should not have imposed a physical aspect requirement.
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 U.S. 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.
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”.
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.
There is no exclusion for methods of doing business under US patent law. Patent applications for methods of doing business are examined using the same standards as any other invention.
Patents have been granted in the United States on methods for doing business since the US patent system was established in 1790. The first financial patent was granted on March 19, 1799, to Jacob Perkins of Massachusetts for an invention for “Detecting Counterfeit Notes.” All details of Mr Perkins invention, which presumably was a device or process in the printing art, were lost in the great Patent Office fire of 1836. Its existence is only known from other sources.
The first financial patent for which any detailed written description survives was to a printing method entitled “A Mode of Preventing Counterfeiting” granted to John Kneass on April 28, 1815.
The first fifty years of the U.S. Patent Office saw the granting of forty-one financial patents in the arts of banknotes (2 patents), bills of credit (1), bills of exchange (1), check blanks (4); detecting and preventing counterfeiting (10), coin-counting (1), interest calculation tables (5), and lotteries (17).
On the other hand, cases such as Hotel Security Checking Co. v. Lorraine Co., 160 F. 467 (2d Cir. 1908), which held that a bookkeeping system to prevent embezzlement by waiters was unpatentable, were often read to imply a “business method exception”, in which business methods are unpatentable.
For many years, the USPTO took the position that “methods of doing business” were not patentable. With the emergence in the 1980 and 1990’s of patent applications on internet or computer enabled methods of doing commerce, however, USPTO found that it was no longer practical to determine if a particular computer-implemented invention was a technological invention or a business invention. Consequently they took the position that examiners would not have to determine if a claimed invention was a method of doing business or not. They would determine patentability based on the same statutory requirements as any other invention.
The subsequent allowance of patents on computer-implemented methods for doing business was challenged in the 1998 State Street Bank v. Signature Financial Group, Inc., (47 USPQ 2d 1596 (CAFC 1998)). The court affirmed the position of the USPTO and rejected the theory that a “method of doing business” was excluded subject matter. The court further confirmed this principle with AT&T Corporation v. Excel Communications, Inc., (50 USPQ 2d 1447 (Fed. Cir. 1999)).
The USPTO continued to require, however, that business method inventions must apply, involve, use or advance the “technological arts” in order to be patentable. 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.
In October 2005 the USPTO’s own administrative judges overturned this position in a majority decision of the board in Ex Parte Lundgren, Appeal No. 2003-2088 (BPAI 2005). The board ruled that the “technological arts” requirement could not be sustained, 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).
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.
In 2006, Justice Kennedy of the US Supreme Court cast aspersions on business method patents when he commented that some of them were of “potential vagueness and suspect validity”. This was expressed in a concurring opinion to the case of eBay Inc. v. MercExchange, L.L.C.
There has been considerable speculation as to how this opinion might affect future business method patent litigation, particularly where a patent owner seeks an injunction to stop an infringer.
In November of 2007, the United States Internal Revenue Service proposed rules that would require tax files who paid a license fee for a tax patent to declare that to the IRS.
Methods of doing business that involve the use of a computer are classified in Class 705 (“data processing: financial, business practice, management or cost/price determination”). Class 705 includes sub-categories for industries such as health care, insurance, electronic shopping, inventory management, accounting, and finance.
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.
In the 8th edition of the International Patent Classification (IPC), which entered 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.
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This glossary post was last updated: 18th April, 2020 | 9 Views.