The Growth Of Business Method Patents

Tuesday, February 1, 2005 - 01:00
Kevin W. Goldstein

From what we hear and see in current news stories, it would appear that anything is patentable, no matter how strange, mundane, or plainly apparent. We have seen the many recent examples of "interesting" patents, such as U.S. Patent No. 5,443,036 disclosing a Method Of Exercising A Cat (which describes moving a pointer light beam around to entice a cat to chase the light beam), and U.S. Patent No. 6,796,800 teaching Methods For Automated Essay Analysis (which details an algorithm for comparing each sentence in an essay to a different article to determine if the essay has been plagiarized).

While these are two examples of what many may consider to be "silly" patents, a real concern has been directed to the growth of "business method patents" and whether such patent properties will be useful to and assist in the progression of businesses or whether they will be a economic drain on the business economy. This article reviews the general requirements for obtaining a patent, in particular business method patents, and how the U.S. Patent and Trademark Office (the "PTO") has stepped up the review procedures directed to business method applications. The article then describes how such patents, which are likely here to stay, can be used as an effective business tool both as a sword and a shield.

The RequirementsTo Be Granted A Patent

Under the United States Patent Laws, the scope of what is patentable is very broad. Section 101 of the Patent Code specifically provides that:

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of this title. 35 U.S.C. § 101.

The U.S. Supreme Court has also backed the general concept that most anything is patentable by stating that statutory subject matter includes "anything under the sun that is made by man." Diamond v. Chakrabarty , 447 U.S. 303, 309 (1980). Nonetheless, balancing this open-ended view of patentability, the Supreme Court has also explained that "laws of nature," "natural phenomena," and "abstract ideas" are not categories of statutory patentable subject matter. Diamond v. Diehr , 450 U.S. 175, 185 (1981). Moreover, mathematical algorithms by themselves that are not reduced to providing a practical application are no more than an abstract idea, and thus are not, standing alone, patentable. In re Alappat , 33 F.3d 1526, 1543 (Fed. Cir. 1994).

The RequirementsFor Business Method Patents

With respect to methods of doing business, the Federal Circuit has explained that where an abstract idea through a practical application "produces a useful, concrete and tangible result," there is now statutory patentable subject matter. In re Alappat , 33 F.3d at 1543; State Street Bank & Trust Co. v. Signature Financial Group, Inc. , 149 F.3d 1368, 1373 (Fed. Cir. 1998), cert. denied , 525 U.S. 093 (1999). It was the State Street decision that signaled the clear recognition that "methods of doing business" were not per se unpatentable. With the pronouncement that business methods could be protected by patents, the focus shifted to determining what was necessary to meet the "useful, concrete and tangible result" requirement.

In addition to available case law addressing the need for an invention to have a useful, concrete and tangible result, the PTO published a set of Guidelines explaining what types of business method claims stood the best opportunity of satisfying the elements of utility or functionality. Through interpretation of the case law, as well as the PTO Guidelines, it has become clear that at least some business method patent claims should be drafted as being "computer-related." Computer-related inventions include inventions employing a computer or a computer readable media. One often-cited example is disclosed in Beauregard, et al., U.S. Patent No. 5,710,578 for a " Computer program product for utilizing fast polygon fill routines in a graphics display system ." In general, a Beauregard claim is to a computer-readable medium encoded with a data structure defining functional relationships between the data structure and the computer software and hardware, to create a practical application that results in a useful, concrete and tangible result. Such claims likely satisfy the statutory requirements.

Another example is the invention claimed in the State Street case for a " Data Processing System for Hub and Spoke Financial Services Configuration ," U.S. Patent No. 5,193,056. More specifically, what is claimed as the invention in the State Street patent is a computer-implemented data processing system for managing a financial services configuration of a mutual fund portfolio, including allocation of income, expenses, gains, and losses among different funds in the portfolio.

These are but two examples of business method/computer-related patentable inventions. Business method inventions clearly exist in a wide range of fields that prior to State Street would not have been considered typical patentable technology fields. For example, automated business methods in financial management, healthcare management, inventory control, insurance systems, promotion and advertising systems and many others are areas where potential patentable inventions exist. Businesses in these and other fields are now reviewing their technologies with an eye towards potential patent protection for their proprietary systems.

One concrete and tangible result of the State Street decision is that the number of "business method" patent applications, or "computer-related" patent applications, which have been filed with the PTO has increased substantially. Indeed, after 1998, the number of filings within Class 705 of the PTO (the department examining "business method" or "computer-related" inventions) has more than doubled. Moreover, between 1999 and 2000, the number of such filings increased by almost 200%.

The PTO Revised Review Procedures

With the substantial growth of business method patent application filings, and in response to certain criticism about the review process for such applications, the PTO has taken steps to meet the increased demand in this technical art and to address questions about quality of the patent examination process. For example, in addition to the normal training for new patent examiners, the PTO has implemented a patent examiner training program in the business method patent area where experienced application examiners are paired with new examiners on each application to act as trainers and ensure quality examination of the application.

The PTO has also provided for mandatory searching of art-specific databases for all applications within Class 705. The mandatory searching includes the typical U.S. patent and foreign patent databases, as well as additional searching of non-patent literature ("NPL") databases. The NPL databases include core databases such as Business Week, Business Wire, certain newspapers (including the Wall Street Journal abstracts and the San Jose Mercury News), and the World Reporter. Other art-specific databases that are searched based upon the application being examined, include health care management, insurance, operations research, transportation facility access, and advertising (including 24 different newspapers and news magazines).

As an additional step to ensure quality examination of the business method applications, the PTO also implemented a second-level review of any application which passes an initial examination and is considered allowable. This second review of the "allowed" application specifically reconsiders the scope of the patent claims.

Strategic UseOf Business Method Filings

Although there were significant increases in Class 705 (business method) patent application filings between the years 1998 through 2001, since that time there has been a substantial decrease in the number of such filings, at least through October 2003. More interesting is that after a peak of business method / computer-related technology patents issued in the year 2000, the number of patents issued within that art class has, since that time, reduced by approximately 50%. This is probably the result of the revised examination procedures described above.

Even with the fall of many "dot coms" in the late 1990s and early 2000s, many start-ups as well as established financial management, insurance, and advertising industries, in addition to the typical manufacturing industries, are all filing business method patent applications. Once issued, such patents provide the owner with a property right which may have substantial value to the company. Moreover, because a patent right provides the owner with the right to exclude others from making, using, offering to sell, selling, or importing the patented invention during the term of the patent, 35 U.S.C. § 271, a business method patent may be used as a tool to create a business advantage over competitors by preventing others from operating according to the protected business method. Such enforcement entails filing an infringement complaint against the accused infringer. As most everyone knows, any litigation is expensive. Patent infringement litigation is among the more complex, time consuming and expensive types of litigation. Such litigation is often not warranted or justified unless there is a good potential for a substantial return on the litigation investment.

Additionally, a portfolio of business method patents may be used as a licensing tool, or as a shield to defend against claims of infringement made by others. Where a company is accused of infringing a competitor's business method patent, having one or more business method patents of its own may allow the accused company to negotiate potential cross-licensing opportunities, or a settlement of the accusations because of the possibility of a counter patent infringement action.

The development and use of a company's intellectual property, including any potential business method inventions and patents, should be periodically reviewed as part of a company's review of its strategic business plans. Because business method intellectual property may be an important part of a company's growth plans, obtaining protection for that intellectual property should be critically reviewed.


As new and older businesses continue to recognize the value of their operations and commercialized products that are software or computer related, the need to protect intellectual property describing those computerized operations, methods, and products will similarly increase. Protecting a business' proprietary rights, its competitive edge, has always been important. Obtaining protection for a business' intangible rights, including methods of doing business, is now equally, and for some companies more important.

Kevin W. Goldstein is a Partner in the Business Department of Stradley Ronon Stevens & Young, LLP. He counsels start-up and established business clients in all aspects of their intellectual property, including obtaining, enforcing and defending their business method patent property rights.

Please email the author at with questions about this article.