Business Method Patents

The federal patent statute allows an inventor to obtain a patent for a “new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” There is no provision in the patent statute for business methods, and the United States Patent and Trademark Office for decades explicitly rejected business-method patent applications based on a turn-of-the century judicial rejection of a patent for a method of cash-register accounting to prevent fraud by waiters. Much of the rejection of business-method patents was based on the conclusion that the methods and systems sought to be patented were abstract ideas without tangible manifestation; however, that analysis evolved into a doctrine that business methods were inherently unpatentable.
In the latter part of the 20th century, there was a judicial movement towards the conclusion that the “business-methods exception” to the list of statutory patentable subject matter had no basis in law and that business-method patent applications should be assessed upon the statutory requirements for patents, namely that they be new, useful, nonobvious, and have some tangible manifestation rather than be merely abstract ideas. Then, the explosive growth of computers and the development of business methods that involved the application of computer technologies forced a reexamination of the validity of business-method patents.

In 1998, the United States Court of Appeals for the Federal Circuit, which hears all appeals of patent decisions from the federal district courts, concluded that the validity of a patent did not depend so much on whether the method “does ‘business’ instead of something else” as much as whether the method to be patented met the listed requirements of the patent statute. In that case, the patent applicant sought to patent a method of calculating with the use of a computer a final mutual fund share price from various criteria for a fund whose complicated structure posed significant administrative challenges. The court of appeals construed the invention to be a machine that produced a “useful, concrete, and tangible result”; therefore, the invention for which a patent was sought was not merely a mathematical algorithm, a type of abstract idea for which a patent could legitimately be denied.

Based on the U.S. Patent and Trademark Office’s pre-1998 posture towards business-method patents, companies did not seek to patent their business methods. Since the 1998 court of appeals decision, there has been a rush to patent business methods, many of them computer-related, and many of those Internet-related. Two well-known examples are the reverse auction method in which the customer names a price subject to acceptance by a vendor and the one-click purchasing method that bypasses the ubiquitous “shopping cart” model that entails several individual steps to order a product.’s patent temporarily forced competitor Barnes & Noble to change its own one-click ordering method in order to avoid infringing’s patent. There has been widespread criticism that the USPTO has devoted insufficient examination to so-called e-commerce patent applications and has issued overly broad patents, resulting in an Internet business environment in which companies must pay royalties to use methods they had already established years earlier.