July 2008

Patentability of Business Methods

In the latter part of the 20th century, there was a slow realization that business methods could be patented. Originally, the basis for rejecting business-method patent applications was because the subject matter of the application did not meet the fundamental requirements for patents such as novelty and non-obviousness. With the widespread use of computers and the development of business methods involving computers, courts were forced to reexamine the question of whether a business method could be patented or whether they were inherently unpatentable. In 1998, the U.S. Court of Appeals for the Federal Circuit ruled that business methods could be patented if they produce a “useful, tangible, and concrete result.” In the landmark State Street decision, the court concluded that a system that used a computer to calculate a mutual fund share price from a complex set of parameters was not an abstract idea but rather a machine–embodied by the computer–that produced a useful result.

Because it had long been believed that business methods were not patentable, most companies had not bothered to invest the necessary time and money to apply for business-method patents. The 1998 court decision opened a floodgate of patent applications for business methods, many of which involved computer technologies and methodologies, in many cases for conducting business on the Internet. There quickly developed a widespread concern on the part of companies that they might infringe a business-method patent simply by continuing to conduct their business using well-established methods for which someone all of a sudden held patents. In response, Congress passed the First Inventor Defense Act, which adds to the federal patent statute a defense to patent infringement based on the prior commercial use of a business method.

Under the prior-use defense, a person or company that is sued for the infringement of a business method may escape liability for infringement by showing that it had used the patented method commercially for at least one year before the patent holder had applied for the business-method patent. Commercial use does not necessarily mean public use; use in an internal manufacturing or distribution procedure that contributes to the effectiveness of a business operation qualifies as commercial use for the purposes of the prior-use defense, as would a method that produced a product for final sale to another party. A party asserting the prior-use defense has a burden of proving the circumstances that constitute a successful defense by clear and convincing evidence. If a party asserts a prior-use defense without a reasonable basis to do so, the party will be required to pay the patent holder’s attorney’s fees.

Analyzing Patent Claims

Patent claim interpretation is the process of giving proper meaning to the claim language. The Claim defines the scope of a patent. Therefore, the language of the claim frames, and ultimately resolves, all issues of claim interpretation. During a dispute, the meaning of disputed claim terms must be determined. However, to aid the Court’s interpretation, the court may consider the written description, the drawings, the prosecution history, and extrinsic evidence related to the patent. These additional sources provide a context to illuminate the meaning of any disputed claim terms. Nonetheless, throughout the interpretation process, the focus must and does remain on the meaning of claim language itself. The construction of the disputed claim language will govern the court’s validity and infringement analysis at all stages of the case, including trial.

Two-Step Process Used to Analyze Patent Infringement Claims

A two-step process is used to analyze patent infringement claims. First, the asserted claims must be properly construed to determine their meaning and scope, and second, there must be a determination as to whether the claims, as construed, encompass the accused product or process.

Claim Construction

The first step, claim construction, is within the province of the court. The language of the claim or claims in the specification of a patent is the measure of the exclusive rights conferred by that patent. Thus, infringement involves construction and interpretation of the language of the claim and a determination as to whether the claim so construed ”reads on” the accused product or process. In construing the claim, the courts consider not only the literal meaning of its terms but also the prior art and the prosecution history of the patent in the United States Patent and Trademark Office (USPTO).

Objective Test

The focus in construing disputed terms of a patent claim is on an objective test of what one of ordinary skill in the art at the time of the invention would have understood the terms to mean.

Giving Terms a Meaning Different from their Ordinary and Customary Meaning

Terms in a claim are generally given their ordinary and customary meaning. However, a patentee may give terms a different meaning, so long as the meaning is stated clearly in the patent specification or file history. The court may also refer to other claims in the same patent to ascertain the intended meaning of a disputed term in a claim, but may not read limitations from other claims into an independent claim. The concept of claim differentiation provides that each claim of a patent constitutes a separate invention and gives rise to separate rights. Claims should also be read in light of the patent’s prosecution history and the patent specification. The specification contains a written description of the invention and includes a best mode or preferred embodiment of the invention.

Prior Art

Prior art may be defined very broadly as the entire body of knowledge from the beginning of time to the present. A person is not entitled to a patent if the invention was known or used by others in this country, or was patented or described in a printed publication in this or a foreign country before the date of invention by the applicant for the patent.

Prosecution History

Prosecution history encompasses the negotiations between the patent applicant and examiner at the USPTO during which the scope of the patent is clarified.

Application of Claim as Construed to Accused Product or Process

After the meaning of the claims in issue is determined by a study of all relevant patent documents, the claims must be compared to the accused structures. What is crucial is that the structures must do the same work, in substantially the same way, and accomplish substantially the same result to constitute infringement. This is the general approach used to determine the infringement of all the patent claims.

Doctrine of Equivalents and Doctrine of File Wrapper

In determining infringement, the courts enlist the assistance of two traditional doctrines. Under the doctrine of equivalents, an accused product or process will infringe, though outside the literal terms of the claim, if it does the same work in substantially the same way to accomplish substantially the same result as the patented product or process.

Under the doctrine of ”file wrapper” or ”prosecution history” estoppel, a patent owner may not expand the claim through the doctrine of equivalents so as to recapture subject matter deliberately surrendered during the course of the proceedings in the Patent and Trademark Office to obtain the patent. The burden of proof on factual issues relevant to infringement usually rests on the patent owner.

Trademark Fair Use

Trademark or Service Mark protection allows a first user of a mark to prevent consumer confusion as it relates to the businesses goods or services. However, a third party may use a trademark without liability for infringement under certain circumstances. The trademark laws permits a non-owner of a registered trademark to make “fair use” or “nominative use” of a trademark under certain circumstances without obtaining permission from the trademark owner. The fair use and nominative use defenses are to help ensure that trademark owners do not prohibit the use of their marks when they are used for the purpose of description or identification. Fair use or nominative use may be recognized in those instances where a reader of a given work is clearly able to understand that the use of the mark does not suggest sponsorship or association with the trademark owner’s product or services and therefore is not being used in a manner to confuse the reader. For example, a user may describe the qualities that a mark represents or describe the goods or services of a mark as long as the manner of using the mark is not in a trademark sense but in a descriptive sense. Fair use of a trademark occurs when a defendant uses a descriptive trademark of another party to describe the defendant’s own product. Under trademark law, the Lanham Act, fair use provides a defense when the use is for a purpose other than that for which the mark is typically used, which is descriptive of and used fairly and in good faith only to describe the goods or services of such party, or their geographic origin and not to confuse or to suggest endorsement or an affiliation with the mark’s owner.

While a trademark will protect a word which is used by a manufacturer or merchant to identify goods and distinguish them from others, trademark law will not prevent the use of such a word which is used in good faith and not to infringe, but rather where the primary purpose is to describe a product or service. The statutory fair use defense provided in the Lanham Act prevents a trademark owner from monopolizing or appropriating a descriptive word or phrase. It allows non-owners of the trademark to accurately describe their goods. Therefore, the defense is only available when the mark at issue is descriptive, and then only where the descriptive term is used descriptively.

Judge-Made Categories of Fair Use

Although the Lanham Act contains the statutory fair use provision mentioned above, there are three additional judge-made categories where use of the trademark of another may be considered non-infringing. They are: (1) nominative fair use, (2) comparative advertising as fair use, and (3) parody as fair use.

Nominative fair use involves the descriptive use of another’s mark to describe or identify the plaintiff’s goods or services, not the defendant’s. Comparative advertising involves a situation where the trademark of a competitor is used to refer to the competitor’s goods. Parody is a humorous form of social commentary and literary criticism.

Factors Considered in Determining Fair Use

Several different factors are considered by courts to determine whether a particular use is an infringing use or a fair use. Those factors are as follows:

  • the manner in which the word or mark is being used by the defendant is considered;
  • whether the defendant is using the word or mark in good faith is considered; and
  • whether the use of the word or mark is likely to confuse consumers is also considered.

The author’s use of the mark must accurately describe the trademark owner’s product or service, the author must use the mark in a non-trademark manner and not as a source identifier of the author’s work, and the author’s use must be in good faith in order for the fair use defense to be successful.

Protecting Generic Names under Trademark Law

A generic name is the common descriptive name of the product a trademark identifies. Generic names may not be protected under trademark laws. The intended trademark cannot be registered and the owner has no right to stop others from using a similar mark. Unlike descriptive marks, generic devices will not become a trademark even if they are advertised so heavily that secondary meaning can be proven in the mind of consumers. The rationale for creating the category of generic marks is that no manufacturer or service provider should be given exclusive right to use words that generically identify a product. Therefore, if a company attempts to use the name of the goods themselves, such as “Lemonade” for a lemonade drink or “Bicycle” for a bicycle, that name will not be protected because it is generic.

Tests to Determine if Mark is Generic

Different tests are used to determine whether or not a mark is generic, including the following:

  • One test for making a determination about whether or not a mark is generic is twofold. First, one has to identify the genus of goods or services at issue. Second, one must determine whether the relevant consuming public understands the proposed mark primarily to refer to that genus of goods or services.
  • Another test relies on the primary significance of a trademark. If the primary significance is to describe the type of product rather than the producer, the trademark is generic and cannot be a valid trademark. If a mark answers a buyer’s question about who it is and where it came from then it is a valid trademark, but if a mark answers a buyer’s question about what it is then it is generic and cannot be a valid trademark.
  • Courts have determined that when performing an analysis as to whether or not a mark is generic, it is imperative to look at the mark as a whole, rather than in parts. Thus, the composite may become a distinguishing mark even though its components individually cannot be valid trademarks.

Generic Domain Names

Marks composed of generic terms combined with domain extensions are not eligible for registration. The addition of a domain name extension to a generic term does not help an applicant when trying to register a trademark. Generic domain names cannot be registered in the Supplemental Register nor can they be registered in the Principal Register. For example, “turkey.com” for frozen turkeys is unregistrable on either the Principal or Supplemental Register.

A Valid Trademark May Become Generic

A valid trademark may become generic if the consuming public misuses the mark sufficiently for the mark to become the generic name for the product. For example, “aspirin,” “escalator,” and “shredded wheat” were former trademarks that became generic names. When a trademark becomes generic, it can be used by anyone and no longer distinguishes the trademark owner’s products from the products of other companies. It is common that people use the trademark as a generic name for a category of products when the trademarked product is the only one or one of only a few products on the market. If a court decides a trademark has become a generic name, it will declare the trademark invalid. Therefore, many trademark holders actively try to prevent people from using trademark names as generic names.

Copyright and the First Sale Doctrine

A copyright owner’s right of distribution is limited by the first sale doctrine, which is an exception to the Copyright Act. The first sale doctrine is a legal principle that limits the rights to control content after a work has been sold for the first time. The first sale doctrine states that once a copyright owner sells a copy of his or her work to another, the copyright owner relinquishes all further rights to sell or otherwise dispose of that copy.

A distinction not always recognized is that ownership of the physical item, such as a book or a CD, is not the same as owning the copyright to the work embodied in that item. Under the first sale doctrine, ownership of a physical copy of a copyrighted work permits the owner of the item to lend, resell, give away and destroy the copyrighted item, but the owner is not granted the right to copy the item in its entirety. That is because the transfer of the physical copy does not include transfer of the copyright to the work. The legal principle applies to physical items as well as digital content that is downloaded over the Internet.

The first sale doctrine allows the purchaser to transfer a particular, legally acquired copy of protected work without permission once it has been obtained. That means the distribution rights of a copyright holder end on that particular copy once the copy is sold. The first sale doctrine prohibits renting and leasing recorded music and computer software, although private non-profit archives and libraries are allowed to lend these items provided they include a copyright notice on the copy. According to the Copyright Act, consumers cannot make copies of computer programs contrary to a license, but may resell what they own.

The Supreme Court unanimously ruled that the first sale doctrine applies to copyrighted goods produced in the United States and sold in foreign markets. The Court held that the first sale doctrine prevents copyright owners from controlling the importation of copyrighted goods sold outside the United States. The Court found that the Copyright Act gives copyright owners the right to control the importation of copies into the United States as an extension of the copyright owner’s exclusive right to distribute copies.