If you have a business method patent or want to apply for one, you need to know about Bilski. The U.S. Court of Appeals for the Federal Circuit’s decision in this recent case could have a major impact on your patent.
“Not only has the standard changed for obtaining a business method patent, but the standard for determining the validity of existing business method patents also has changed,” says Marc E. Fineman, partner in the Intellectual Property Service Group at Levenfeld Pearlstein, LLC.
Smart Business asked Fineman about the theory behind business method patents, the recent Bilski ruling and how you can protect your business methods today.
Historically, what has been the scope of business method patents?
The U.S. Patent and Trademark Office (PTO) generally classifies business methods as ‘data processing: financial, business practice, management or cost/price determination.’ While the PTO has suggested that business method patents have existed for as long as the patent system itself, business method patents as we know them today really got their start with the explosion of computer technology and the Internet. Today’s business method patents often cover new types of e-commerce, insurance, banking or tax-related inventions, and they typically include the use of a computer to accomplish at least one of a series of steps in a process.
How has computer technology influenced these patents?
In the 1980s and 1990s, the growth of computer technology and the Internet resulted in patent applicants seeking protection for new methods of doing business involving the use of computers and/or the Internet. As the PTO began issuing more and more patents protecting these business method innovations, the courts were soon full of cases challenging these patents.
The case that really opened the floodgate for business method patents was the 1998 decision of the U.S. Court of Appeals for the Federal Circuit in State Street Bank v. Signature Financial Group. In this case, the court confirmed that methods of doing business are patentable subject matter if they produce a ‘useful, concrete and tangible result.’ This created a large increase in business method patent applications filed with, and issued by, the PTO. Some of the more notable patents issued around this time were Amazon.com’s ‘1-click’ patent and Priceline’s reverse (Dutch) auction patent.
What was the Bilski decision, and how could it impact future litigation?
On Oct. 30, 2008, the U.S. Court of Appeals for the Federal Circuit issued its long-awaited en banc decision in re Bilski, regarding a process of hedging risk in commodities trading. In the Bilski case, the Federal Circuit affirmed the decision of the Board of Patent Appeals and Interferences, finding that Bilski’s claimed invention did not qualify as patentable subject matter.
In its decision, the court established a new ‘machine-or-transformation’ test for the patentability of processes, including business methods. Under this test, ‘a claimed process is surely patent-eligible under §101 [of the Patent Act] if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.’ Bilski’s business method claim failed this test.
In adopting the ‘machine-or-transformation test,’ the Federal Circuit explicitly held that the ‘useful, concrete and tangible result’ test from State Street Bank was inadequate and should no longer be used. Importantly, the Federal Circuit made clear that business methods are still patentable. However, it is not yet clear what type of ‘particular machine or apparatus’ will satisfy the test or whether transformations of certain types of data will qualify as ‘transform[ing] a particular article into a different state or thing.’ Therefore, it will be months, and perhaps years, before we know the full impact of the Bilski decision, especially if an appeal is filed with the U.S. Supreme Court.
In light of these rulings, what should businesses do now?
The most important thing to realize about the Bilski case is that it does not eliminate or overrule patent protection for business methods. Instead, the Bilski case provides some guidance on what types of business methods are protectable under the patent laws and, implicitly, how patent applications should be written to obtain such protection.
Therefore, it is as important as ever for businesses to invest the time and resources into properly identifying and protecting their innovations. Businesses should work with their patent counsel to write policies and procedures and to develop training sessions to help employees identify and report intellectual property they may create.
Patent experts can also provide guidance in developing new business methods, assessing the validity of third-party business method patents, and reviewing current patent portfolios in light of the new standards set in the Bilski case. Businesses may need to consider filing reissue and/or continuation applications, particularly with respect to any patents that might be enforced in the short term.
MARC E. FINEMAN is a partner in the Intellectual Property Service Group at Levenfeld Pearlstein, LLC. Reach him at (312) 476-7558 or firstname.lastname@example.org.