The 21st century patent Featured

9:48am EDT July 22, 2002

So, you want to be the next Alexander Graham Bell. The goal of an inventor is the coveted patent. It’s quite simple. Invent something, patent it, then move to Palm Beach and collect royalties from the 18th green for years to come.

That’s great, but what’s really left to invent, especially if you’re not a physicist or chemist?

In 1876, Mr. Bell received his patent for a process that transmitted sounds, and Thomas Edison obtained more than 1,000 patents, including one for his favorite, the phonograph.

Thanks to the Supreme Court, your invention may be right in front of you and your business.

What changed? The Constitution always authorized Congress to “promote the progress of science and the useful arts by securing for limited times to authors and inventors the exclusive rights to their respective writings and discoveries.” Even Thomas Jefferson, our country’s first patent examiner, stated, “Ingenuity should receive a liberal encouragement.”

You’ve been able to obtain a patent for computer software, but not for business methods. In the past few years, the court has chipped away at the mathematical algorithm exception, which limited patents for a mathematical process.

Yet, the court didn’t directly review a case with a business method exception, so the limitation remained intact. Accordingly, businesses didn’t seek patent protection for the computerized processes of how they ran their businesses.

Not any more. All of this has changed — and created some billionaires in the process. Take Jay Walker of Priceline.com, who became a billionaire, at least on paper. Not bad for reselling tickets.

Think about it. Priceline doesn’t even produce or manufacture a product. Its ingenious concept is to provide a simple means for airlines to sell discounted unsold tickets, which otherwise would go to waste.

The consumer, using the Internet, names a price that he or she is willing to pay for a particular flight. If accepted by the airline, an electronic ticket is issued, and Priceline receives a small commission — plus all the advertising revenue it can obtain from selling banner ads on its site.

Priceline sells about 40,000 tickets per week. Why didn’t I think of this?

So what was the invention? Mr. Walker patented the software which allows buyers to determine binding purchases to potential sellers. Arguably, he now has a patent for any Web site that allows a buyer to name a purchase price.

He may not sound like Thomas Edison, but he was able to license the rights of his patent to Priceline for, among other things, $7.5 million worth of company stock, which recently was trading at $112 per share.

How did he do this? In 1998, the Supreme Court upheld a Court of Appeals decision that allowed the patent of a business method in State Street Bank v. Signature Financial Group. Signature Financial developed software for a process that created a hub and spoke mutual fund system. This allowed a group of small funds to be pooled into a single portfolio to save money through economies of scale.

This may have nothing to do with your business, but the court decision may. If your business method, or “invention,” can be expressed as a process to produce a “useful, concrete and tangible result,” it may be worthy of a patent.

The downside is that, if your business has been utilizing someone else’s business method that was unprotected, it too may now be patentable. Thus, you may be infringing on someone else’s rights and have to pay a royalty for the way you conduct your computerized business.

The upside of such a patent is clear: While you may not be as successful as Mr. Walker, you still might find that you now have an edge over your competition.

Barry Cohen is a senior associate with the law firm of Thorp Reed & Armstrong, LLP. He concentrates his practice in the area of intellectual property, including trademark and copyright infringement as well as commercial/business litigation. Reach him at (215) 563-6711 or bcohen@thorpreed.com.