Are business method patents dead from a practical standpoint?

June 2016  |  EXPERT BRIEFING  |  INTELLECTUAL PROPERTY

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Many start-ups and other businesses rely on patents to protect their innovations and inventive business practices. Although patents are often thought of as technological innovations, in the US, US Const., Art. I, § 8, cl. 8 states that “Congress shall have Power… To promote the Progress of science and useful Arts”. Article I explicitly includes ‘useful arts’, without limit to technical or scientific application. Accordingly, innovations in methods of doing business, e-commerce, and finance practices have long received and enjoyed patent protection under the so-called ‘business method patent’.

From a historical standpoint, business method patents proliferated in late 1990s, when the Federal Circuit explicitly stated that business methods are patent eligible if they have some practical application, e.g., they produce a useful, concrete and tangible result. After this decision, many businesses rushed to the USPTO to apply for patent protection for their business methods, which included e-commerce and finance practices. The useful, concrete and tangible result was usually demonstrated by being implemented on a computer and by having some sort of output such as displaying, printing, storing and transmitting the generated results.

Let there be no mistake, even in the e-commerce heyday, business method patent applications, from a practical point, were treated as a different animal. Although from a legal standpoint the USPTO examiners were required to provide equal treatment to a patent application directed to a technological improvement and a patent application directed to a business method, from a practical perspective, there were clear differences. For example, the business method patent applications had a lower allowance rate in comparison to the overall allowance rate. They had a longer wait period before being picked up by a USPTO examiner for an examination. They also had a longer examination process as opposed to patent applications in other art units. Perhaps most interesting observation was that even substantive examination of the business method patent applications differed from patent applications in other technical fields. Examiners struggled to find prior art references to reject business method applications under 35 U.S.C. § 102 and 103 (novelty and obviousness) provisions. The usual databases used for searching for advances in science and tech did not offer the same number of prior art references in the business realm. So instead the examiners commonly resorted to § 112 rejections for elements of support and clarity. To obtain a business methods patent, on average, took more money and time. Further, the scope of protection was narrowed by the examiner with § 112 rejections as opposed to the prior art.

In the notorious decision of Alice Corp vs. CLS Bank Intl, the Supreme Court ruled that a patent directed to risk hedging, although implemented on a computer, is an abstract idea that is not patentable under 35 U.S.C. § 101. In the Alice case, the Court noted that the claims “failed to purport” to either: (i) improve the operation of the computer itself; or (ii) effect any improvement in any other technological field. As such, the Court reasoned that the claims at issue are “nothing significantly more” than an instruction to apply the abstract idea of intermediated settlement using a generic computer.

The Alice decision does not exclude any particular category of subject matter per se, such as financial software-related inventions or business methods. Nor does the decision impose any special requirements for patent eligibility of software-related inventions. Rather, the Alice decision instructs that the Mayo framework, drawn from the biological side of patent practice regarding natural occurrences, should also be applied in the business method context. The Mayo framework sets forth a two prong test: identify the abstract idea in the claim and then determine whether the balance of the claim adds significantly more. To provide clarity, in July 2015 the USPTO issued updated Interim Eligibility Guidance where the abstract ideas are identified as: (i) fundamental economic practice, such as creating contractual relationship, hedging and mitigating settlement risk; (ii) certain methods of organising a human activity such as processing loan information, managing an insurance policy, managing a game of bingo, allowing players to purchase additional objects during the game, tax-free investing, arbitration, generating rule-based tasks for processing an insurance claim, using advertising as an exchange or currency, structuring a sales force or marketing company, using an algorithm for determining the optimal number of visits by a business representative to a client, computing a price for the sale of a fixed income asset and generating a financial analysis output, a mental process that a neurologist should follow when testing a patient for nervous system malfunctions, and meal planning; (iii) mathematical relationships or formulas, such as converting binary coded decimals to pure binary; and (iv) an idea of itself, such as comparing information regarding a sample or test subject to a control or target data, collecting and comparing known information, comparing data to determine a risk level, diagnosing an abnormal condition by performing clinical tests and thinking about the result, obtaining and comparing intangible data, comparing new and stored information and using rules to identify options, using categories to organise, store and transmit information, data recognition and storage organising information through mathematical correlations, and displaying an advertisement in exchange for access to copyrighted media.

These interim guidelines are careful to label that only “certain” methods of organising a human activity and “fundamental” economic practices are abstract Ideas. However, they fail to identify or provide examples of any economic practices that are not deemed as fundamental and any method of organising a human activity which is not an abstract idea. Accordingly, it is safe to say that a vast majority of business method applications and e-commerce applications will be and are being classified as an abstract idea.

The second prong of the Mayo framework examines whether the “abstract idea” is “significantly more” than the idea of itself. “Significantly more”, however, requires an improvement to a “technical” field or the functioning of the device itself. It is interesting to note that “useful arts”, which is the Constitutional foundation of the US patent law, is not part of the equation. Perhaps, some business methods could have shown an improvement to “useful arts”. Accordingly, from a practical standpoint, a pure business method cannot satisfy this prong.

Although the aim of the Alice case may have been to protect a pre-emption of an abstract Idea, its application is far more reaching. It would appear that a pure business method (unless it is rooted in a computer technology or is inextricably tied to the computer technology) cannot be patented. Similar to Europe, where business methods are not considered technical inventions, it would appear that nowadays in the US, business methods need to “improve” a “technical” field or a function of a hardware device to be patentable. Accordingly, a business method application would now need to be focused on a specific technical implementation and address technical difficulties with solving a particular business problem.

The specification should now be drafted with a focus on difficulty in implementing the business method. For example, instead of focusing on a business method itself, such as allocating marketing resources for products based on influence from various information sources, the invention should focus on identifying a technical problem, such as research typically conducted online, where it is difficult to ascertain the effects of various information sources on a customer. As such, the present invention has a device that tracks the user’s interaction with an online information source to determine magnitude of engagement.

As an alternative, the specification may be drafted with a focus on how the functioning of the device is improved. As an example, the business method may be integrated into the functioning of the device itself and show how the device functions in a different and improved way – e.g., no longer outputs an error, can skip a certain step, and so on.

The post-Alice regime repetitively tolls the death knell of a business method in its old form. A new hybrid category appears to be generated, where the focus is on a technical implementation of the business method and technical problems that need to be addressed and solved to implement a business method. The business methods appear to be only patentable as a periphery with the improvements in the technical implementation taking the centre stage. This, perhaps, is a far more reaching effect than was intended by the Alice case.

Natalya Dvorson is an attorney at Sughrue Mion PLLC. She can be contacted on +1 (202) 857 3228 or by email: ndvorson@sughrue.com.

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Natalya Dvorson

Sughrue Mion PLLC