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“Business Method Patents,” Practical Legal Issues In e-Commerce Seminar, MICPEL Publication, February 2000.
I.
What Are “Business Method” Patents?
A “business
method” patent can be thought of as many things, including:
(1)
a U.S. utility patent whose subject matter, or the nature of the invention for
which a patent has been granted, is “a method of doing or conducting
business,”
(2)
a patent for subject matter that only recently has been held to be patentable by
the U.S. Court of Appeals for the Federal Circuit,
(3)
the form of legal protection that many e-Commerce merchants and other service
providers are electing to seek in order to try to give themselves a
limited-duration monopoly for the practice of their recently developed, novel
and nonobvious methods of doing business,
(4)
an alternative to trade secret protection, the traditional means for protecting
proprietary business methods --- but a means which does not offer as much
potential protection as a “business method” patent because it is possible
that a second, independent inventor of the same method could obtain a patent for
it and then license it to many others, thereby diminishing or destroying any
economic advantage that the method might have been providing to its first
inventor,
(5)
a potential threat to many e-Commerce merchants and other service providers who
could soon find that many vital methods for improving and practicing various
aspects of their businesses are only available to them at great costs – the
price of taking one or more licenses from the owners of such “business
method” improvement patents,
(6)
a great opportunity and means for creative individuals and business entities to
develop and exploit potentially, very valuable forms of intellectual property,
(7)
a grant from the United States government to the owner of such a “business
method” invention of the right, which is enforceable in a federal court, to
exclude all others in the U.S. from making, using or selling the invention for a
limited time (i.e., the life of a utility patent extends from its issuance date
until twenty years after the date on which the application seeking the patent
was filed, provided that maintenance fees are paid at 3.5, 7.5 and 11.5 years
from date of the patent’s issuance), and
(8)
a document, that is crafted from the information contained in the inventor’s
patent application and published by the U.S. government, which reveals to one
skilled in the technology of the invention how to make and practice the
invention, which is itself a new and useful process whose public disclosure
contributes to the U.S. knowledge base, thereby promoting the progress of
science and the useful arts.
These
various characterizations of a “business method” patent are provided as both
an introduction and an overview of the matters to be discussed below.
The
fact that “a method of doing or conducting business” can now be patented
comes as a surprise to many people. This
is especially so for service providers and others who “conduct business,”
but have always considered the domain of patents to be inventions relating to
products, machines or compositions of matter – subject matter in which
inventiveness is generally considered to be aided by the potential inventor
having appreciable technical, scientific or engineering knowledge, aptitude and
skills. However, this situation, if
it ever existed, is no longer the case. Today,
creative, non-technical, business-oriented people can aspire to be inventors.
In
an attempt to help clarify what types of “methods of doing or conducting
business” are patentable, the following examples of issued patents are
outlined below. In
reviewing these patents, one would appear to be well advised to think as broadly
as possible when trying to identify the limits of patentable subject matter as
it relates to “business methods” – as will be seen later in this article,
the Supreme Court’s earlier holdings on this matter may be especially relevant
…..the Court noted that Congress intended statutory subject matter to
“include anything under the sun that is made by man.” See Diamond
v. Chakrabarty, 477 U.S. 303, 309 (1980), quoting S. Rep. No. 82-1798, at 5
(1952) and H.R. Rep. No. 82-1923, at 6 (1952). :
In the field of e-Commerce, the most prolific inventor to date appears to
be Jay S. Walker and his associates at the Walker Digital Corporation, Stamford,
Connecticut. They are the creators of, among other things, Priceline.com.,
an Internet company which is currently valued at nearly ten billion dollars,
with Mr. Walker’s stock holdings having a value of over four billion dollars.
A significant part of this valuation is based on the patents that have
been issued to Mr. Walker and his associates, these include:
U.S. Patent No. 5,794,207 - “Method and Apparatus For A
Cryptographically Assisted Commercial Network System Designed To Facilitate
Buyer-Driven Conditional Purchase Offers,” issued August 11, 1998 and assigned
to the Walker Asset Management Limited Partnership. This is apparently one of
the key patents that the Walker group will try to use to prevent others from
establishing online reverse auctioning services for items such as airline
tickets, automobiles, hotel rooms, mortgages, etc.
Priceline.com Incorporated is apparently using this and other patents as
the basis for suing Microsoft for its Microsoft Expedia Web site’s
infringement of the reverse auctioning of hotel rooms.
U.S. Patent No. 5,884,272 - “Method and System For Establishing and
Maintaining User-Controlled Anonymous Communications,” issued March 16, 1999
and assigned to the Walker Asset Management Limited Partnership. This is
apparently one of the key patents that the Walker group will try to use to
prevent others from establishing online dating services.
U.S. Patent No. 5,862,223 - “Method and Apparatus For A
Cryptographically-Assisted Commercial Network System Designed To Facilitate and
Support Expert-Based Commerce,” issued January 19, 1999 and assigned to the
Walker Asset Management Limited Partnership. This is apparently one of the key
patents that the Walker group will try to use to prevent others from
establishing an electronic marketplace for the sale of expert advice (e.g..,
such as the services offered by infomarco.com).
The titles of other U.S. Patents that have been developed and/or acquired
by the Walker Digital Corporation are listed below.
In order to understand the inventions for which these patents have been
issued, one needs to refer to and examine the actual patents themselves.
An example of such a patent (i.e., U.S. Patent No. 5,797,127) is provided
in the Appendix to this paper. Additionally,
the patents listed below can be easily researched by accessing detailed
information regarding these, and other U.S. patents issued since 1971, that is
freely available on the Internet at the IBM Patent Server (www.patent.womplex.ibm.com/patquery).
At this site, one can enter a patent number and use the IBM search engine
to obtain an abstract and other vital information regarding these patents.
5,949,875 Parallel data network billing and collection system
5,949,044 Method and apparatus for funds and credit line
transfers
5,947,747 Method and apparatus for computer-based educational
testing
5,946,388 Method and apparatus for priority queuing of telephone
calls
5,945,653 System and method for establishing and executing
functions to affect credit card accounts and transactions
5,926,796 Method and apparatus for selling subscriptions to
periodicals in a retail environment
5,923,763 Method and apparatus for secure document time stamping
5,909,486 Method and apparatus for awarding and redeeming prepaid
telephone time
5,884,274 System and method for generating and executing
insurance policies for foreign
5,871,398 Off-line remote system for lotteries and games of skill
5,825,863 Prepaid limited usage calling card
5,798,508 Postpaid traveler's checks
5,797,127 Method, apparatus, and program for pricing, selling,
and exercising options to purchase
airline tickets
5,768,382 Remote-auditing of computer generated outcomes and
authenticated billing and access
control system using cryptographic and other protocols
5,737,414 900 number billing and collection system and method for
on-line computer services
As a further example of both the various types of “business method”
patents being issued and the level of effort being exerted by some business
entities, listed below are some of the titles of the “business method”
patents that have been granted to Citibank:
5,953,423 Electronic-monetary system
5,940,813 Process facility management matrix and system and
method for performing batch, processing in an on-line environment
5,930,764 Sales and marketing support system using a customer
information database
5,920,848 Method and system for using intelligent agents for
financial transactions, services, accounting, and advice
5,920,629 Electronic-monetary system
5,898,154 System and method for updating security information in
a time-based electronic monetary system
5,890,140 System for communicating with an electronic delivery
system that integrates global financial services
5,878,139 Method for electronic merchandise dispute resolution
5,866,889 Integrated full service consumer banking system and
system and method for opening an account
5,844,971 Form creating and ordering system
5,825,856 Interactive voice response system for banking by
telephone
5,799,087 Electronic-monetary system
5,794,218 Automated multilingual interactive system and method to
perform financial transactions
Most of Citibank’s patents are seen to be in the area of financial
services, an area where there is a great effort being made to develop and patent
new “business methods.” Some of the titles for others’ “business method”
patents being granted in the financial services area include:
5,950,176 Securities trading system with a virtual specialist
function
5,946,668 Funding a home investment trust
5,946,667 Financial debt instruments method
5,946,666 Financial securities monitoring system
5,933,817 Tiered interest rate revolving credit system and method
5,933,815 Providing guaranteed lifetime income with liquidity
5,930,775 Optimal investing for distressed residential real
estate loans
5,930,774 Mutual fund portfolios evaluation
5,930,760 Annuity rates
derivation
5,918,217 User interface for a financial advisory system
5,913,198 Survivor benefit plans design and administration
5,806,049 Global assessment of investment opportunity and cost
5,806,048 Open end mutual fund securitization process
5,806,047 System for combined pool portfolio
5,799,287 Optimal portfolio replication
5,787,404 Credit-card based retirement fund system and method
5,787,402 Performing automated financial transactions involving
foreign currencies
5,784,696 Evaluating portfolios based on investment risk
5,775,734 Investment administration system
5,774,883 Selecting a seller's most profitable financing program
5,774,880 Fixed income portfolio index processor
Finally, it should be noted that many “business method” patents are
being granted in areas other than e-Commerce and financial services; consider
the following:
U.S. Patent No. 5,851,117 “Building
block training systems and training methods,” issued December 22, 1998 to The
Butcher Co. This patent
covers a method for training janitors in which the janitor is given pictorial
displays showing a specific set of steps to accomplish a cleaning operation in
an efficient safe manner, e.g., dusting or vacuuming of a facility as well as
pictorial displays as to what must not be missed and must be avoided in
performing the cleaning operation. The
trainer shows the janitor a section of the displays while telling the janitor
about each step pictorially depicted in the displays.
U.S. Patent No. 6,004,230 “Methods
for training golf putting skills,” issued December 21, 1999 to Intelligent
Machine Concepts, LLC. As its title
suggests, this patent covers methods for improving one’s golf putting stroke. The business aspect of such an invention would presumably be
the potential for licensing golf instructors to teach such methods.
III.
Prior Means For Protecting
Proprietary “Business Methods”
A
quick check of the issuance dates of the earliest of the above listed patents
reveals that the first “business method” patents were granted in the early
1970’s. However, the vast
majority of these patents have only been issued in the last three years.
Until
recently, most proprietary “business methods” were protected as trade
secrets. This situation was due, in
part, to a perception that there was no effective, alternative protection means,
especially patent coverage. Additionally,
it was probably the case that many developers of such methods unbeknowingly took
actions which eventually came to be a barrier to their successful applications
for such patents. After a year of commercially exploiting such a method, which
the courts have held to be a “public use” even though the method was kept a
secret, such exploitation become a bar to the successful filing by its developer
and user of a patent application from which a patent for the method would issue.
See Metallizing Engineering Co. v. Kenyon Bearing & Auto Parts Co.,
153 F.2d 516 (2d Cir. 1945) and 35 U.S.C. § 102(b).
This situation existed even though it was widely recognized that trade
secret protection could present certain hazards.
For example, trade secrets can always be lost by their inadvertent
disclosure -- once such a secret is out, its protection is destroyed, and it is
free for all to use. The wisdom of
using such trade secret protection for one’s proprietary “business
methods” is now being questioned as recent changes in judicial interpretations
of the U.S. patent laws have greatly increased the probability that the federal
courts will find such “business method” patents to be valid and enforceable.
The founders of the United States provided in the Constitution that
"Congress shall have the power...to promote the progress of science and
useful arts, by securing for limited times to authors and inventors the
exclusive right to their respective writings and discoveries." U.S. Const.
Art. 1, § 8, cl. 8.
A patent is a grant from the United States government to the owner of an
invention of the right to exclude all others from making, using or selling the
invention for a limited time (i.e., assuming maintenance fees are paid to the
USPTO, the life of a patent can extend for up to twenty years from the earliest
effective filing date for the invention). In
exchange for these patent rights, the inventor is required to disclose the
invention in enough detail to allow other people to use the invention after the
monopoly expires and to learn from the invention so as possibly to enable them
to build upon the ideas contained in the invention’s disclosure -- thereby
promoting the progress of science and the useful arts.
The Patent Act is broad and general in its language describing the proper
subject matter for a patent:
“Whoever invents or discovers any new and useful process, machine,
manufacture, or composition of matter, or any new and useful improvement thereof,
may obtain a patent therefor, subject to the conditions and requirements of this
title.... 35 U.S.C. § 101
.... unless the invention was ...... in public use .... in this country,
more than one year prior to the date of the application for patent in the United
States ... 35 U.S.C. § 102(b)
.... A patent may not be obtained, ..., if the differences between the
subject matter sought to be patented and the prior art are such that the subject
matter as a whole would have been obvious at the time the invention was made to
a person having ordinary skill in the art to which said subject matter
pertains....”, 35 U.S.C. § 103(a).
However, since Congress included in patentable subject matter only those
things that qualify as “any ...
process, machine, (article of) manufacture (i.e., product), or
composition of matter, or any ...
improvement thereof ...”, the courts often have been faced with the task of
trying to find the right words to define those things that are to be excluded as
non-statutory subject matter.
This task has been especially challenging during the past forty years
when technological advances have made possible the creation of many totally
revolutionary products (e.g., computers and computer software) and services
(e.g., financial service companies offering combined banking, insurance and
brokerage services over the Internet).
Listed below are the exclusionary words that the U.S. District and
Circuit Courts typically have used to define non-statutory subject matter:
“printed matter” for inventions that relate merely to the meaning or
significance of an arrangement of printed matter without a reference to the
process, product or machine that is used to prepare the printed matter, See In
re Miller, 164 USPQ 46 (CCPA 1969);
“naturally occurring article” for inventions that occur in nature and
are merely found; See Ex Parte Grayson, 51 USPQ 413, for the denial of a patent for a
shrimp with the head and the digestive tract removed;
“scientific principle” for inventions expressing a scientific
principle or law of nature not drawn to a practical purpose for producing a new
and useful result, See O’Reilly
v. Morse, 15 Howard 62;
“aggregation” for inventions consisting of an assemblage of elements
that do not cooperate to produce a cooperative result; see for denial of a
patent for a pencil with a rubber eraser placed on its end;
“mental steps” for inventions that include only steps capable of
being carried out by the human mind and thus not applied to physical elements or
process steps, See In
re Meyer, 688 F.2d 789 (CCPA 1982) for denial of a patent for a computer
program that assists a neurologist in diagnosing a patent.
“mathematical algorithm” for those elements of inventions which were
generally expressed as mathematical equations, and where the invention was not
drawn to a practical purpose for producing a new and useful result, See In
re Walter, 618 F.2d 758 (CCPA 1980) for denial of a patent for
improved mathematical methods for interpreting the results of seismic
prospecting, and
“method of doing business” for inventions consisting of business
schemes that are not related to a physical process or method carried out in
connection with a workpiece or product, and thus not within the “useful
arts,” See Hotel Security Checking v.
Lorraine Co., 160 F. 467 (2nd. Cir. 1908) which involved a bookkeeping
method, In re Wait, 24 USPQ 88 (CCPA
1934) for denial of a patent for a vending process for use in selling stocks and
other commodities, and In re Patton,
127 F.2d 324 (CCPA 1942) for denial of a patent for an interstate and national
fire-fighting system.
Meanwhile, the Supreme Court has tended to construe statutory subject
matter broadly, noting that Congress intended statutory subject matter to
“include anything under the sun that is made by man.” See Diamond
v. Chakrabarty, 477 U.S. 303, 309 (1980), quoting S. Rep. No. 82-1798, at 5
(1952) and H.R. Rep. No. 82-1923, at 6 (1952).
Despite this seemingly limitless expanse, the Supreme Court has
specifically identified three categories of unpatentable subject matter as:
“laws of nature, natural phenomena, and abstract ideas.” See Diamond
v. Diehr, 450 U.S. 175 at 185 (1981).
VI.
Computer Software Challenges
To “Non-Statutory Subject Matter” Rejections
The frequent use by the USPTO of these types of non-statutory subject
matter rejections might have continued had it not been for the tremendous growth
in the importance of computer software for the U.S. economy and the gradually
evolving perception that traditional means, copyright law, of protecting
computer software was inadequate (i.e., inadequate for two principal reasons --
its inability to prevent competitors from developing “cleans room” copies,
and a recent trend in court decisions that narrowed the limits of protection
afforded to computer software. See Computer
Associates v. Altai, 982 F.2d 693 (2d Cir. 1992), where the court held that
other than the copying of the literal elements of a computer program, copyright
offered relatively narrow protection for the other elements of software, and Lotus
v. Borland, 49 U.S. 807 (1996), where the Supreme Court affirmed the holding
that the command menu hierarchy of the Lotus 1-2-3 spreadsheet program is not
copyrightable because it is a method of operation.
In both of these cases, the opinions suggest that what the plaintiffs
were seeking was protection that falls within the arena of patents -- not
copyrights).
The USPTO initially took the position that computer software primarily
involved merely abstract mathematical processes and the computerization of
mental processes. In 1968, the
USPTO published guidelines essentially rejecting the notion that computer
software was patentable. See 33 Fed. Reg. 15581, 15609-10 (1968).
In the early years, the major exceptions on which computer software
patents issued were for inventions that contained a physical connection to an
actual process for creating an article of manufacture (e.g., a
computer-controlled process for curing rubber, Diamond
v. Diehr, 450 U.S. 175 at 185 (1981)) or to the manipulation of data that
represented a physical object or process (e.g., method of computational
topography, In re Abele, 684 F.2d 902
(CCPA 1982)).
However, beginning in 1994, the Court of Appeals for the Federal Circuit
(CAFC) decided several cases that generally tend to broaden the scope of patent
protection for computer software inventions, and include holdings that:
(1) A means for creating a smooth waveform display in a digital
oscilloscope is patentable subject matter -- thus, a “general purpose”
computer operating pursuant to a computer program to perform specific functions
is a discrete, patentable machine, In re
Alappat, 33 F.3d 1526 (1994, en banc),
(2) Software “data structures” (i.e., a physical or logical
relationship among data elements, designed to support specific data manipulation
functions) would be patentable as articles of manufacture if they “were
well-known mathematical constructs and lend themselves to manipulation through
computer technology,” In re Warmerdam, 33 F.3d 1354 (1994); see also In re Lowry, 32 F.3d 1579 (1994) and In re Trovato, 60 F.3d 805 (1995, en banc), and
(3) “Computer programs embodied in a tangible medium, such as floppy
diskettes, are patentable subject matter,” In
re Beauregard, 53 F.3d 1583 (1995).
In response to this trend in recent court holdings, the USPTO issued on
March 29, 1996 new guidelines for the patentability examination of
computer-related inventions. These
guidelines indicate that there are three general ways whereby software can be
used in an invention to satisfy the statutory subject matter requirement of 35
U.S.C. §
101: (1) to create a “machine” when a computer is included in the claims as
having its operation controlled by the software, (2) as a “process” when it
is described as a series of operational steps to be performed on or with the aid
of a computer, and (3) as an “article of manufacture”
embodied in a computer-readable memory (e.g., floppy disks, CD-ROM,
system memory) containing the software that directs a computer to function in a
particular manner. Additionally,
these new guidelines require that such software inventions claim a technological
utility -- a sufficient “tangible benefit” so that it cannot be viewed as
merely an abstract idea (a position closer to the dissent in In
re Schrader).
Because so many novel “business methods” are implemented with
computer software, it was probably inevitable that the courts would eventually
be asked to decide a computer software case that also involved a “business
method” statutory subject matter issue.
On
July 23, 1998, the CAFC decided such a case.
It held in State Street Bank &
Trust Co. v. Signature Financial Group Inc., 149 F.3d 1368 (Fed. Cir. 1998),
that a financial service provider’s “business method” software that does
nothing more than transform numbers to produce a useful, concrete and tangible
result is eligible for patent protection, and that the “business method” and
“mathematical algorithm” statutory subject-matter exception categories have
little, if any applicability -- the inquiry should focus not on exclusionary
categories, but on the invention’s claimed practical utility.
This decision was quickly followed on April 14, 1999 by another CAFC
holding that a telecommunication service provider’s method for modifying the
message records, used by local and long-distance telephone service providers to
monitor and eventually bill for long-distance calls, to allow for them to easily
identify a caller’s long-distance service provider is statutory subject matter
and therefore eligible for patent protection; the District Court’s contrary
holding on the grounds that the invention could be categorized as reciting a
“mathematical algorithm” was improper, the court’s analysis should have
addressed whether the algorithm-containing invention, as a whole, produces a
tangible, useful result. See AT&T v. Excel, 172 F.3d 1352 (Fed. Cir. 1999).
With these recent court decisions expanding the scope of patent
protection, and the issuance of new USPTO guidelines that increase the
probability that software patents will more readily issue, there has been a
significant increase in the rate at which software and “business method”
patents are being issued.
Up until 1987, only approximately 2,000 computer software patents were issued --
by 1997 this number had increased to over 13,000. By the end of this year, the total number of U.S. software
patents issued is expected to exceed 80,000.
The top software companies generally have aggressively pursued patent
protection for their software. It
is estimated that the top one-hundred software companies now control sixty
percent of all issued software patents.
Meanwhile,
it has been estimated that the number of “business method” patent
applications filed with the USPTO increased by over forty percent in the year
following the State Street decision.
During fiscal year 1999, the USPTO is expected to issue over 1,000
“business method” patents.
Furthermore, it should be noted that these results are being achieved in
spite of the often heard criticism that the USPTO lacks adequate manpower and
databases of prior art in order to provide for an effective, expeditious
examination of software-related patent applications to ensure that their
disclosed inventions meet the statutory requirement that they be novel and
nonobvious with respect to the prior art, See 35 U.S.C. § 102 and §
103. This situation has led some to
the opinion that many invalid software patents have been issued.
However, the economic impact of some of these software patents is significant in terms of the magnitude of both the patent infringement damages being awarded and the revenues being generated by various licensing agreements; for example:
"Microsoft
Corporation ordered to pay Stac Electronics $120 million in patent infringement
lawsuit, Stac Electronics v. Microsoft,
for disk compression software," Info Canada, July 1994,
"Alpex Computer Corporation awarded $208 million in Alpex
Computer Corporation v. Nintendo America, Inc. for infringement of Alpex
video game graphics patents," Los Angeles Times, August 2, 1994,
"Texas Instruments formed licensing agreements with 26 semiconductor
companies since 1989 and reports it has more than tripled its royalties. The
company's 1993 royalties on its patents reached $521 million," Electronic
News, March 14, 1994, and
"The cost of IBM's patent license agreement royalty payments for
disk drive patents adds $100 to $150 to the price of a computer," PC
Week, August 16, 1993.
IX.
“First Inventor Defense” To Infringement Of A ‘Business Method’
Patent
The consequences of the State
Street case have even been felt in Congress.
On November 29, 1999 the President signed the Omnibus Appropriations
Bill, H.R. 3194. One of the bills
included in H.R. 3194 was the Patent Reform Bill of 1999.
Among other things, this bill creates a “First Inventor Defense” to
infringement of a “business method” patent on an infringement action
initiated on or after November 29, 1999. It
adds a new section, 35 U.S.C. § 273, to the patent code which reads in part:
“...It shall be a defense to an action for infringement under section
271 of this title with respect to any subject matter that would otherwise
infringe one or more claims of a method in the patent being asserted against a
person, if such person had, acting in good faith, actually reduced the subject
matter to practice at least one year before the effective filing date of such
patent, and commercially used the subject matter before the effective filing
date of such patent.” 35 U.S.C. § 273(b)(1).
The justification generally provided for Congress’ enactment of this
legislation is as follows: Before the State
Street case, it was universally thought that methods of doing or conducting
business were not the statutory subject matter that could be patented.
Before that case, everybody would keep their methods of doing or
conducting business as secret as they could and never tried to patent them.
In recognition of this pioneer clarification in the law, Congress felt
that those who kept their business practices secret had an equitable cause not
to be stopped by someone who subsequently reinvented the method of doing or
conducting business and obtained a patent.
Therefore, Congress limited the “first inventor” defense” solely to
that class of rights dealing with “methods of doing or conducting business.”
In order to be granted a patent, an inventor must contribute to the U.S.
knowledge base by filing with the USPTO a confidential, carefully drafted patent
application that: (a) reveals to one skilled in the technology of the invention
how to make and practice the invention, (b) distinctly claims and defines that
which is patently novel in the invention, and (c) is subsequently judged by the
USPTO to have met the statutory requirements for the invention’s
patentability. If these
requirements are met and the applicant has paid the required fees, the USPTO
will grant a patent to the inventor and make the application’s contents
available to the public.
A. Novelty Search
Because
patent protection is only available for new, useful and nonobvious inventions,
and because the legal expenses associated with applying for a patent can be
significant, it is often advisable to first make a relatively low-cost
assessment as to whether it is likely that a patent will issue for the
invention. This usually involves
searching the U.S. patent files to investigate technology similar to the
proposed invention in order to determine the state of the art in the area of the
invention and what, if any, scope of patent protection may be available for the
invention.
However, it
should be noted that all novelty searches have limitations that should be
considered in using the results of the search.
These include: (a) a standard novelty search covers only issued U.S.
patents (i.e., not covered are foreign patents and other publications from
around the world), (b) U.S. patents are divided into classes; only those
believed to be most clearly related to the art of the invention are searched,
searchers sometimes make mistakes and do not search a class that contains
relevant art, and (c) the patents to be searched are an estimated 18-24 months
behind the latest technology disclosed in pending patent applications, which are
confidential but available to the patent examiner to use to determine the state
of the art, and (d) a novelty opinion is an informed opinion regarding whether a
patent examiner will find the invention to meet the requirement of 35 U.S.C. 102
(novelty) and 103 (nonobviousness) -- this is a difficult legal question, and
reasonable minds can differ -- it is possible that a patent examiner, a judge
and a patent attorney may reach different conclusions.
If the results of a novelty search yield no prior patents that
substantially disclose the proposed invention, this situation usually will serve
to justify incurring the greater expenses associated with preparing a formal
patent application. Typical fees
for a patentability search are $250 to $600, with the legal fees for the
preparation of an opinion letter being $400 to $1,000 and depending upon how
much time is required to draft a representative claim to the invention.
B. Preparation and Filing of
the Patent Application
The patent application has two primary sections: the specification and
the claims. The specification is essentially a detailed description of the
invention, including drawings if necessary, showing what the invention does, how
it works, and disclosing its advantages over prior art. The description of the
invention must meet certain legal requirements, including that it: (a) be
thorough enough to allow a person skilled in the invention’s field of
technology to make and use the invention, (b) identify the invention’s best
mode of operation, and (c) provide a basis for and explanation of the
terminology that is used in the following claims.
The claims of the patent application are carefully worded, legally
structured sentences that vary in definitiveness, with each of these sentences
attempting to distinctly define more closely than the others the patentable
novelty of the invention. Thus, while one ideal claim might suffice, the patent
application almost always contains claims that range from broad ones (which
define the invention with the fewest details possible) to narrow ones (which set
forth in more detail the specific elements of the invention).
For the USPTO to examine a patent application, a required filing fee must
be paid at the time the application is submitted.
For a small entity (independent inventors, small businesses {<500
employees}, and non-profits) inventor, this filing fee is now typically $345,
which is half of the fee paid by the larger, non-small-entity applicants.
Typical legal fees for the drafting of a patent application and its
supporting paperwork are $4,000 to $10,000, depending upon the complexity of the
invention.
C.
The Examination Process At The USPTO
After the patent application has been filed with the USPTO, a patent
examiner carefully reviews the application in order to determine the
invention’s patentability. The examination workload and staffing of the USPTO
are such that this examination process usually extends over a period of 12 to 18
months.
To be patentable, an invention essentially must be: (1) useful, (2)
novel, and (3) nonobvious. The
novelty requirement is often consider to be the threshold test for
patentability. It generally is satisfied unless: (i) prior to the inventor’s
invention date, the invention was actually reduced to practice or an application
disclosing it was filed by one still diligently pursuing it, or it was patented
by another or published anywhere in the world by others or publicly known or
used in the U.S. by others, or (ii) prior to one year before the filing date of
the inventor’s patent application, the invention was patented or published
anywhere in the world or in public use or on sale in the U.S. as a result of the
acts of the inventor or others (Note: This effective one-year grace period for
such acts of the inventor is unique to the U.S. patent laws; in most foreign
countries, such acts of the inventor would bar the inventor from obtaining a
patent).
The probably more demanding, nonobviousness requirement is harder to
objectively define. The typical way
that an examiner shows obviousness is to cite a number of prior art references
that, when combined as suggested by possibly another prior art reference,
contain all of the elements of the applicant’s invention.
The applicant generally challenges the logic of the combination and
identifies certain secondary considerations that suggest that the invention was
not obvious (e.g., long duration of well recognized need for the invention,
prior unsuccessful efforts of others to develop such an invention, degree of
commercial success of the invention).
When the examiner has made his/her initial patentability determination,
the USPTO responds by sending the applicant what is known as an “Office
Action” containing its determination and the reasons for it.
If the Office Action contains a rejection of the claims (which occurs on
the first Office Action about 80% of the time) and there exist arguable grounds
for contesting the examiner’s determination, one typically files a
“Response,” usually in the form of an Amendment, to overcome the rejection.
There are usually only two Office Actions and Responses before a final
determination is made by the examiner as to the invention’s patentability.
If this determination is detrimental to the applicant’s interests, it
can be appealed -- a time consuming and expensive process. (Typical legal fees
for responding to Office Actions are $1,000 to $3,000, depending upon the
complexity of the arguments).
D.
Fees for the Issuance and Maintenance of the Patent
After the examiner has agreed to allow the application to issue as a
patent, the small entity inventor presently must pay the USPTO a patent issuance
fee of $605, which is, in part, to pay for the expenses associated with
preparing the application’s contents for publication. Periodically during the
life of the patent (up to 20 years from the date of filing for those
applications filed on or after 6/8/95), the
inventor must pay USPTO maintenance fees in order to allow his/her patent rights
to continue to be in effect . These
come due at times that are measured from the patent’s date of issuance.
Their amounts increase with time under the assumption that the inventor
will realize greater profits on the invention the longer that it has been in
existence. For the small entity inventor, these maintenance fees and their due
dates are: @3.5 years: $415, @7.5 years: $950 and @11.5 years: $1,455.
E.
Constructive Notice To Potential Infringers
Once a patent is granted, its number should be placed on the invention
(i.e., Pat. 6,000,000) in order to give a potential infringer constructive
notice of one’s patent rights. Otherwise,
the patentee will only be able to recover damages from an infringer from the day
the infringer had actual notice of his/her infringement, rather than from the
day the patentee began marking the invention.
F. Foreign Patent Coverage
To
obtain foreign patent coverage, within twelve months of filing a U.S. patent
application (i.e., one’s priority date), one needs to start applying for
his/her foreign patent rights, this process typically includes the following
steps:
i) Preparation and Filing of
a PCT International Patent Application that is based on the U.S. application
(Typical Legal Fee of $1,000 to $2,000, Filing Fee of approximately $2,300 or
$3,100, depending upon whether one designates the USPTO or the European Patent
Office (EPO) for one’s international novelty search),
ii) Assuming that the
results of the international search report are favorable and that one would like
to postpone, from the 20th to the 30th month, from one’s priority date, the
expensive step of entering the "national stage" of this process and
the filing of the required applications in the specific foreign countries where
one is seeking foreign patent rights, before the end of the 19th month from
one’s priority date, one will
want to exercise his/her option to have the PCT authorities perform a
preliminary patentability examination; this requires the filing of the necessary
papers to "Demand" the preliminary patentability examination (Typical
Legal Fee of $1,000 to $2,000, assuming no Preliminary Amendment is necessary,
with a Filing Fee of $900 or $2,200, depending upon whether the USPTO or the EPO
performs this examination),
iii) Before the end of the 30th month from one’s priority date
and assuming that the PCT preliminary examination report is favorable, one has
to decide in which foreign jurisdictions he/she will actually file for national
patent rights. The costs involved
at this step include individual, national filing fees (e.g., approximate fees:
Canada - $1,150, EPO - $4,900, Japan - $3,700), possible translation costs,
foreign patent agent filing fees, continuing legal fees for a U.S. patent
attorney to supervise this work, and possible later fees involved with making
any necessary amendments to the various foreign patent applications.
These "national stage" fees are by far the most expensive step
in this process, and it usually is suggested to postpone them until the 30th
month in order to give the inventor the maximum possible period of time to
assess the marketability of the invention so that he/she can better determine as
to whether these final expenses can be cost-justified.
A. Threats to Business Plans
From New “Business Method” Patent Holders
How might new e-Commerce businesses with their “business method”
patents impact the traditional service industries?
Is it possible that an on-line business, such as Amazon.com, might obtain
a patent for an improved, novel means to distribute products and services over
the Internet that will conflict with the means sought to be used by traditional
service institutions to sell their services and products on-line?
B. Possibility Of Increased
Threats To The Business From Outside Consultants
Should businesses reconsider how they use outside consultants?
Consider the fact that many traditional service industries license base
computer software and then customized it in order to have it optimally deal with
the service provider’s particular line of products or services.
For the smaller service providers, these customizations are often
performed by outside consultants, who consequently have the opportunity to
become intimately knowledgeable regarding the service provider’s business.
With the scope of patentable subject matter having increased, the
likelihood exists that more of these software customizations can result in the
creation and invention of valuable, patentable matter.
To whom will this patentable matter belong?
Is it possible that outside consultants could come to be in the position
of being the owners of “business method” patents that are vital to their
former clients’ survival?
C. Financial Services
Industry’s Unique Situation
The financial services industry is one in which the patenting of
“business methods” is proceeding at a rapid pace.
This is due in part to the unprecedented change which this industry is
now undergoing. These changes are being brought about by a unique combination of
circumstances, including changes in consumer needs, continuing deregulation,
globalization, demographic changes, technological advancements, and recent
legislation that removes depression era barriers and allows banks, investment
firms and insurance companies to sell each other’s products and provide
one-stop shopping for financial services. At
stake is an estimated $350 billion that Americans spend annually on fees and
commissions for banking, brokerage and insurance services.
These forces could well lead to a period of explosive growth in the
development of new financial products, along with equally innovative ways to
deliver and service such products. For
example, insurance companies may have to develop new financial products in order
to compete with banks, which traditionally have had
greater capital resources for product development efforts, greater access
to the customers and more opportunities to build better customer relationships.
In this new environment, the ability to acquire and protect competitive
advantages through patents for “business methods” could play a significant
role in determining which companies succeed and fail.
The traditional business practice in the financial services industry of
introducing “me too” products could be all but eliminated by the effective
enforcement of the monopoly rights of new patented, financial products and
services. Staff personnel in
financial institutions may need to see themselves as potential “inventors”
of products and services that may be eligible for patent protection.
D. “Business Method”
Patents As Defensive Weapons
When
one thinks of the advantages of patent ownership, one often thinks first of
using them as offensive weapons to extract royalties from or enjoin the
activities of competitors. However,
in many instances, patent ownership can serve a much more important defensive
purpose. Because of the threats
presented by new “business method” patents, many companies may elect to try
to develop their own “business method” patent portfolios for primarily
defensive purposes. Then, when
accused of infringement, they can seek to resolve such disputes by entering into
cross-licensing arrangements whereby each company is granted a license under the
other’s patents.
E. Questions Regarding The
Strength Of “Business Method” Patents
Despite the threats and opportunities presented by new “business
method” patents, there are also valid concerns about the degree and speed with
which individuals and business entities should take action.
For example, it is understood that patents can be costly to acquire and
have often been invalidated by the courts.
Thus, there is reason to wonder about how such new “business method”
patents will eventually fare in the courts.
Because of this doubt, will the owners of new “business method”
patents be less aggressive in their efforts to enforce their patent rights, and
therefore more amenable to licensing the rights to their new products and
services under less onerous terms?
XIII.
Outline Of Information That Attorneys May Want To Share With Their
Clients
A.
Expect Flood of “Business Method” Patents:
(1)
Threats:
a. No More “Me Too”
Products & Services
b. Traditional Trade Secret
Protection for “Business Methods” Inadequate
c.
Greater Risk of Being Sued For Patent Infringement
d.
Licensing Fees Could Be Required
e.
Potential for Diminishing Profit Margins Due To Costs To Implement Reaction
Strategies
f.
Competitors May Seek To Distinguish Themselves By Advertising Their
Patent Portfolios
g.
Potential Investors May Expect To Evaluate Your Patent Portfolios
(2)
Opportunities:
a. Develop New “Business
Method” Inventions, Increase Corporate Value By
Patenting Them
b.
Minimize Licensing Fees By Cross-Licensing Patents
c.
35 U.S.C. 273(b)(1): “Earlier Inventor Defense” To Infringement Of A “Business
Method” Patent
B.
Need To Re-Evaluate IP Strategies: Options
Include:
(1)
Do Nothing
(2)
Prepare For Licensing
(c)
Establish Invention Development & Patenting Program
a.
Consider Revising:
Employee
Work Agreements:
Ownership of Employee’s Inventions
Non-Disclosure Requirements
Consultant Work-For-Hire Agreements
b.
Increase Research Efforts:
Track Technical & Patent Literature In Areas of Business Interests
Track Competitors’ Development Efforts
Track Industry Licensing Agreements
c.
Attempt To Increase Employees’ Inventiveness:
Establish & Document Development Efforts
Bound Notebooks – Proof of Conception Dates
Invention Submission Forms
Review & Monitor
d.
Develop Patent Portfolios
e.
Review Potential, New Business Strategies & Methods To Avoid Patent
Infringement Situations