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Business Method Patent

Business Method Patent: State of Innovation

Business Method Patent: Will the Supreme Court use the In re Bilski 545 F.3d 943, 88 U.S.P.Q.2d 1385 (Fed. Cir. 2008) case to deny patent protection to information age technology?  Many observes believe that this case will have major implications for software and business method patents.  The Bilski patent application covered a method of hedging risks when trading commodities.  The Court of Appeals for the Federal Circuit (CAFC) ruled that the Bilski patent did not fall within the subject matter of patentable material.  It reached this decision based on the so called machine or transformation test.  Bilski did not recite a machine or transform matter from one state to another state according to the court.

Business Method Patent

One of the first cases stating that methods of doing business are not patentable related to a patent covering outdoor drive-in movie theaters, Loew’s Drive-In Theatres v. Park-In Theatres, 174 F.2d 547, 552 (1st Cir. 1949).  The claims covered the now well-know design for a drive-in movie theater.  Clearly, these claims were directed to real world objects and there relationship.  For instance, how does one setup the parking rows in a partial semi circle around a screen and run the speaker systems to the cars?  The drive-in theater was a major success with over 800 drive-in theaters in 1948.  The drive-in theater did not exist before Richard Hollingshead, the inventor, created it.  Despite this, the court ruled that methods of doing business were not patentable and invalidated Mr. Hollingshead’s patent.  A process for building a car, airplane, or radio are methods of doing business and yet no one would question that it was patentable.  A process for curing rubber is also a method of doing business.  All of these processes are part of how a company conducts its business, i.e., a method of doing business.  There is no support in the statute, 35 USC § 101, for a prohibition against business method patents.

According to many people, one of the best known business method patents is the Amazon one click patent. applied for the patent in 1997 and it issued in 1999 as patent number 5,960,411.  A number of competitors had copied Amazon’s one click ordering system and shortly after the patent issued, sued Barnes and Noble for infringement.  Industry studies showed that between sixty and sixty-five percent of online shopping baskets abandon before they checked out.  The primary reason for abandoned internet shopping carts seems to be buyer confusion and annoyance with the online purchasing process.  Presumably, many of those abandoned shopping carts represent lost sales.  The goal of the one click method for online shopping was to make the process simpler, faster, and more secure, thereby capturing some of that lost business.  Barnes and Noble’s Express Lane (one click shopping system) was evidently successful, since a large percentage of their customers had chosen to utilize the Express Lane rather than the shopping basket.  Amazon’s one click patent clearly involved software and therefore hardware, in order to have any meaning.  The hardware included the internet, the customer’s computer, and Amazon’s servers. used real technology to solve a real problem.  This is exactly the sort of invention our patent system is designed to protect.  (For more on the Amazon one click patent click here)

It is my contention that a logically consistent definition of business method patents does not exist.  All patents are related to a method of doing business, since even device patents are related to how the business intends to build the device.  A common category of business method patents the critics decry are ecommerce patents, such as the one click patent.  All these patents use real technology (internet, computers and software) to solve real world problems.  Patents for financial products have also been widely criticized as business method patents.  If the financial product uses computers (software) to implement the product, then it uses a machine.  The fact that the machine merely transforms data, usually relating to money, makes it no different than a patent relating to error correction codes.  In an information society the processing and transformation of data is central to the economy and its technology.  The telegraph and telephone are nothing but devices to transform and transmit information.  The sounds wave created at the receiving end of the telegraph and telephone are just one more step in transferring the information.


Since the Bilski patent application has never been published, it is hard to determine from the claims if its commodity hedging scheme requires a computer for any practical use.  If the hedging scheme requires a computer for any practical use of the invention, then denying the patent just because it does not recite the hardware is absurdly formalistic.  If the invention does not require a computer for any practical application of the invention, then it is hard to see how the invention is novel.  In this case, the courts should avoid any overly broad pronouncements about business method patents or software patents and rule the invention is not patentable for lack of novelty.

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