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Business Method Patents

Business Method Patents: State of Innovation

Business Method Patents: The Supreme Court may use the Bilski Case 545 F.3d 943, 88 U.S.P.Q.2d 1385 (Fed. Cir. 2008) to deny patent protection to information age inventions?  Many observes believe the case will have implications for software orbusiness method patents.  The Bilski application covered a method forhedging risks intrading commodities.  The (CAFC)  Court of Appeals for the Federal Circuit ruled that the Bilski application did not come under the subject matter of patentable material.  The CAFC reached this decision based using the “so called” machine or transformation test.  The application did not recite a machine according to the court or transform matter.

Business Method Patents

One of the earliest cases stating that a method of doing business is not patentable was a patent covering outdoor drive-in theaters, Loew’s Drive-In Theatres v. Park-In Theatres, 174 F.2d 547, 552 (1st Cir. 1949).  The patent described the now well-known design for a drive-in theater.  The claims covered real world objects and the relationship between these object.  For instance, how to setup the parking rows in a semi circle around the screen and wire the speaker systems so they can be hears in the cars?  The drive-in movie theater was a success with around 800 drive-in movie theaters in 1948.  The drive-in movie theater didn’t exist before Richard Hollingshead, the inventor, invented it.  In spite of  this, the court decided that a method of doing business was not patentable and invalidated the patent by Mr. Hollngshead.  A process of building a car, an airplane, or a radio are all methods of doing business and no one would question they are patentable.  A process that cures rubber is a method for doing business.  All of these processes are related to how a company performs its business, i.e., a method of doing business.  There is no support in 35 USC § 101 for the prohibition against business method patents.

One of the better known business method patents is the one click patent. filed for the patent in 1997 and it was granted in 1999, patent number 5,960,411.  Competitors copied Amazon’s one click patent and shortly after it issued including Barnes and Noble. sued Barnes and Noble for infringement.  Studies by the online retail industry showed that between sixty and sixty-five percent of online shopping baskets were abandon before check out.  The main reason for abandoned online shopping carts appeared to be buyer annoyance with the purchasing process.  Presumably, most of thes e abandoned shopping carts represented lost sales.  The goal of the one click patent for online shopping was to simplify the process and make it faster and more secure.  Resulting  in more orders.  Barnes and Noble’s Express Lane, their version of the one click shopping system, was successful, since a large numberof their customers chose it over the standard online shopping basket.  Amazon’s one click system uses software and therefore hardware.  The hardware includes the internet, the customer’s computer, and the Amazon servers.  The one click system used real technology to solve a important problem.  This is the sort of invention the patent system is designed for.  (For more on the one click patent click here)

I contend that a logically consistent definition of a business method patent does not exist.  All patents relate to a method of doing business.   Even device patents are directed to the process the business intends to manufacture the device.  One common category of business method patents that critics decry are ecommerce patents, like the one click patent.  These patents use real technology (computers, software and the internet) to solve real problems.  Patents for financial products are also widely criticized as method of doing business.  When the financial product uses software (computers) to execute the product, then it is using a machine.  The machine transforms data, usually relating to money, which is no different than patents relating to an error correction code.  In an information economy the processing and transformation of data is critical to the economy.  The telephone and telegraph are nothing but machines to transform and also transmit information.  The sounds wave at the receiving end of a telegraph or telephone are just a step in transferring information.


Because the Bilski patent application was never published, it is hard to determine using the claims if the commodity hedging scheme uses a computer for any real world use.  If the Bilski hedging scheme requires computers for practical use of the invention, then the patent should not be denied just because the claims do not recite hardware.  This would be absurdly formalistic.  If the Biliski invention does not use a computer for any real world  application of the invention, then it is unlikely that the invention is novel.  In that case, the court should avoid overly broad decisions about business method or software patents and state that the invention is not patentable because it is  not novel.

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