Counseling Clients About Business Method Patents

I. Introduction

Corporations and their patent counsel face a brave new world of impossibly broad business method patents, intellectual property marketplaces, patent insurance, industry-wide infringement allegations, and self-styled "patent-busters." Given the thinnest of precedent and a dearth of prior art, how should patent attorneys advise clients when it comes to business method patents? This article is intended to suggest practical approaches to a rapidly-evolving area of patent law, and evoke useful dialogue between client and counsel. Section II sets forth typical client questions, while Sections III - V examine patentability, infringement and clearance issues, as well as aspects of responding to demand letters.

II. Top Ten Client Questions (And Answers)

1. What is a patent?

A U.S. patent is a limited-term right, granted by the U.S. government, to exclude others from making, using or selling the invention defined by the patent claims. A patent is not, per se, a right to practice. Even if a corporation owns a valid U.S. patent covering its method, it may still infringe another's "dominating" patent (a prior patent having a claim encompassing the subject matter of a claim in a subsequent patent).

2. What is a "business method patent"?

   The term "business method patent" remains undefined by statute, but is commonly used to describe patents relating to methods of conducting e-commerce transactions. Such patents often disclose and claim aspects of software and Internet-based communications intrinsic to the business methods. Perhaps the best-known example of a business method patent is Amazon's "one-click" shopping patent.

3. Can my company's business method be patented?

   State Street Bank & Trust Co., v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998) confirmed that business methods can be protected by a U.S. patent if the subject matter meets the statutory requirements of utility, novelty and non-obviousness. The utility test can be satisfied by any useful, lawful function. The question thus comes down to novelty and non-obviousness. An invention can be novel if it was not "known or used by others in this country, or patented or described in a printed publication in this or a foreign country, before the invention thereof by the applicant." (35 U.S.C. 102(a)) "Obviousness", in turn, is evaluated as of "the time of invention" and from the perspective of "one of ordinary skill in the art." As with other kinds of patents, a patentability search can be conducted to provide guidance about the prior art. Patentability searches and opinions, however, are subject to limitations, particularly in the quickly-developing field of business method patents, and can not guarantee patentability. If the decision is made to file patent applications, it may be advisable to seek protection not only for the business method per se, but also for the unique software tools or architectures that render the business method commercially viable.

4. How long can I wait before applying for a business method patent?

   U.S. patent rights may be lost if a patent application for an invention is not filed within one year of disclosing, publicly using or placing the invention on sale. Offering the invention for sale may be sufficient to start the one-year clock; and, unlike the U.S., most other industrialized nations provide no grace period before loss of rights. Thus, patent applications should be filed before disclosure or commercial activity occurs.

5. I think my competitor is infringing my business method patent -- how do I prove it?

   Proof involves at least three aspects: determining what the patent claims cover, defining the competitor's method, and establishing that it infringes the claims. Patent infringement occurs when an accused method, product or system contains every element (or its equivalent) required by a properly interpreted patent claim. The traditional rules of claim interpretation, including analysis of the claims, written description, drawings and prosecution history, can be applied to arrive at a proper claim construction. Challenges may arise in determining the competitor's method, since the details may well be hidden in software. Counsel and client may need to rely upon reports from the competitor's customers or vendors; advertising claims; SEC or other public filings; and statements made on the alleged infringer's website.

6. Should I sue if I suspect infringement of my business method patent?

   As with any infringement matter, comprehensive analysis and deliberation should be undertaken prior to bringing suit. Although the traditional rules apply, there has been little reported litigation and only limited judicial guidance as to patent claim construction, infringement and validity. It may be particularly difficult to establish that an alleged infringer is using the patented business method, and the patentee's chances of prevailing on summary judgment may be more readily defeated by fact issues regarding the alleged infringer's method. Filing suit, or simply alleging infringement, may jeopardize the patent by providing a basis for the alleged infringer to seek a declaratory judgment of non-infringement and/or invalidity.

7. What value do patents have if they are so expensive to enforce?

   Business method patents can have value in both defensive and offensive contexts, such as excluding other market players; preventing others from excluding; enabling...