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Intellectual Property Newsletter

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Internet Business Method Patents

“Business methods” generally include any methodologies that are involved with operating a business, such as online ordering processes. Prior to 1998, the U.S. Patent and Trademark Office (USPTO) rarely granted patents to protect business methods. Classifying most business methods as “abstract ideas,” the USPTO claimed that business methods were generally unpatentable.

However, since 1998, software and Internet companies that have devised novel ways of doing business may qualify for patent protection for their new business methods. Due in major part to increasing developments in computer technology, Internet-related companies have invented new ways of doing business online that have legitimized a new class of patents for Internet business methods. A business method patent (BMP) can give the patent holder a monopoly for the term of the patent, effectively prohibiting a third party from implementing the patented technology.

Patent Protection for Business Methods

In July 1998, a federal court upheld a patent for a new type of financial instrument in State Street Bank & Trust Co. v. Signal Financial Group, Inc. Specifically, the State Street court allowed a patent to issue for a method of calculating the net asset value of mutual funds. Opening the door to business method patents, the court in the State Street case reasoned that patent laws were intended to protect any method that produced a “useful, concrete and tangible result.”

In so holding, the State Street court reclassified certain business methods as patentable “processes,” which are included among the categories of patentable statutory subject matter. As such, the court affirmed the legitimacy of patents to protect any method, whether or not the method required the aid of a computer. Although the court’s decision in the State Street case allowed patents to issue very broadly for any type of business method that produced a tangible result, the USPTO has generally limited business method patents to those business methods that depend on computer software.

Legal Requirements for Getting a Business Method Patent

In order to be eligible for patent protection, a business method or software must:

  1. Fall within the classes of patentable subject matter (i.e., processes, machines, articles of manufacture and compositions of matter)
  2. Be useful (i.e., serve any functional purpose)
  3. Be novel (i.e., have an aspect that is different in some way from all previous knowledge and inventions)
  4. Be non-obvious (i.e., someone who has ordinary skill in the specific technology could not easily think of it)

It is important to note that proving usefulness is typically the easiest element to satisfy. In fact, a business must only prove that its method or software provides any tangible result, such as expedited purchase, in order to be considered useful.

Novelty of Internet Method

The novelty test is, perhaps, one of the most contested hurdles for an internet business method to overcome to qualify for patent protection. In order to be considered “novel,” a business method must not exist in “prior art,” which includes:

  • Any published writing that was made publicly available before the invention of the business method, or more than one year before the filing of the patent application
  • Any U.S. patent filed before the invention of the business method
  • Any relevant method or process existing publicly before the business method was conceived
  • Any public or commercial use, sale or knowledge of the business method more than one year before the filing of the patent application

Accordingly, if a business method exists in any one of the aforementioned examples of prior art, the business method cannot be considered novel, and the USPTO will not issue a patent.

The Amazon One-Click Patent

A well-known example of a business method patent is the Amazon.com “one-click” patent. In general terms, Amazon’s “one-click” patent protected a method of entering all of the information required to complete an online purchase by a single click of the mouse. This method allowed repeat customers to purchase an item online without having to provide address information, shipping preferences, credit-card numbers, etc.

In the 1999 case of Amazon.com v. Barnes & Noble, the district court awarded Amazon.com a preliminary injunction to prohibit Barnes & Noble from infringing on Amazon’s “one-click” patent. The district court reasoned that Amazon had shown a “likelihood of infringement.” Ultimately, however, the appellate court held that the preliminary injunction was improper, reasoning that Barnes & Noble had raised a substantial challenge to the validity of Amazon’s patent.