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Following the public outcry against Amazon.com after it sued Barnesandnoble.com in 1999, Jeff Bezos, Amazon president and one of the named inventors, insisted that a special set of laws is required to deal with protection of business methods. Lawmakers never seriously considered that proposal. Another dire prediction about business-method patents was that they would hinder the growth of electronic commerce. But that too has not happened. Yet another often-expressed concern was that the U.S. Patent and Trademark Office (PTO) was doing a poor job in examining patent applications, particularly those containing business-method claims. As a result, patents were being issued for business methods that were not new and not entitled to patent protection. Before considering that issue let us first try to define what a business-method patent is. “Business method” is a generic term that has been used by many to describe various types of process claims. The U.S. Court of Appeals for the Federal Circuit has not yet defined what it is that specifically characterizes a business-method claim and separates it from other process claims. The court has, however, stated that claims drawn to a method of doing business should not be categorized as a “business method” claim; instead they should be treated like any other process claim. State Street Bank & Trust Co. v. Signature Financial Group Inc., 149 F.3d 1368, 1377 (Fed. Cir. 1998). If a business-method patent is just a patent that contains process claims, then clearly business-method patents are not new. The patent in the State Street Bank case related to a machine for valuing shares in a mutual fund. Patents relating to financial instruments and activities have existed since the first decade of the existence of the PTO. The first financial patent was granted on March 19, 1799, to Jacob Perkins of Massachusetts for an invention for “Detecting Counterfeit Notes.” All details of Perkins’ invention, which can be presumed to have been a device or process in the printing art, were lost in the great Patent Office fire of 1836. The first financial patent for which any detailed written description survives was to a printing method entitled “A Mode of Preventing Counterfeiting,” granted to John Kneass on April 28, 1815. The first 50 years of the U.S. Patent Office saw the granting of 41 financial patents in the arts of bank notes (2 patents), bills of credit (1), bills of exchange (1), check blanks (4), detecting and preventing counterfeiting (10), coin counting (1), interest calculation tables (5) and lotteries (17). See www.uspto.gov/web/menu/busmethp/index.html. Today there are about 400 unexpired patents and 20 published applications in which a bank is listed as the owner. If patents for methods of doing business have been around for more than 200 years, why all the current fuss about “business method” patents? The answer lies not in all patents that cover methods of doing business, but rather those patents that relate to electronic commerce. More particularly, patents that claim methods of transferring information over the Internet for purposes ranging from buying books to making hotel reservations have generated most of the concerns. The most often asked question about business methods is whether those inventions are patentable. Patentability concerns Section 101 of Title 35 of the U.S. Code defines patentable subject matter as “any new and useful process, machine, manufacture, or composition of matter and useful improvement thereof.” In addition to being new and useful, a patentable invention must be sufficiently different from what has been done before that the differences would not have been obvious to a person of ordinary skill in the art at the time the invention was made. 35 U.S.C. 103. The question of what would have been obvious is difficult to apply in any situation, but methods relating to Internet activity are more difficult to evaluate. That is so because there is no easily accessible source of information about what has been done before in this field. The Amazon.com case involving the patent on Amazon’s 1-Click ordering illustrates the problem. Amazon filed a patent application on Sept. 12, 1997, for its 1-Click system for ordering books over the Internet. The patent issued on Sept. 28, 1999, for a method and system for placing an order in which a customer can complete a purchase using a single action once information identifying the item is displayed. Within weeks after the patent issued, Amazon sued Barnes & Noble for infringement. Amazon alleged that the Express Checkout service used by Barnes & Noble infringed its patent. The court agreed that Amazon was likely to prove infringement and issued a preliminary injunction as the 1999 Christmas shopping season began. Amazon.com Inc. v. Barnesandnoble.com Inc., 73 F. Supp. 2d 1228 (W.D. Wash. 1999). Barnes & Noble had to change its ordering system to require the consumer to take multiple actions to place an order. After two Christmas seasons had passed, the Federal Circuit on Feb. 14, 2001, vacated the preliminary injunction. Amazon.com Inc. v. Barnesandnoble.com Inc., 239 F.3d 1343 (Fed. Cir. 2001). The appeals court said that the method claimed in the Amazon patent was quite similar to the CompuServe Trend System and an August 1996 “Web basket” ordering system. The appeals court reasoned that because these systems were known before the invention of the 1-Click system, it was not likely that Amazon would prevail at trial. Therefore, the preliminary injunction was vacated. On March 6, 2002, Amazon.com announced that it had settled its patent infringement suit against BarnesandNoble.com over its 1-Click checkout system. Terms of the settlement were not disclosed. ‘Second pair of eyes’ In March 2000, the PTO, responding to criticism that it was issuing patents on unpatentable methods of doing business, established a “second pair of eyes” review for patents in Class 705. The title of Class 705 is “Data processing: financial, business practice, management, or cost/ price determination.” The definition of Class 705 is “machines and methods for performing data processing or calculation operations in the: 1) practice, administration or management of an enterprise; 2) processing of financial data; or 3) determination of the charge for goods or services.” Thus, only computer-implemented processes related to e-commerce, the Internet and data processing involving finance, business practices, management or cost/price determination are classified in Class 705. Many inventions that may be labeled a “business method-type application” are in other classes and are not subject to this level of review. Today, the PTO considers the “second pair of eyes” review to have been a success and is expanding the program into other art areas. In an action paper presented as part of its 21st Century Strategic Plan, the PTO reports that in fiscal 2001, only one application in class 705 was reopened as a result of a review by the Office of Patent Quality Review. See www.uspto.gov/web/offices/com/ strat21/action/q3p17a.htm. The quality-review process randomly selects pending applications for review after an examiner has decided that the claims are patentable but before a patent has issued from the application. An application is reopened when the reviewer decides that the claims are not patentable. The PTO points to this statistic as evidence that those business-method patents that do issue are now of higher quality. Perhaps this is true. But since few such patents have yet been tested by the courts or through re-examination, it is too early to tell. When the “second set of eyes” procedure was introduced by the PTO, fewer patents issued and those that did issue took longer to examine and issue. On the PTO Web site, the PTO has published Application Filing and Patents Issued Data for patents and applications originally classified as being in Class 705. The data from that chart is presented in the accompanying chart in a slightly different format. The data show a steady increase in filings until 2002, when the dot-com bubble had burst and the U.S. economy was down. There was a dramatic drop in patents issued in 2001 and in 2002. Recognizing that a patent does not issue until six or more months after the notice of allowance has been sent to the applicant, the drop in patents issued is clearly attributable to the second pair of eyes review. Each week, the PTO publishes in the Official Gazette a list of the art units and for each art unit the filing date of the oldest application awaiting a first office action. This statistic is useful in determining what the backlog is for that art unit. The Official Gazette for June 6, 2000, reported that the oldest application in the field of electronic commerce awaiting the term to be examined for a first office action was filed on May 26, 1998. That equates to a backlog of slightly more that 23 months. The Official Gazette for Sept. 9, 2003, reported that the oldest electronic commerce application awaiting action had been filed on Jan. 15, 2001, a backlog of 32 months. Thus, application pendency has increased about 39% after the adoption of the “second pair of eyes” procedure, and the backlog continues to grow. The waterfront for business-method patents, particularly those relating to e-commerce, has changed. Fewer patents are being issued. It is taking longer to obtain those patents. And the patents that are being issued very well could be of better quality. Lynn J. Alstadt is a shareholder at Pittsburgh’s Buchanan Ingersoll, practicing in the intellectual property section. He is also an adjunct professor at the University of Pittsburgh and Duquesne University schools of law.

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