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In 1998, the U.S. Court of Appeals for the Federal Circuit caught the patent world by surprise. Its decision in State Street Bank & Trust Co. v. Signature Financial Group set off a debate — and a run on the U.S. Patent and Trademark Office — that has not ceased to this day. The State Street opinion held that business methods are “inventions” capable of being patented if they satisfy the usual requirements of usefulness, novelty, and nonobviousness. Prior to that decision, it was widely assumed that patents could not cover business methods (or mathematical algorithms or natural phenomena). Business methods were considered exceptions to the general rule that no subject matter is precluded from patentability if the invention otherwise qualifies. The decision correcting this misconception as to business methods caught the unwary by surprise. And patent applicants touting purportedly new methods of doing business began flooding the Patent Office with submissions. Today, the business-method patent is hated by many, loved by few, and universally misunderstood. Some of these patents, such as Amazon’s “one click” technology, have gained notoriety. Lobbying efforts have pushed the Patent Office to examine business-method patents more carefully than others, and legislation has created a “prior user’s right” to provide relief for entities that purely use patented methods. More than one critic has called for a reversal — or, at least, a significant narrowing — of State Street. But what would such a change mean to business-method patent holders and their alleged infringers? It is not what most people think, and it is not something anyone should be hoping for. WHAT BREYER WROTE Do not expect that a reversal of State Street, if it were to happen, would magically do away with the pain caused by business-method patents. The problem is that, although that decision established the case for business-method patents, other related issues in State Street go well beyond the business-method issue. To understand the risks inherent in the anti- State Street argument, we should begin with what a Supreme Court justice did not say. Last term the Court had an opportunity in Laboratory Corp. v. Metabolite Laboratories to consider whether a patent on an algorithm for making a medical diagnosis, which potentially could be infringed by a physician’s mere thinking through the diagnosis, was validly issued by the Patent Office. Although the case was widely watched by the legal and business communities, the Court ducked the question (and the case) on procedural grounds. However, a dissenting Justice Stephen Breyer took the opportunity to make a swipe at the Federal Circuit for State Street. When Breyer’s dissent was announced, those facing potential liability for infringing a business-method patent cheered. Many have interpreted that dissent as a signal portending the ultimate reversal of State Street. But a careful reading of the dissent reveals that Breyer was not criticizing the State Street decision because of its overall relationship to business-method patents. His comments in Laboratory Corp. were directed at one portion of State Street to illustrate his concern that some patents, like that in Laboratory Corp., are overly expansive. The problem with Laboratory Corp.’s patent, as Breyer saw it, is that the patent is broad enough to be infringed by the mere act of making correlations among things that exist in nature. That patent was, in effect, a patent on a law of nature or a natural phenomenon — areas that are historically excluded from intellectual-property protection. Sometimes too much protection can impede rather than promote progress, warned Breyer. He would have welcomed a closer look at the issue by the Court. That is all. WHAT IS THIS THING? So why would a wholesale elimination of business-method patents be unwise? Let’s start with the key problem: the definition of “business method.” A survey of law firms that specialize in patent matters turns up a variety of definitions. Wikipedia broadly calls it “a method of operating any aspect of an economic enterprise.” Another definition comes from H.R. 1333, the proposed Business Method Patent Improvement Act of 2001, which defined the term “business method” to mean: “(1) a method (A) of (i) processing data; or (ii) performing calculation operations; and (B) which is uniquely designed for or utilized in the practice, administration, or management of an enterprise; (2) any technique used in athletics, instruction, or personal skills; and (3) any computer-assisted implementation of a method described in paragraph (1) or a technique described in paragraph (2).” Yet another comes from H.R. 5364, the proposed Business Method Patent Improvement Act of 2000. (The mere fact that the definition of a business method can include athletics should highlight the complexity of the issues at play.) What can be said definitively about the term “business method” is that it does not refer to the types of claims in the patent. A patent can have claims that describe a method of doing something or an apparatus for implementing that method. The term “business-method patent” is haphazardly applied to either type. If a review of the literature reveals explanations that either are so generic that they describe anything and everything or are too confusing in their attempt to be specific, then how can we know how far, if at all, to limit business-method patents? By tracing the history, one can begin to appreciate just how narrow the issue actually is. Article I, Section 8 of the Constitution directs Congress to promote the progress of the useful arts. Congress enacted 35 U.S.C.�101, which provides that whoever invents a “new and useful process” may obtain a patent if other requirements for patentability are met. The definition of “arts” was addressed by the 2nd Circuit in its 1908 decision in Hotel Security Checking Co. v. Lorraine Co. The court held that a hotel bookkeeping system was not patentable because a “system of transacting business disconnected from the means for carrying out the system is not, within the most liberal interpretation of the term, an art.” And so began the business-method exception, which precluded a method of doing business as an “art” for which patent protection could be obtained. In applying the business-method exception, the courts focused on the issue of whether the method transformed any of the subject matter into a different state or thing. In Ex parte Ehnes (1955), the Board of Patent Appeals and Interferences was asked to determine the patentability of a method of printing on index cards. The index cards were provided with grooves and tongues so that, when connected, the columns on each index card would line up. Thus, the court was able to distinguish it from Hotel Security: In contrast to Ehnes, the “mere making of written entries on ruled forms, even though made according to a particular system of bookkeeping as in the Hotel Security v. Lorraine case, is not an act or series of acts that transforms any subject matter into a different state or thing.” Courts would go on to apply the holding in Hotel Security to a number of different methods of doing business. For example, in In re Patton (1942), the U.S. Court of Customs and Patent Appeals determined that a firefighting apparatus designed to be used locally or throughout the United States was a method of “transacting business” and was not patentable subject matter. The prohibition on a process or method of doing business was also adopted by the Patent Office, which held that “a method of doing business can be rejected as not being with the statutory classes.” DRIVEN BY COMPUTERS All that began to change with the easing of restrictions on the patenting of computer software. Growth in both innovation and industry created a need for better methods of protecting software. But the line between a computer program and a method of doing business is often less than clear. So even prior to the Federal Circuit’s State Street decision, the Patent Office felt compelled to change course. As part of the Examination Guidelines for Computer-Related Inventions of 1996, the Patent Office recognized that there has been “difficulty in properly treating claims directed to methods of doing business.” The office stated that such claims “should be treated like any other process claims, pursuant to these Guidelines when relevant.” Two years later, in State Street, the Federal Circuit put its stamp of approval on this reversal of course and disabused the patent community of the notion that a claim was unpatentable merely because it recited a method of doing business. The court stated that it was laying the “ill-conceived notion to rest.” PATH OF DESTRUCTION This is a change that cannot be rolled back with widespread disruption. First, too much commercial activity is now dependent on computer innovation covered by business-method patents. The flood of these patents since State Street has mainly covered methods that are implemented with computers or on Internet platforms (although more “pure” business-method patents are now being filed). Second, we don’t have — and perhaps cannot have — a clear, workable definition of a “business method.” What is a business method accomplished via computer technology versus an improvement in the technology itself? What distinguishes the software running an accounting spreadsheet from the software controlling a robot on an assembly line? If the business-method exception to patentability is revived without specific parameters on the term “business method,” the result will be chaos. Patent prosecution expenses will increase, litigation costs will rise, and accused infringers will face even greater uncertainty. Third, it would be far wiser to recognize that much of the criticism of business-method patents is really criticism of certain aspects of the procurement and enforcement process. A lot of the concern over business-method patents of questionable worth has more to do with access to prior art and Patent Office practices than with concern over the actual subject matter being patented. The only real solution is to separate out the issues, identify the actual problems, and propose narrowly tailored solutions. Take the matter of lack of access to prior art. The Patent Office is trying to solve this problem by opening up pending patent applications to third-party comment. This pilot program will have a twofold effect: It will assist in identifying prior art and ostensibly result in better patents, and those accused of infringing these patents will have a much harder time challenging their validity. It is a two-edged sword. But not nearly as risky as the double-edged threat implicit in a reversal of State Street.
Stephen Becker and John R. Fuisz are partners in the D.C. office of McDermott Will & Emery. Becker leads the firm’s patent procurement group. Fuisz concentrates on patent and related technology litigation.

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