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Business method patents have been at the center of a roiling controversy for the past few years. To patent or not to patent a means of doing business, especially as it relates to e-commerce and the Internet, has made headlines in everything from the Wall Street Journal to the New York Times. Much of the hubbub, and the resulting upsurge in the number of patent applications claiming business methods, stems from the 1998 Court of Appeals for the Federal Circuit’s decision regarding State Street Bank. The court upheld the patent for a data processing system that transformed data into a final share price for recording and reporting purposes. The court’s decision — based on the invention’s production of “a useful, concrete and tangible result,” seems to have opened the door for many more business method applications — where the Patent and Trademark Office received approximately 2,650 applications in 1999, that number jumped to 7,800 in 2000. Several of these business methods patents have been litigated, including the famous Amazon “One Click” on-line shopping ordering patent, the Priceline “Reverse Auction” patent and a lesser known patent on an automated fund-raising method. Because these factors have caused a spotlight to be focused on business methods patents, Congress decided to hold hearings to investigate whether there have been abuses of the patent system. The House Judiciary’s subcommittee on courts and intellectual property heard testimony in April from Nicholas Godici, head of the Patent and Trademark Office, from Michael Kirk, head of the Intellectual Property Owners Association, and from Travelocity.com’s general counsel, Andrew Steinberg. “We believe that the proliferation of these patents represents a serious threat to the growth of electronic commerce,” testified Steinberg, “and, if left unchecked, could impede the ability of many businesses to adapt to the Internet. We urge Congress to take prompt action to prevent this from occurring.” Ironically, while Travelocity.com holds several patents on business methods, Steinberg stated that his firm view is that Travelocity.com has offered these innovations notwithstanding the potential ability to patent them. “We’re doing these things because they benefit our customers and give us a competitive advantage. Certainly in our case, business method patents have been neither a prerequisite to nor even a catalyst for innovation.” HUE AND CRY Does all this hue and cry bode ill for business method patents? Let’s look at the big picture. Patents on business methods are nothing new. In fact, according to Godici’s testimony, his office has been handing them out almost as long as it’s been in business. The acting commissioner of patents testified that the USPTO has been issuing method patents for over a century and a half. “We have been issuing patents on methods of teaching since the mid-1800′s, including a patent issued in 1864 for a method of teaching penmanship,” he explained. “Moreover, there have been a number of patents regarding innovations in the business and financial fields throughout the history of the USPTO. “For example, in 1799, only nine years after the first U.S. patent, the first financial patent was issued regarding ‘Detecting Counterfeit Notes.’ “Unfortunately, the details of this invention were forever lost in the great Patent Office fire of 1836. In addition, in 1889, Herman Hollerith received a patent on a method for tabulating and compiling statistical information for a business. The patent he received helped his fledgling company to survive. Later, the company’s name was changed to International Business Machine Corp. Mr. Hollerith’s patented method was probably the first patent issued regarding the automation of business or financial data, and it and the related punch cards were used until the birth of the personal computer.” Without business method patents — where would IBM, and many other businesses, be today? Perhaps a more focused definition of what constitutes a bona fide business method patent is in order. In reality, what is generally being patented isn’t just an abstract method — such as buy low, sell high, for example. Instead, a patent might be requested on a computer-assisted method for buying low and selling high, some technical method by which the computer assists in the process. What truly constitutes an innovative business method patent is a combination of a concept and a way to implement it using a computer, a method which the computer in effect enables. Virtually all of the “controversial” business method patents fall into this category. Some media observers have argued that many of the business methods patents are frivolous, but the Patent Office responded to such criticism by testifying that it tightened its criteria for awarding business-method patents last year. The biggest challenge for patent examiners is access to technical literature to determine if similar methods already exist. The Patent Office’s response has been to relax the time pressures on its patent examiners and to develop better methods of uncovering prior art by increasing cooperation with industry. The outlook for reform legislation appears very dim. For example, subcommittee chairman Howard Coble said concern over the new patents was overblown, and that he found no evidence of a crisis in the courtrooms regarding business method patents. “Whether you are Alan Greenspan, a practicing inventor tinkering in a garage, or a school teacher, it is well-known that patents have played a central role in our industrial and economic history since the founding of our nation when Thomas Jefferson served as the first patent commissioner,” testified Godici. “The work of this subcommittee has proven again and again that intellectual property and the Internet are compatible. “In fact, there is a long history of method patents and software-enable inventions. It is important for everyone in earshot to be clear that I am aware of and sensitive to the press reports of questionable patents in this area. The press has cited examples of questionable patents including those for peanut butter and jelly sandwiches, golf swings, and gene-related inventions. Certainly, Congress should not legislate in a way that throws the baby out with the bath water.” SPECIAL FEATURES The acting commissioner went on to testify that the Patent Office’s business methods patent initiative includes specific features to bolster the quality of its patent searches and that the Patent Office has established “electronic information centers” which provide examiners with access to more than 900 databases, some one-third of which contain business and financial information. In addition, the Patent Office has implemented a new Rule 105 (37 C.F.R. Section 1.105), effective Nov. 27, 2000, which confirms that examiners and other office employees have explicit authority to ask for information that may be reasonably necessary to properly examine an application. In addition, 37 C. F.R. Section 1.99 permits third parties to submit for examiners’ benefit prior art in published applications without an attribution of how that art affects patentability. A very significant change pointed out in the acting commissioner’s testimony was that as part of the PRO’s business methods patent initiative, the office instituted a second-level review of all allowed applications in Class 705 by an additional experienced examiner beyond the examiner who would normally review the application before it could be granted. Other witnesses pointed out that the much-cited article in the New York Times last year reporting that patents are now “spread across a crucial boundary, into the realm of thought and abstraction,” was “wildly incorrect.” The existing statutory requirements, properly interpreted, will screen out subject matter that should not be patented. In view of the changes being made in the administrative agency and the tenor of the hearings before the Intellectual Property law House subcommittee, new legislation addressed to alleged business methods patent abuses appears highly unlikely. Business method patents are not only alive and well, they are on the increase and in no danger of being legislated out of existence. The lesson from this is that clients should not hesitate to patent an automated way of conducting a business process, and should continue to be concerned about competitors’ business process patents. Michael B. Fein is chair of the intellectual property department at Cozen & O’Connor, a Philadelphia-based law firm with more than 430 attorneys practicing in the firm’s 17 offices throughout the United States and in London. He was formerly a patent examiner with the U.S. Patent and Trademark Office.

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