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Patent Wars Continue Over Methods Of Doing Business May-June-01

                        Three weeks after being hired to manage a restaurant you surmise that operations might be improved by assigning slips of paper to each waiter, containing a number identifying each waiter, and requiring that orders be taken on the slips and turned in to the cashier for processing.  You implement the program and, after another week, find that it does indeed facilitate tracking of orders and cashier receipts.   You apply for a patent for your system and intend to seek injunctions against others that may employ substantially similar systems in their restaurant operations. Chances of success? If you devised the system between 1908 and 1999, slim.  However, if you devised it after the Supreme Court denied review of the federal court decision in State Street Bank & Trust v. Signature Financial Group, Inc. in 1999, your chances improved substantially.  

                        A paper slip system, such as that outlined above, was the subject of a 1908 case which noted that the system was not much more than a method of doing business, like a bookkeeping system, and concluded that patent protection would not apply.  The case was followed uniformly for 90 years without much controversy and served as the basis for the general rule that methods of doing business were not patentable.  This rule was premised on the tenet that although manmade things and processes are patentable, concepts and abstract ideas are not. Similarly, natural principles or mathematical formulas were considered non-patentable.   The State Street decision cast aside these long-held rules in concluding that patent protection applied to a hub-and-spoke method for managing investment funds which basically consisted of a mathematical algorithm.  According to the Court in State Street, patent protection should extend to an algorithm which produces a “useful, concrete and tangible result,” such as the dollar amount computations of share prices derived from State Street Bank’s program.           

                          Following State Street, there has been a rush on the Patent and Trademark Office (“PTO”), as all kinds of businesses have sought to shield methods of doing business from others.  Internet companies, in particular, have laid claim to and filed applications for patents which included the following features, to wit:

•            Amazon.com’s system allowing “affiliate” sites to refer customers;  
•            Priceline.com’s  “reverse auction” system; and


•            Egghead.com’s method of supplying automatic status updates by e-mail.

                        This has created substantial concern among patent scholars and attorneys who see danger in issuing patents for methods that are simply web-adaptations of methods that have been used by others for years.  Such patents could provide their owners the right to injunctive relief against those already using the methods and the power to extract licensing fees.


                        The PTO has recently implemented its Business Method Patent Initiative to address these issues and has sought to substantially increase its database of  existing state of the art to reduce the risk of patents being issued for methods that do not advance existing technology.  In addition, Congress passed the American Inventors Protection Act of 1999 which allows a party to defend itself against an infringement claim by showing that the subject matter of a patent has been in use for at least one year prior to the filing of the patent application.   

                         For every attorney that has expressed concern over the State Street decision, there is another who suggests that reversion to a general rule against patenting methods of doing business is ill-advised.  Those holding the traditional view believe that the real problem is the existing patent system, which was not equipped to deal with software and other computer-based methods for which patents may be sought, as well as  the PTO’s failure to staff itself with sufficient and technologically adept reviewers who might recognize existing art in an application and thereby avoid issuing weak or unwarranted patents.  Whatever the case, “method of doing business” patents will be an issue for some time to come.  We will attempt to keep you advised as the debate continues. 

Attorney to Contact

• Ronald P. Duplack
• Douglas C. Conover