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Business Methods

Sterne Kessler has a Proven Track Record with Business Method Inventions

We work with all types of companies – from emerging to Fortune 500 – to protect their valuable business methods.  Often a company’s biggest asset is its proprietary method of doing business.  The U.S. Patent and Trademark Office grants patents to provide protection for these business methods, so that you can exclude your competitors from doing business in the same way.  Business method claims can be patented in the U.S.  But, proper drafting and reciting details on practical implementation is important. 

Sterne Kessler has deep experience with business method and software patents.  We have handled patent preparation, prosecution, and reexamination for a number of well‚Äźknown financial services and software companies.  For instance, since 2005 alone we have developed over 125 software and business method applications for a Fortune 100 financial institution, and more than 500 software and business method applications for a Fortune 100 technology company. 

Sterne Kessler is a recognized industry thought leader with regards to business methods, and has led or been involved with the seminal developments and cases related to business methods since the beginning of the dot-com era.  In 1995, Sterne Kessler represented the applicant in In re Beauregard, the Federal Circuit case that led to the USPTO developing the 1996 guidelines for statutory subject matter related to patenting software.  More recently, Sterne Kessler was actively involved in the Bilski amicus effort at both the Federal Circuit and Supreme Court levels. We prepared and filed an amicus brief on behalf of American Express for In re Bilski at the Federal Circuit. For Bilski v. Kappos at the U.S. Supreme Court, we prepared and filed an amicus brief on behalf of a group of Entrepreneurial Software Companies.  Further to our presentation and report on recent trends in statutory subject matter at the prestigious Sedona Patent Litigation Conference, we continue to closely track activity at the BPAI, district court, and appellate levels to develop up-to-date strategies for practicing in this changing area of law.

Historical Context

35 U.S.C. §101 states that "whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefore."  How business methods fit into those categories of what is commonly referred to as "statutory subject matter" has long been a point of uncertainty.

Before the 1990's, few companies filed business method patent applications, because (1) they did not think business methods were statutory, and (2) computer-based business models were few and far between.  That changed in 1995, when the Federal Circuit decision in In re Beauregard indicated that computer software was indeed patentable.  53 F.3d 1583 (1995).  In response, the USPTO issued an initial set of Examination Guidelines for Computer-Implemented Inventions in 1996 (61 Fed. Reg. 7478).  For the first time, these Guidelines made it clear that software embodied on a physical media would be considered patent eligible. The State Street decision of 1998, which established the "useful, concrete, and tangible result" test, further opened the floodgates for patent-eligibility of business method inventions. 

State Street Bank and Trust Company v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998).  Between the 1996 Guidelines, the 1998 State Street decision, and the dot-com boom that occurred at the turn of the millennium, the number of business method applications at the USPTO quickly increased – from about 1500 in 1998 to about 9200 in 2001.

The USPTO had difficulty keeping up with the rate of applications being filed.  When the boom in filings occurred, there were not many business method patent applications that had previously issued or published.  Non-patent literature was very limited and not freely available.  So, Examiners had difficulty finding the best prior art.

This resulted in some patents being issued with unreasonably broad protection.  After being criticized for granting these questionable patents, the USPTO instituted internal review procedures that resulted in a much lower allowance rate for business method applications – dropping from 44% in 2002 to 11% in 2003.  The allowance rate stayed under 20% for the next several years.

The Rise and Fall of the Machine-or-Transformation Test

In October 2005, the USPTO issued a set of examiner guidelines indicating that a method claim must either transform physical matter or be tied to a specific machine in order to be patent-eligible. "Interim Guidelines for Examination of Patent Applications for Patent Subject Matter Eligibility," OG Notices: 22 November 2005.  The Federal Circuit clarified this machine-or-transformation test and issued it as a mandate in In re Bilski, 545 F.3d 943 (2008).  The USPTO followed suit by issuing its August 2009 Interim Examination Instructions for Evaluating Subject Matter Eligibility Under 35 U.S.C. § 101.  These Instructions indicated that all processes must satisfy the machine-or-transformation test in order to be statutory.

The U.S. Supreme Court in Bilski v. Kappos disagreed, saying that the machine-or-transformation test was not the only test for patent eligibility.  130 S.Ct. 3218 (2010).  Specifically, business method inventions, as a group, are not excluded from patent eligibility.  Rather, the USPTO and courts should look to whether the claim recites an abstract idea, a law of nature, or natural phenomenon, which would be considered non-statutory.  The claim on appeal in Bilski was held non-statutory as directed to an abstract idea, but the decision was largely seen as a "win" among business method patent applicants.

Current Status of Statutory Subject Matter at the USPTO

On July 27, 2010, the USPTO issued a set of guidelines that patent examiners should use when examining business method patent applications.  See, "Interim Guidance for Determining Subject Matter Eligibility for Process Claims in View of Bilski v. Kappos."  These guidelines provide factors both in favor of and against patent-eligibility, that examiners should use when evaluating the patent-eligibility of a claim. 

Factors weighing in favor of patent-eligibility include:

  • The claim recites a machine or transformation 
  • The claim is directed towards applying a law of nature
  • The claim is more than a mere statement of concept

Factors weighing against patent-eligibility include:

  • No recitation of a machine or transformation (either express or inherent)
  • The claim is not directed to an application of a law of nature
  • The claim is a mere statement of a general concept (e.g., basic economic practices, mathematical concepts, mental activity)

Since Bilski v. Kappos, some trends have developed in decided cases at the Board of Patent Appeals and Interferences.  The primary trend?  The BPAI is imposing strict limits on business method patents, with a high percentage of cases on appeal being found non-statutory.  The BPAI's analysis is generally the same for all types of claims, not just method claims.  But, the overall allowance rate for business method applications has also increased above 20%.


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