Business patents cover a wide range of processes and methods used by businesses in an attempt to gain a competitive advantage over each other. By applying for and seeking enforcement of patents, companies with unique ways of conducting business can protect their techniques and profit from them, leaving competitors behind. But the exact extent of business patents is a source of both controversy and legal action which continues even today, where software and coding can make the difference between success and failure.

A Brief History of Business Patents

Business methods first became patentable in the United States in the aftermath of the 1998 State Street Bank & Trust v. Signature Financial Group, Inc. Prior to this landmark decision, business methods were explicitly exempted from patent protection by patent law. Since this exemption wasn't one being used in courts and since most patents were used in business in one form or another, the Federal Circuit decided the exemption was meaningless and discriminatory. In most other countries, however, business processes remained unpatentable.

The inevitable result of this legal change was a rush to file U.S. patents by all kinds of businesspeople convinced they have the next big change to management philosophy. The stack of pending patents in turn reduced the amount of time the Patent Office could spend on each application, leading to poorly-conceived or overly-broad patents getting through. This created a market in “patent trolls,” also known as “non-practicing entities” (NPEs), that sit on broad patents that they then rent out to those who need access in order to conduct business. Companies often play it safe, paying off the trolls rather than risk a lengthy court battle that would favor competitors willing to work with the NPEs.

Recent Developments

Very few of the companies paying money to these trolls feel that the system is working correctly. As a result, new tools have emerged to help prevent useless and endless patent lawsuits as a legalized form of the shakedown. Supreme Court and Federal Court decisions reinforced the importance of the standard battery of patent tests, including:

  • Inventions have to be novel
  • Inventions have to have a practical application
  • Inventions must be adequately described and disclosed
  • Inventions must advance the field significantly in non-obvious ways

Firstly, the patented invention has to be novel. This prevents duplication of other patents or methods and protects their holders from plagiarism. Since the new patent has to avoid well-trodden ground, the pressure is on prospective filers to demonstrate where their thinking diverges from the established norm. Notably, simply making an established business method electronic is not sufficient by itself to meet this requirement.

The second requirement is that of applicability. A patented method has to do something meaningful and transformative; it cannot simply be process for the sake of process. Patentable business methods produce results rather than simply shuffle things around to justify a salary line. This reduces the glut of patents filed just to claim a unique method.

Next is the disclosure requirement. A patent must outline the method so that any reasonably skilled practitioner can follow along and evaluate. This makes both the patent application itself legible to the experts evaluating it and ensures that patent protections only apply to ideas known widely enough that scrupulous parties can avoid its use without permission. Careful attention to detail in the application process and the evaluation of lawyers and technical experts can keep patent filers from running afoul of these pitfalls.

Finally, the patented method must be non-obvious. A slight, incremental advancement to the processes and ideas of a field are not sufficient to require protection; instead, a patent should lead to a notable change to the industry or at least an improvement in efficiency or effectiveness. This keeps patents as a tool for improving business.

With recent decisions, federal courts in the United States are putting pressure on the concept of business patents, making sure that the methodology and evaluation become stricter and stricter. While this doesn't necessarily need to worry those operating in the field who are good faith actors, it does require consideration as businesses move to formalize and defend their means of doing business.

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