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Business Method Patents Online


by William Fisher, Dotan Oliar, and Geri Zollinger

Last Updated: June 12, 2002

Table of Contents

Discussion Topics



As its name suggests, a business method patent grants to its holder exclusive rights to a particular way of doing business.  Until recently, it was widely assumed that business methods were not patentable.  As a result, firms enjoyed only limited intellectual property protection against imitation of their strategies by competitors.  Some innovations could be kept secret, and innovators could prevent competitors from learning of those innovations by "improper means."  However, most innovations could not practicably be concealed, and competitors were thus free to mimic them.  The 1998 decision by the Court of Appeals for the Federal Circuit in State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (1998) altered this situation dramatically.   That decision upheld a patent on a software program that was used to make mutual-fund asset allocation calculations.  In the wake of that decision, companies have been seeking -- and obtaining -- business method patents at a furious pace.  The U.S. Patent and Trademark Office (USPTO) reports that, in 1998, 1300 patent applications pertained to business methods, and 420 such patents were issued.  In 2000, 7500 applications for business method patents were filed, and 1000 such patents were issued.  Because a large percentage of those patents involve methods of doing business online, they merit our attention.

The frenzy over business method patents is by no means confined to the United States.  The European and Japanese Patent Offices, which together with the U.S. cover about 84% of the patents worldwide, similarly recognize business method patents (although under stricter patentability standards.)  Many other countries are in the process of forming their policy toward this new category of patents.  Meanwhile, considerable controversy continues to swirl around business methods patents in the United States, and Congress is currently considering legislation that would limit their availability.  In sum, business method patents are here to stay, but their availability or character may change in the near future.


Introduction | Readings | Examples | Discussion Topics | References


Note:  The following materials assume an understanding of the main features of patent law.  If you are unfamiliar with this field, you might find helpful the attached brief summary or the more extensive outline provided by Michael Neustel .

Defining and Enforcing Business Method Patents

Business method patents (hereinafter, BMPs), like all other patents, are defined by their claims -- the language, typically resulting from a tug of war between the patent applicant and the patent examiner, that identifies the products or processes to which the patentee can lay exclusive claim.  The difficult task of interpreting those claims is assigned to a judge -- usually in the context of a so-called "Markman" hearing (named after the Supreme Court's decision in Markman v. Westview Instruments, 517 U.S. 370 ). In the past few years, federal courts, when engaged in Markman hearings, have often interpreted BMPs fairly broadly.  Here are two examples:

    • E-Data had a patent on remote imprinting of information into material objects (such as songs into records) at points of sale, arguably a significant improvement on the traditional method of centrally producing such objects with the information, and shipping them to points of sale. This new way of doing business saved both the cost of the shipping mechanism, and the costs of over and under production that stemmed from the need to estimate demand at points of sale initially and produce accordingly. E-Data sued for infringement 18 defendants, who distributed information by way of download via the Internet, rather than sale of content on floppy disks or CD-ROMs. Judge Jones of the Southern District of New York interpreted E-Data's claims narrowly, as to exclude most forms of electronic commerce and then dismissed the case without making any findings of fact.  On appeal, the U.S. Court of Appeals for the Federal Circuit (court of last resort for patent cases with the exception of the U.S. Supreme Court) determined that the district court had adopted an excessively narrow interpretation of the patentees' claims.  The Federal Circuit therefore remanded the case for further proceedings.
    • The dispute between and -- the most famous of the BMP cases -- also involved, among other things, a Markman hearing. was granted a patent for a "1-click" e-commerce ordering system , which enabled a repeat customer to purchase an item with a single click of his or her mouse (i.e., without having to provide his or her address, shipping preferences, credit-card number, etc.).  Relying on this patent, sought to prevent its competitor,, from employing a similar system.  The district court found that Amazon had shown "a likelihood of infringement" by and consequently issued a preliminary injunction.  The Federal Circuit approved the District Court's generous interpretation of Amazon's patent. However, (for reasons considered in the next section), the appellate court found that Barnes and Noble had raised sufficient questions concerning the validity of the patent that the issuance of the preliminary injunction was improper.

Controversy over Business Method Patents

Can I patent this?
35 U.S.C. §101 defines patentable subject-matter as to include any new and useful process, machine, manufacture or composition of matter. The U.S. Supreme Court has construed this provision broadly -- specifically, as establishing the principle that "anything under the sun that is made by man" is potentially patentable (see: Diamond v. Chakrabarty).  Laws of nature, natural phenomena, and abstract ideas, however, are unpatentable (Diehr) -- the first two because they are not man-made, and the third because abstract ideas, by themselves, are not useful.

Computer-implemented business methods were traditionally considered to be outside the scope of patentable subject-matter for two independent reasons.  First, software programs of all sorts were for many years consided unpatentable, because they were thought to be merely elaborate mathematical algorithms, a sub-category of abstract ideas. The State Street Bank decision followed a recent line of cases (e.g., In re Alappat , 33 F.3d 1526 (Fed. Cir. 1994)) which rejected this traditional view and instead took the position that, when an algorithm is reduced to a practical application and produces a useful, concrete and tangible result, it can be patented. But State Street Bank's principal innovation consisted in laying to rest what it described as the 'ill-conceived' previously-existing 'business method exception to patentability.'  Applications for patents on business methods, the Federal Circuit held, were not different from applications for patents on other processes.  The United States Supreme Court refused to review the ruling, and the following year, in AT&T Corp. v. Excel Communications, the Federal Circuit reiterated its position.  Where the law in the United States now stands, computer-implemented ways of doing business are certainly patentable.

Isn't it Obvious?
Much of the controversy over BMPs centers around the USPTO’s procedures for prosecuting these applications.  It is often alleged that the Patent Office is issuing patents on old methods of doing business that are now being implemented on the Internet.  Critics complain that Internet-based business methods are "obvious" -- and thus, pursuant to 35 U.S.C. §103, ought not receive patents.  An “obvious” invention is one whose subject matter would have been apparent to a person having “ordinary skill in the art” at the time the invention was made.  See Graham v. John Deere , 383 U.S. 1 (1966).  An examiner can infer the obviousness of a BMP from established business practices, or from the automation of known practices normally done manually.  Once the examiner makes a prima facie case of obviousness, the applicant has the opportunity to rebut it in any of several established ways.  The issuance of a patent by no means ends the inquiry into the obviousness of an invention; typically the defendant in any subsequent patent infringement suit will raise the issue anew in an effort to persuade the court to invalidate the patent.  A successful argument of this sort enabled Barnes & Noble, in the case described above, to persuade the Federal Circuit to overturn a preliminary injunction that had been granted to to protect its "one-click" checkout system.  In March of this year, that case was finally settled.

Haven't we seen it somewhere before?
Another statutory requirement for patentability, embodied in 35 U.S.C. §102 , is "novelty."  Novelty means that the invention must contain something not already reflected in the body of prior art.  Novelty is read together with statutory bars, which require the inventor not to delay unduly in seeking patent protection.

The Search for Prior Art
To make a claim of invalidity based on either lack of novelty or obviousness, the patent examiner must first identify relevant “prior art.”  The Patent Office has had a difficult time identifying prior art in business method cases.  Until recently, business methods were commonly kept secret by innovators in order to give them competitive advantages.  Consequently, the PTO's traditional printed resources (such as patents, journal articles, academic dissertations, company literature, etc.) are not good sources of prior art for this type of patent application.  Additional difficulties arise from the fact that, whereas the patent office examiners are highly skilled in some field of technology (e.g., electrical and/or computer engineering), they are not required to have any background in business.  Therefore, the examiners may not necessarily recognize or know where to look for established practices in different business environments.

The public, including business executives, can be an important resource in locating and identifying business method prior art.  In an ironic twist to the business method patent controversy, a new website has been launched.  (A second ironic twist is that's Jeff Bezos teamed up with Tim O'Reilly to launch this site.)  This site allows anyone to post a bounty (at least $10,000) for prior art that, once revealed, would render invalid a particular business-method patent.  The public is invited to respond to these postings and collect the bounty.  Some of the earliest postings were on familiar patents such as’s 1-click patent ($10,000 bounty), SightSound’s digital download patent ($40,000 bounty),’s reverse auction patent ($20,000 bounty), and even BountyQuest’s own business method ($14,159 bounty), whose application is pending.  The founders of this website hoped to encourage good patent applications, as well as to help those in the industry invalidate the "bad" ones.  At least eight individuals have already received bounties for proffering prior art.  Their names and pictures appear in the Hunter Hall of Fame.

Are Business Method Patents Fundamentally Different?
There is a close connection between BMPs and software patents, since many of the business methods that are being patented are implemented with software.  Are these two types of innovation really different from machines, methods of manufacture, and other things on which the patent office has granted patents for hundreds of years?  In response to the uproar over's patents and pending litigation, Jeff Bezos (of has proposed that business methods (and software) ought to be patented for a shorter period of time.  Bezos and Tim O'Reilly have been adamant in their opposing stances on this issue.  Unfortunately, Bezos' suggestion most likely would violate the World Trade Organization's (WTO's) Trade-Related Aspects of Intellectual Property Rights ( TRIPs ) agreement, to which 144 nations , including the United States, are signatories.  Article 33 of the agreement requires utility patent terms to be no shorter than 20 years from the filing date.

What is the Role of the Legislature?
Not to be left out, Congress has turned its attention to BMPs.  In April 2001, Democratic representatives Howard Berman (CA) and Rick Boucher (VA) introduced the Business Method Patent Improvement Act of 2001, a slightly modified version of a previous bill they had proposed six months earlier. The Act's main goal is to ensure the high quality of newly issued BMPs, and it offers several means to this end. If passed, it would create an administrative opposition proceeding that could be initiated by anyone within 9 months after a patent issues - a faster and cheaper alternative to litigation. This proceeding would be conducted before an administrative opposition judge, and result in a determination that could be appealed in court. During the proceeding, the patent holder would be given an opportunity to amend the patent claims as long as the amendments only narrowed or maintained their scope.  Additionally, the Act would require publication of all BMPs 18 months after filing, and would allow the public to submit relevant prior art to any published application.  The bill lowers the burden of proof for challenging business method patents, requires an applicant to disclose her prior art search, and last but not least, creates a rebuttable presumption that a business method invention constituting a non-novel computer implementation of a pre-existing invention is obvious, and thus, not patentable.

On April 4th 2001, a day after the new Act was introduced, the House Judiciary Subcommittee on Courts, the Internet and Intellectual Property, had convened an oversight hearing on BMPs. The two lawmakers defended their view that standards for BMPs should be tightened.  Resisting the new legislation, acting director of the USPTO, Nicholas Godici, stated that the PTO's BMP initiative (see below) is sufficient, and Michael Kirk, executive director of the American Intellectual Property Law Association (AIPLA), stated that the Act could be incompatible with U.S. obligations under TRIPs.  Rep. Howard Coble (R-N.C.), chairman of the subcommittee, seemed to oppose the proposed legislation.

Change at the USPTO
The USPTO has responded to the public's and industry’s concerns.  On March 29, 2000, it released an action plan to revamp the examination procedures for this class of applications ("class 705").  Recently, it also released a white paper, which outlines its  new examination procedures.  The AIPLA has also released a white paper, recommending similar changes.

One goal of the USPTO is to obtain better information concerning relevant prior art for each application.  To that end, it is hiring and retaining examiners who have significant business experience and expertise.  It is also updating its electronic databases to include non-patent literature (NPL) that would be relevant to this class of patent applications.  The USPTO has additionally been working to establish partnerships with industry associations and corporations to continually address new industry concerns.  The first business methods partnership meeting was held on March 1, 2001.  Approximately 90 participants attended, and identified a number of areas to focus discussion on in future meetings.  Among those areas were the potential for different legal standards for different types of inventions, the cost of prosecution under the new rules, and issues surrounding the patenting of non-computer implemented business methods.  To address these concerns as well as to keep the industry abreast of the USPTO changes, there is now a website exclusively for business method patents.  The next Business Method Partnership Meeting will be on July 18, 2002 at the PTO's offices in Washington.

Other procedural safeguards, such as a mandatory second exam for all allowed applications, have been put in place to increase the quality of the issued patents in this class.  The second exam is intended to ensure that the prior-art search was conducted correctly and that the scope of the claims is appropriate.  To incorporate these changes, the "Examination Guidelines for Computer-Related Inventions" is being updated, and a larger percentage of business method applications are going to be reviewed by the quality control unit at the PTO (Office of Patent Quality Review.)

The International Perspective

The Patent Cooperation Treaty (and before that, the Paris Convention Treaty) has enabled inventors to apply for patents in many countries at the same time.  This type of application results in a preliminary prior-art search, which makes a provisional assessment of the patentability of an invention.  However, countries are not bound by that provisional review.  Typically, individual national patent offices conduct their own assessments -- in light of their own legal standards -- of the novelty and inventiveness of each application.  In sum, substantive patent law remains national in coverage.  Consequently, the patentability of BMPs must be determined on a country-by-country basis.  Here are the ways in which BMPs are handled in a few important jurisdictions:

The European Patent Office (EPO) has historically not granted patents for either computer programs or business methods. In a recent amendment , the EPO adopted a policy (which will probably soon be implemented in a directive) that extends patent protection to software that is of a 'technical nature' or that has the character of a 'concrete apparatus.' Computer implemented business methods that lack a 'technical effect' and only process data are therefore still not patentable.  But if the computer program brings about a technical effect beyond the mere electric pulses inside the computer -- such as the control of an industrial process or speeding data-transfer rate -- it may be patented. See related news (free registration required.)

In Canada business methods are not officially patentable.  See Lawson v. The Commissioner of Patents (1970), 62 C.P.R. 101. The Lawson decision states that for an invention to be patentable it must “be one that offers some advantage which is material, in the sense that the process belongs to a useful art as distinct from a fine art.”  The Canadian Intellectual Property Office has interpreted this principle to mean that computer methods or systems that are directed to a useful end result, and are not merely directed to making calculations or to the presentation of an algorithm and its solution, are patentable subject matter. As a result, some patents directed to computer software inventions, including computer implemented business methods, have been granted in Canada.  A recent decision involving a method of playing poker, suggests that a process that (a) has a commercially useful result or effect, (b) is a practical application of an idea, and (c) is a new and innovative method of applying a skill or knowledge may be patented (see Progressive Games, Inc. v. Commissioner of Patents , appeal dismissed.) For more see Lexpert, or the website for Growling Lafleur Henderson.

Japan has also recently reexamined its procedures for examining BMPs.  The Japanese Patent Office (JPO - take a look at its web design!) has made its examination procedures stricter, requiring “more specific descriptions” and a clearer description of the “inventive step” (analogous to the U.S.’s §103 requirement of non-obviousness).  Japan, like the U.S., is committed to increasing the “prior art” databases and utilizing industry experts so that BMP applications with a firm foundation in the prior art, lacking novelty and/or non-obviousness will be denied.  In effect, the JPO has said that business method patents per se are not patentable, unless they fall within the scope of software-related inventions generally and have the necessary inventive step required of all patentable inventions.

Trilateral Cooperation
The trilateral offices, the USPTO, EPO and JPO, which together cover about 84% of the patents worldwide, have cooperated since 1983. They exchange views and information as to patent administration, documentation, classification and examination. In recent years, after concluding that globalization of industry and trade would soon necessitate a worldwide patent-grant system, the trilateral offices devoted considerable time and effort to examining ways to coordinate and improve their search and examination practices.  In mid-June 2000, the trilateral offices convened in a technical meeting to discuss and attempt to harmonize the patent practices among themselves.  At the meeting, the three offices agreed that a “technical aspect is necessary for a computer-implemented business method to be eligible for patenting” (either claimed expressly by the EPO and JPO or implicitly by the USPTO) and that to “merely automate a known human transaction process using well known automation techniques is not patentable.”  This opinion may overstate, somewhat, the extent to which the policies and practices at the three offices are congruent. The offices agreed that the next stage should be focusing on collaboration in BMP prior art search.  In November 2001, at the end of a program dedicated to this end, the offices concluded that it would be beneficial in the future to exchange information as to search tools, strategies and databases.

Introduction | Readings | Examples | Discussion Topics | References


Home Gambling Network

Patents have always been issued and enforced on a country-by-country basis.  Since the Internet is a global medium, disparity between different countries' standards for issuing patents give rise to difficult substantive and jurisdictional problems.  Those problems become acute when a website in a country that does not recognize BMPs is alleged to infringe a patent issued in a country that does recognize BMPs.  In one such case, an American judge in Nevada enforced a U.S. patent ( '268 ) against an "infringing" website that, in his view, was "targeted to U.S. customers," even though the infringing company was based in the Caribbean.  Home Gambling Network (assignee of U.S. patent) was therefore awarded a permanent injunction against First Live Casino (Caribbean company).  See Home Gambling Network, Inc. v First Live Casino et al., Case No. CV-S-98-1506-JBR (RLH) (D.Nev. Feb 18, 2000).  For more information on the concept of "targeting" to obtain personal jurisdiction, please see the jurisdiction module .


Allan Konrad (from U.C. Berkeley) claims to own the rights by way of three U.S. patents ( '444 , '320 , and '901 ) to the manner in which interactive Websites operate. He claims that his patented methods generically describe a computer user requesting information from a webpage and getting it back from a server.  Therefore, he has sued 39 corporations in Texas (possibly because Texas courts have the reputation of being sympathetic to claims "off the beaten path" ).  Three defendants ( Motorola, Boeing, and Eastman Kodak) are currently paying licensing fees estimated at under $1M each because they concluded that such fees would be cheaper (and less risky) than litigating the issue.  Litigation, however, thus far has not favored Konrad.  A Texas judge ruled that his claims are narrower than he alleged and a California judge, in a separate suit, declared his patents invalid altogether.  Both cases are currently on appeal to the Federal Circuit.


British Telecom claims to own a U.S. patent on hyperlinking technology. The patent in controversy was filed over 20 years ago (due to a change in the patent laws, it will be enforceable for a few more years).  BT demanded payment for patent infringement from some American Internet Service Providers (ISPs).  BT filed a suit against Prodigy (an ISP) for infringing this hyperlinking patent.  Read Eurolinux's response to the suit.

Incremental software and data update

Symantec , a dominant market player in the business of anti-virus software, owns the '531 and '407 patents on incremental software updating. The patents are the technology behind its 'live update' feature, enabling consumers to enhance their virus protection against new viruses incrementally by downloading small files, rather than downloading all viruses' definitions each time anew. It is unclear not only how Symantec's rivals, such as McAfee , are going to react, but also other software companies, since the patents cover a broad range of incremental software and data updating.  It is also unclear how do these patents relate to other BMPs, such as Punch Networks ' '451 patent, which can be alleged to cover the same territory.  See related news.

Introduction | Readings | Examples | Discussion Topics | References

Discussion Topics

1.  What could/should the U.S. Supreme Court do about BMPs?  Thus far they have not decided to hear any Internet-related patent cases.  Why do you think they haven't?

2.  Sometimes parties choose to settle instead of litigate potentially invalid patents.  Is this practice socially desirable?

3. Is Jeff Bezos right?  Should business method and software patents be treated differently from other patents -- perhaps by being protected for shorter terms?  Currently, the United States recognizes two other types of patents besides the standard utility patents: design patents (on the way a product looks, as opposed to the way a product works, with a patent term of 14 years after the date of issue) and plant patents (covers new varieties of asexually reproducing plants, in conjunction with the Department of Agriculture).  Should BMPs receive similarly special treatment?  Should an agency other than the Patent Office (analogous to the Department of Agriculture) control the issuance of such patents?

4.  Imagine that it is September of 1999. You are a patent examiner at the USPTO. You are reviewing's one-click patent application (read the one-paragraph abstract under this link.) Your search for prior art has revealed the following (1) There is one grocery store in a small town, which allows patrons to register their address and billing information once.  Patrons are thus able to buy items merely by presenting them to the (only) cashier, without paying or giving any details. The cashier, who recognizes all of her patrons, updates each patron's record and sends accurate bills at the end of each month. (2) It is a common practice among hotels to ask for guests' addresses and credit-card numbers when they check in.  Any goods or services a guest subsequently orders (such as snacks from the mini-bar, room-service, and parking privileges) are charged to her credit card. (3) Many people use credit cards and "debit" cards to buy groceries and other retail items.  A single "swipe" of the card is sufficient to identify such a customer to the retail store and to initiate the billing process.  Against this backdrop, do you find Amazon's patent application to be novel and nonobvious?

Go to the discussion board

Introduction | Readings | Examples | Discussion Topics | References

Additional Resources

General Materials

Patent Law Primer , by NEUSTEL LAW OFFICES, Ltd. - Thorough overview of patent law.  Section titles include: "Definition of Patent", "Patentable Subject Matter", "Who May File for Patent Protection?", and "Content of Patent Applications."

US Patent and Trademark Office General Information Concerning Patents - This resource, created by the American Bar Association, contains a vast amount of general information concerning the application for and granting of patents.  It is written in non-technical language given that its stated audience is inventors, prospective applicants for patents, and students.  In particular, the resource discusses the role of the Patent and Trademark Office, general conditions of patentability, and the parts of a patent.  Moreover, it contains an excellent discussion of the patent examination process.

Delphion Patent Server -  Website containing a free, fully searchable, user-friendly patent database.  Used to be IBM website.

Nolo's legal Encyclopedia - Internet business method patents.


U.S. Patent Office, Laws, and Databases

United States Patent and Trademark Office - Main Website

United States Patent and Trademark Office - Business Method Patent Site

Manual of Patent Examining Procedure (MPEP) -   Online version of the entire manual.

National Association of Patent Practitioners -  Website for this non-profit organization dedicated to supporting patent practitioners and those working in the field of patent law in matters relating to patent law, its practice, and technological advances.

A user-friendly USPTO presentation on patentable subject-matter in relation to computer-implemented business methods.

USPTO's presentation at a WIPO conference as to the American perspective on business method patents.


Protest and Opposition Sites -  Gregory Aharonian's web-site.

Protecting Software Innovation against Patent Inflation - FFII web-site. Includes European and Japanese based opposition.

The Anatomy of a Trivial Patent - Short column by Richard Stallman.

League for Programming Freedom - An MIT initiative.

Freepatents - Open Source site.

Patently Absurd - Short column by Simon L. Garfinkel, Wired magazine 2.07.


Case Law

In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994) (en banc) - Shaped the requirements for patentability of computer software, and served as a foundation on which State Street Bank built.

State Street Bank & Trust Co. v. Signature Financial Group, Inc, 149 F.3d 1368 (1998) - The Federal Circuit case that is generally credited with laying the foundation for Internet patents.

AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (1999) -  In this post-State Street decision, the Federal Circuit reaffirmed its State Street decision stating specifically that "[i]n our recent decision in State Street, this court discarded the so-called "business method" exception and reassessed the "mathematical algorithm" exception."

In the news:

InterTrust Technologies Corp. v. Microsoft Corp., N.D. Cal., No. C01-1640JL, filed 4/26/01: InterTrust , holder of a patent for secure transmission and management of proprietary content and handling related data management rights information, claims that Microsoft infringes its patent rights by using similar technology in its Media Player, Windows XP , Office XP and its .Net initiative for remote use of server located applications (such as calendars.) Read the news coverage as this story unfolds: 1 , 2 , and 3 .

InTouch Group Inc. v., Liquid Audio,, and Entertaindom (part of Time Warner), N.D. Cal., No. C-00-1156-DLJ, filed April 2000.  InTouch, holder of the '157 and '916 patents, which cover consumers' sampling of music online, sues for its patents' infringement. is among the defendants since it allows consumers, in their process of buying CDs online, to sample them.  So far the court has ruled that the term "review a portion" should be interpreted according to Amazon's view (substantially reduced duration) and not InTouch's (reduced quality of a song's full version.) Read related news 1 , 2 .


International Materials

Strategic Concerns When Pursuing Foreign Patents In The Computer Arts - Everything you've ever wanted to know about filing for a patent in a foreign country.

Basic Patent Cooperation Treaty (PCT) Principles - Section 1801 of the Manual of Patent Examining Procedure describes, in the words of the Patent and Trademark Office, the general principles behind the PCT.

Basic Facts About the Patent Cooperation Treaty (PCT)    -  Information on the PCT from the U.S. Patent and Trademark Office's site

Foreign Patent Filing - This small page summarizes the international and European filing processes.

UK Patent Office - Which is in the process of examining its policy towards business method patents

Links to other countries' patent offices , and their directory

Law firm's international links according to countries

Introduction | Readings | Examples | Discussion Topics | References