Business Method Patent Litigation in an Uncertain World

Business Method Patent Litigation in an Uncertain World

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I. INTRODUCTION

 

Two years ago, the Federal Circuit surprised the growing e-commerce industry by allowing business methods to be patented.

1 Since that time, applications for business method patents have increased at an astonishing rate. Between 1998 and 1999, the number of applications doubled, going from 1,300 to 2,600. 2 As those applications have made their way through prosecution, announcements of patented "new" business methods have become a regular occurrence. Those patents relate to such practices as on-line auctions, consumer rewards for viewing advertisements, web-site shopping carts, and the secure processing of credit card transactions.

Despite the proliferation of these patents, there is a great deal of uncertainty concerning the level of protection they afford patentees. The reason is that the body of case law interpreting business method patents has yet to mature. In the meantime, patentees and potential infringers must navigate through uncharted waters wondering how courts will analyze infringement claims and validity challenges.

 

This article analyzes the few cases that have addressed business method patents and offers their lessons as guidance to practitioners. Part II provides background on the evolution of business method patents and highlights the reforms that are taking hold within the Patent and Trademark Office (the "PTO"). Part III discusses recent cases that have analyzed business method patents. Part IV applies the lessons from those cases to common issues in infringement litigation.

 

II. BACKGROUND

 

A. What is a Business Method Patent?

 

 

Even the meaning of the term "business method" is uncertain, because it has never been adequately defined by Congress or the courts. In fact, the First Inventor Defense Act of 1999 simply defines the word "method" as "a method of doing business," and offers no further explanation.

 

3 In the absence of a specific definition, commentators recommend looking to the way in which the courts and the PTO have treated other patents. 4 Some historical examples of low-tech patents that have been characterized as business methods include: a method of accounting to prevent fraud; 5 a method of parking cars at drive-in movie theatres to optimize viewing angles; 6 and a method of selling stocks and securities. 7

 

These examples suggest that a "pure" business method patent might mean a manner of doing business unrelated to the design of hardware or software.

 

 

8 However, e-commerce's obvious reliance on software prohibits such a definition. Today, patents for Internet business models overlap significantly with software patents. It is not clear when an e-commerce business method patent becomes a software patent. But, regardless of the murky boundary, the range of patents recently considered to be business methods makes it advisable to think of the concept as broadly as possible. 9

 

B. The Start of the Controversy

 

 

1. State Street Bank & Trust Co. v. Signature Financial Group, Inc.

 

10

 

State Street related to Signature Financial's patented data processing system. The system was the backbone of a common mutual fund investment scheme, where several individual mutual funds pooled their assets in a common portfolio. The structure benefited shareholders by providing tax advantages, lower administrative costs, and greater operating efficiency. The patented data processing system calculated the daily value of the common portfolio, and, at the end of each trading day, calculated each fund's gain or loss based on its interest in the portfolio. It also kept track of annual gains and losses for tax purposes.

 

 

After licensing negotiations between the parties broke down, State Street filed a declaratory judgment action seeking to have the patent declared invalid. State Street later filed a motion for summary judgment, arguing, in part, that the patent related to a business method, and therefore, was not patentable subject matter. After reviewing many cases that supported the existence of a business method exception from patentable subject matter, the district court allowed State Street's motion.

 

11 In doing so, the district court stated that "patenting an accounting system necessary to carry out a certain type of business is tantamount to a patent on the business itself. Because such abstract ideas are not patentable . . . as methods of doing business . . . the [patent] must fail." 12

 

On appeal, the Federal Circuit reversed the district court, holding that the patent was valid. In doing so, the Federal Circuit dispelled the widely-accepted notion that business methods could not be patentable subject matter.

 

13 The Federal Circuit also stated that the mutual fund system was patentable because it was a machine programmed to produce a "useful, concrete, and tangible result," and that patents could not be withheld simply because they related to a business model. 14 The broad implication of this holding for e-commerce seems to be that an online business practice is patentable subject matter as long as it has a practical application.

2. State Street's Aftermath

 

State Street had an immediate impact on the e-commerce world. In the year after the Federal Circuit's decision, the number of applications for business method patents doubled.

 

15 The PTO expects that number to double again by the year 2003. 16

 

Because it takes two to three years for an application to be allowed, the PTO is just beginning to determine what kinds of business methods are patentable. The initial list of approved patents has been very controversial. It includes patents issued to: Priceline for its reverse auction allowing consumers to bid on goods and services; Open Market for online shopping carts; CyberGold for rewarding consumers for viewing on-line advertisements; Netscape for secure processing of online business transactions; Sightsound for downloading digital music files; DoubleClick for delivering, targeting, and measuring online advertising; and Mercata for implementing online buying cooperatives.

 

 

The PTO's critics echo a common refrain: the Office is issuing patents for business methods that are unoriginal and obvious, and the approved claims are overly broad. For example, they argue that reverse auctions have been used in offline commerce for hundreds of years. In fact, the U.S. Treasury Department sells hundreds of millions of dollars of government bonds this way. The only difference between the Treasury Department and Priceline is that Priceline conducts its auction over the Internet.

 

There is growing concern that the current rate of approval of applications for business method patents will stifle the development of e-commerce by "foreclosing the opportunity for competitors to develop new and different means of entering the business."

 

17 Because of this concern, the PTO's application review process has been severely criticized. Commentators attribute the PTO's troubles to: the dramatic rise in applications; high PTO turnover resulting in an inexperienced group of examiners; and the lack of a comprehensive prior art library. 18

 

3. Process Reform

 

 

The criticism of the PTO has not fallen on deaf ears. There is a movement within both the PTO and Congress to overhaul the way in which business method applications are reviewed.

 

First, the PTO has gone through an extensive internal review of its procedures. In April 2000, it released a paper describing new initiatives to improve the review process.

19 Business method patent applications will soon be independently reviewed by two examiners. Also, the PTO will establish a formal partnership with the e-commerce industry similar to its partnership with the biotechnology industry. The focus of this partnership will be expansion of the PTO's prior art databases. The partnership kicked off this past summer with a roundtable discussion that included patent lawyers and e-commerce executives. 20 The PTO will also provide additional training to examiners.

Second, on October 3, 2000, Representatives Howard Berman (D-Calif.) and Rick Boucher (D-Va.) introduced a bill entitled the Business Method Patent Improvement Act of 2000 to overhaul the process by which business method patents are approved and their legal effect.

21 It is unlikely that Congress will vote on the bill before it adjourns for 2000, but the sponsors are expected to revive it next session. If passed as written, this bill would have significant effects on future patent prosecution and litigation.

The bill proposes a number of changes to the existing framework for business method patents, but four provisions are particularly significant. First, the bill defines the term "business method" as: "(1) a method of administering, managing, or otherwise operating an enterprise or organization (including a technique used in doing or conducting business) or processing financial data; (2) any technique used in athletics, instruction, or personal skills; and (3) any computer-assisted implementation of such methods or techniques."

22 Second, the bill requires business method applications to be made public and allows members of the public to submit prior art during prosecution. Third, it reduces a challenger's burden of proof to invalidate issued patents to a preponderance of the evidence. Finally, the bill creates a presumption of obviousness if: (1) the subject matter of the patent is a combination or modification of prior art; or (2) the only difference between the prior art and the claims is that the patent implements the art on a computer.

Whatever the results of particular reform initiatives, it is likely that some measures will be adopted and that the prosecution process will become more stringent for business method applications. However, the effects of these reforms will not be apparent for some time given the length of the patent application process. In the meantime, invalidity claims will be aggressively pursued in business method patent litigation.

 

C. Pending Litigation

 

 

Hope is on the way for those trying to understand how courts will treat business method patents. A number of cases are now pending around the country relating to these patents. Each reported decision should serve as another clue for patent lawyers looking for direction in advising their clients. An analysis of all pending cases would require a lengthy article. Instead, we offer a few examples to give a flavor of the decisions that may be on the horizon:

 

1. Priceline.com v. Microsoft

23 - This suit involves Priceline's reverse auction patent. It alleges that Microsoft's subsidiary, Expedia.com, infringes the patent by allowing consumer bidding on hotel reservations.

2. Amazon.com v. BarnesandNoble.com

 

24 - This litigation focuses on Amazon's patented "One-Click" method that allows consumers to order products online with a single command. The court has considered the merits of the case in granting a motion for a preliminary injunction, but the case is ongoing, including an appeal of the stayed injunction. 25

 

3. Trilogy Software, Inc. v. CarsDirect.com - Trilogy claims that CarsDirect infringes its patented method of allowing consumers to choose options for cars ordered on the Internet.

 

 

26

 

4. Sightsound.com v. CDNow.com - Sightsound alleges that CDNow infringes its patented method of transmitting digital video or audio to consumers. The plaintiff has also threatened to sue MP3.com.

 

 

27

 

5. Pitney Bowes, Inc. v. Stamps.com - Pitney Bowes claims that E-Stamp infringes its patented method of delivering postage online.

 

 

28

 

 

III. THE CURRENT BODY OF CASE LAW

 

The body of case law interpreting business method patents is far from mature. But the few decided cases offer some indications as to the courts' direction.

 

A. Interactive Gift Express, Inc. v. Compuserve, Inc.

 

 

29

 

Interactive Gift Express is a particularly significant case because it addresses a patent that the plaintiff argues is infringed by personal computers that are used to download and reproduce information from the Internet. The patented method, which was invented before widespread use of the Internet became prevalent, teaches a system that reproduces and disseminates stored electronic information in response to specific consumer demands. It was designed to allow retailers, such as record and video stores, to reduce costs by dramatically decreasing their inventories.

 

 

 

 

The system had two components: an Information Control Machine ("ICM"); and an Information Manufacturing Machine ("IMM"). Information would be loaded onto a remotely located ICM, and then transmitted to, and stored in, the IMM at the point of sale. Consumers could scroll through an electronic catalog at the IMM. When a consumer decides to purchase specific information, the IMM sends purchasing information, such as a credit card number, to the ICM and requests authorization to reproduce its stored information. If the sale is approved, the ICM sends a signal to the IMM that allows it to reproduce the information onto a storage device, such as a cassette or video tape.

 

This case has been watched closely by industry observers, many of whom feared that a broad construction of the patent would take e-commerce hostage. Initially, those fears were assuaged by the district court's narrow construction which required the information to be pre-delivered and stored at a commercial point of sale. This construction precluded any application to real-time Internet transactions.

 

30

 

It now appears that the industry's solace may be short-lived. On November 3, 2000, the Federal Circuit surprised most observers by reversing the district court and applying a broader construction to the patent's claims. Applying well-established principles of claim construction, the Federal Circuit held that, in five instances, the district court had read improper limitations into the claims. Of particular note, the Federal Circuit held that a consumer's home can be a point of sale location and that the claims cover real-time transactions.

 

 

Despite this reversal, the case is far from over. The Federal Circuit's opinion speaks only to claim construction. The case has been remanded to the district court, which will now consider infringement and patent validity.

 

B. Amazon.com, Inc. v. BarnesandNoble.com, Inc.

 

 

31

 

This case relates to Amazon's patent for its "one-click" method for placing purchase orders over the Internet with a "single action." The method was designed to combat a problem that afflicts most e-commerce websites: nearly half of all electronic shopping carts are abandoned prior to checkout.

 

 

 

32 The method devised was a system where the retailer would store information from a consumer's previous purchases and embed a customer identifier in the consumer's computer. Then, when an identified consumer displays information about a product, a purchasing instruction pops up that instructs the customer how to purchase the product with one "mouse-click."

Amazon filed suit claiming that its patent was infringed by Barnes and Noble's "Express Lane," which also allows consumers to purchase items with a single mouse command. Barnes and Noble defended itself on several grounds, arguing that the patent is invalid by virtue of anticipation and obviousness, and that its method does not infringe the patent. This case is ongoing, but the court spoke at length about its initial view of the merits in an opinion that allowed Amazon's motion for a preliminary injunction.

 

33

 

There are a number of lessons to be learned from this opinion,

 

34 most importantly how the court construed the claims. The parties agreed that the patent contemplated a single mouse-click, but disagreed over which clicks counted. The court looked to the specification's description of the need for product information and purchasing instructions, and held that clicks do not "count" until after the item and ordering instructions are displayed.

The court's narrow construction impacted two other aspects of the case. First, it colored the defendant's anticipation argument. Barnes and Noble introduced five pieces of prior art that it argued anticipated Amazon's patent. The court found that none of those references anticipated Amazon's claims because they either required a purchase confirmation, were not a shopping cart model, or did not present the required information before allowing consumers to make a purchase.

 

35 Second, the court potentially cleared a path for Barnes and Noble or other competitors to design around the patent by adding a second mouse-click or changing the information fields. 36

 

IV. COMMON ISSUES IN PATENT LITIGATION

 

 

A. Should You Bring Suit?

 

 

The first instinct of many clients who believe their patent has been infringed is to immediately file an infringement suit. This requires conducting a thorough investigation and evaluating the legal and business risks of filing suit.

 

1. Pre-Suit Investigations

 

Conducting an effective pre-suit investigation in the e-commerce arena raises a number of issues. The first hurdle is to determine whether your client's patent has been infringed. This can be particularly challenging when dealing with patents involving sophisticated software applications, such as the method in State Street. More often than not, these systems are concealed by secret source code and encryption schemes. While it may be possible to reverse-engineer software, doing so runs the risk of violating the alleged infringer's copyrights.

 

37

 

A good place to start your investigation is by looking in places where the alleged infringer has described its method. This is often done in the alleged infringer's advertisements and SEC filings, and on its website. In Amazon.com, the court, in its infringement analysis, considered the defendant's description of its method in these sources.

 

38 You might also find information by talking to the alleged infringer's customers and potential customers. 39 The larger role the method plays in a competitor's products and services, the more likely it has been described or disclosed to customers and potential customers.

Some commentators recommend contacting the alleged infringer directly with a letter that draws the patent to the alleged infringer's attention, and asks the alleged infringer to respond with the reasons why it feels its method does not infringe the patent and need a license.

40 The advantage of this method is that it is very direct, however, it is also risky. No matter how artfully worded and conciliatory the letter, a savvy competitor will claim to have been put on notice that your client is threatening legal action. Because of the broad reaches of the Internet and e-commerce, the personal jurisdictional requirements of every state will likely be satisfied. After giving the alleged infringer notice, your client may soon find itself a defendant in a declaratory judgment action filed in an inconvenient forum, thereby increasing the costs of litigation considerably.

2. Evaluating the Risks of Filing Suit

 

Given the few cases analyzing business method patents, no one can be certain how courts will deal with validity and infringement issues.

 

One risk is that the patent holder may lose valuable licensing opportunities if the patent is declared invalid or is narrowly construed. This happened in Interactive Gift Express, where the plaintiff claimed its patent covered virtually all business uses of the Internet. Before the district court issued its opinion, the plaintiff announced an amnesty program called "Carrot or Stick: It's Your Choice," which gave companies the choice of applying for a one-year renewable license or facing an infringement suit.

41 Several major companies, such as IBM and Adobe, while believing that they would ultimately win in court, opted for a low-priced license instead of the substantial costs of mounting a defense. 42 The prospect of continuing revenues was put into serious doubt after the district court declared that the patent did not apply to real-time transactions. Although the Federal Circuit's reversal restored E-Data's licensing hopes, this example illustrates the uncertainty of Internet patent litigation.

Another risk is that a court's construction of a patent provides a roadmap to competitors to design around the patent. The court did just that in Amazon.com, by stating that the claims required that information about the item and its purchasing instructions must precede the single mouse-click triggering the order.

43 Now, to design around the patent, a competitor may need only to change the information fields or add a second click.

B. Claim Construction

 

 

Traditional claim construction principles apply to business method patents. Accordingly, courts will use a patent's claims, specifications, and prosecution history to determine the meaning of the claims. But there is considerable uncertainty concerning the breadth of business method patent claims. Early decisions caused many to predict that courts would construe claims narrowly. But the Federal Circuit's reversal in Interactive Gift Express has cast a shadow over those predictions.

 

The best example of a narrow construction is Wang Labs., Inc. v. America Online, Inc.

44 In that case, the plaintiff claimed its software patent for "Videotex Frame Processing" was infringed by AOL's "favorite places" and Netscape's "bookmark" features. The crucial issue in the case was the construction of the term "frame," and specifically whether it applied to all computer protocols. The Federal Circuit affirmed the district court's holding that the patent's specifications limited the term to character-based protocols. That narrow construction allowed the defendants, who used bit-mapped protocols, to escape infringement.

By contrast, in Interactive Gift Express, the Federal Circuit broadly construed a pre-Internet era patent to apparently cover the real-time delivery of information to a consumer's home.

 

45

 

Although the way in which courts will construe business method claims remains an open question, we believe that a trend towards narrow construction will eventually emerge. This trend will be fueled by the courts' reluctance to allow broadly written patents, particularly those obtained before widespread use of the Internet became prevalent, to charge a toll on (or enjoin) e-commerce transactions.

 

 

C. Infringement

 

 

The infringement analysis for business method patents is no different than for traditional patents. Courts will consider literal infringement, the doctrine of equivalents, and § 112, paragraph (6) equivalence for means plus function claims. But the early business method cases highlight two lessons that are particularly relevant to e-commerce.

 

First, the way in which a defendant may have described its patent in marketing and in promotional material can be compelling. Such evidence played a key role in the infringement analysis in Amazon.com. There the defendant claimed its method did not infringe the patent's "single-action ordering component" because its method required consumers to take multiple actions after the item information was displayed. The court dismissed that argument, noting: "Except in court, Barnesandnoble.com everywhere has described its Express Lane as "one-click ordering," including on its website and its communications with shareholders and potential shareholders."

 

46

 

Secondly, if a trend toward narrow claim construction emerges, it will have a dramatic effect on infringement analyses by restricting both literal infringement and the range of equivalents. These consequences are evident from Wang. The Federal Circuit quickly excused the defendants' bit mapped protocols as not literally infringing, once the claim had been construed as limited to a character-based protocol.

 

 

47 Although the two protocols were deemed interchangeable, their different capabilities and limitations were sufficient to support a denial of infringement claims under the doctrine of equivalents and § 112, paragraph (6). 48

 

D. Validity

 

 

 

When State Street was first announced, commentators wondered whether the "old rules" that applied to traditional patents would also apply to business methods. For many, wonder turned to panic when companies began to announce patents for "new" business methods that were simply Internet applications of conventional business models. Many companies were also concerned that the lack of a comprehensive prior art database was causing the PTO to issue patents to the first to file instead of the true inventor of the method. But until the reforms of Congress and the PTO take hold, defendants facing infringement suits will have to rely upon standard invalidity defenses.

 

There are four statutory requirements that must be met for an invention to be patentable. The invention must be: novel; non-obvious; useful; and it must relate to statutorily permissible subject matter. The latter two requirements are insignificant hurdles for e-commerce methods. As long as an invention performs some legal function it will be deemed useful.

49 The Federal Circuit has already held in State Street that business methods are patentable subject matter. 50 However, the first two requirements present sizeable obstacles, particularly for some of the earlier issued patents.

1. Lack of Novelty

 

An invention lacks novelty if it "was known or used by others in this country, or patented or described in a printed publication in this or a foreign country, before the invention thereof by the applicant for [the] patent."

 

51 Therefore, an invention lacks novelty, or is anticipated by prior art, if it was known or used in the United States or published anywhere. 52

 

Although this standard is familiar and straightforward, it may be difficult to invalidate a patent with prior art. Like the PTO, practitioners are finding it difficult to locate prior art. E-commerce business models are rarely found in journals, libraries or databases. One reason for this is that prior to State Street, it was widely believed that business methods were not patentable. Therefore, companies took great pains to protect the secrecy of their business methods. Now that companies are applying for patents with record speed, references to prior art are becoming more readily available. However, many references are still buried in unconventional places such as business school papers, chat rooms, and the file drawers of start-ups.

 

 

Scouring the Internet to locate these references can be a time-consuming task, but help is on the way as new alternatives for finding prior art appear. For example in Wang, AOL and Netscape posted "prior art" wanted messages on a web-site frequented by software engineers.

53 Within a few days, they received hundreds of responses identifying prior art. 54 Also, traditional prior art search firms are adapting their methods to the challenges of finding business method prior art.

It is important to realize that simply finding related prior art may not be enough to invalidate a patent. To be anticipated by prior art, a single piece of art must encompass each limitation of the patent's claims. If Internet patent claims are construed narrowly, this provides more room for patentees to distinguish their inventions from the prior art. For example, in Amazon.com, the court rejected five prior art references because one or more of the claims' limitations were not present.

 

55

 

If you are able to locate prior art that closely models the patent, you might be able to settle litigation sooner. Patents are valuable assets to Internet companies which often have no earnings. Aside from providing licensing revenues, the patents a company holds are often factored into its stock price and the company's ability to get financing.

 

56 Therefore, a patent holder may think twice about continuing litigation if faced with the prospect of having a patent declared invalid by prior art.

2. Obviousness

 

The statutory requirement that an invention be non-obvious evaluates the degree of an invention's novelty. To be patentable, the invention must contain an improvement over the prior art that would not have been obvious at the time of the invention to a person with ordinary skill in the art.

57 This concept is closely related to the novelty requirement. Their relationship has been described as:

Novelty acts primarily in a negative fashion. If an invention is not new, then the invention is not patentable. That ends the inquiry. But if the invention is new, further inquiry must be made into whether it is "new enough," that is, not obvious to one with ordinary skill in the art.

 

58

 

In Amazon.com, the defendants argued that the single-action ordering system was obvious in light of numerous Internet checkout models and the problem of abandoned shopping carts. They supported their argument by demonstrating how easy it was to alter a multi-step checkout model to allow single-action ordering. However, the court rejected that argument, noting that despite the pervasiveness of abandoned shopping carts in e-commerce, no one had previously thought of the one-click idea. Other non-obviousness considerations were the commercial success of Amazon's model and the number of times it had been copied by competitors.

 

 

The non-obviousness requirement may present a problem for e-commerce models that are based on traditional business methods. Consider Priceline's reverse-auction patent. This business method has been around for hundreds of years, and is regularly used by the U.S. Treasury Department to sell hundreds of millions of dollars in government bonds. Of course, a live reverse auction could not be patented. But, by applying that method to the Internet, has Priceline added a sufficiently new aspect that satisfies the novelty requirement?

59 If it has, one could make a compelling argument that this method would have been obvious to "one skilled in the art."

E. The First Inventor Defense

 

 

In the immediate wake of State Street, many people were concerned that companies which had long been doing business a certain way would be named as defendants in an infringement suit brought by a newcomer who had won the race to the PTO. In response, Congress passed the First Inventor Defense Act of 1999, which applies exclusively to business method patents. The Act added § 273 to Title 35, which states:

 

It shall be a defense to an action for infringement under section 271 of this title with respect to any subject matter that would otherwise infringe one or more claims of a method in the patent being asserted against a person, if such person had, acting in good faith, actually reduced the subject matter to practice at least 1 year before the effective filing date of such patent, and commercially used the subject matter before the effective filing date of such patent.

 

60

 

Although the Act's legislative history suggests that it should be interpreted broadly, the defense will not be widely applicable. It can only be raised by persons or entities that can prove by clear and convincing evidence that they used the method commercially. Also, the defense is claim specific. Accordingly, an inventor who implemented some of the claimed methods commercially more than a year before the patent's effective filing date, but who implemented other claimed methods less than a year before the filing date, still faces infringement liability.

 

 

V. CONCLUSION

 

The death of the business method exception caught everyone by surprise. Immediately after State Street, there was justifiable confusion regarding the way that business method patents would be treated. This confusion only intensified when the first patents issued by the PTO were of questionable validity. Two years later, things are beginning to coalesce. The PTO is implementing new measures to improve its prior art databases and to provide for a more thorough review of business method patent applications.

 

In the meantime, business method patents will continue to be issued and asserted. Therefore, all companies should be mindful of this burgeoning area of law regardless of whether they intend to ever file an infringement suit. Companies would be wise to build patent portfolios for defensive purposes, and to obtain patents with varying scopes of claims that could be directed at aggressive competitors. They should also maintain detailed records of their business methods in order to preserve prior use defenses.

 

There are currently a number of business method patents being tested in litigation. So far, very few decisions have analyzed these patents on their merits. Until the case law matures, one will not be able to predict with confidence whether a particular method will be deemed to infringe a patent or whether the patent will be upheld as valid. However, from the initial cases, some educated guesses can be made about the direction in which business method litigation is going.

 

First, although the breadth of claim construction is currently an open question, a trend should eventually emerge towards narrow construction. Courts will remain mindful of preventing one method (and patent holder) from taking the e-commerce world hostage. Second, narrow claim construction will have effects on plaintiffs and defendants, making proving infringement more difficult for plaintiffs and proving anticipation more difficult for defendants. Third, inconsequential business method advances will be measured against traditional validity defenses, particularly obviousness. Finally, as time passes and entrepreneurs, lawyers, and judges gain more experience in dealing with e-commerce patents, the differences between business method patent litigation and conventional patent litigation will become increasingly more subtle.

 

John J. Regan

 

 


[email protected]

 

John J. Butts

 


[email protected]

 

 

1
See State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368, 1375-77 (Fed. Cir. 1998).
2 See Bill Would Tighten PTO Procedure For Issuing Business Method Patents, 5 Electronic Com. & L. (BNA) 1006 (Oct. 11, 2000).
3 35 U.S.C. § 273(a)(3).
4 See, e.g., Larry J. Gaffey, Business Method Patents: What They Are - Why Clients and Service Providers Should Care, 33 Aug. Md. B. J. 25, 26 (2000); E. Robert Yoches, Enforcing Business Method Patents, 589 PLI/Pat 243, 248-49 (2000).
5 See Hotel Checking Co. v. Lorraine Co., 160 F. 467, 472 (2d Cir. 1908) (invalidating a business method patent for lack of novelty).
6 See Loew's Drive-In Theatres, Inc. v. Park-In Theatres, Inc., 174 F.2d 547, 553 (1st Cir. 1949) (declaring a business method patent invalid as an abstract idea).
7 See In re Wait, 24 U.S.P.Q. 88, 88 (CCPA 1934) ("[E]ven conceding, without holding, that some methods of doing business might present patentable novelty, we think such novelty is lacking here.").
8 See Yoches, supra note 4, at 249.
9 See Gaffey, supra note 4 at 26.
10 149 F.3d 1368 (Fed. Cir. 1998).
11 See State Street Bank & Trust Co. v. Signature Financial Group, Inc., 927 F. Supp 502, 516 (D. Mass. 1996).
12 Id.
13 See State Street Bank & Trust Co., 149 F.3d at 1375 ("We take this opportunity to lay this ill-conceived exception to rest.").
14 Id.
15 In 1998, 1,285 business method applications were filed. In 1999, the PTO projected that 2,600 applications would be filed by the end of the year. See George H. Gates & Jason S. Feldmar, Internet Patents, 610 PLI/Pat 403, 411 (2000).
16 See id.
17 Bill Would Tighten PTO Procedure, supra note 2 (quoting Rep. Rick Boucher (D-Va.)).
18 See Gates & Feldmar, supra note 15 at 409-10.
19 See U.S. Patent and Trademark Office, A USPTO White Paper: Automated Financial or Management Data Processing Methods (Business Methods), at

 

http://www.uspto.gov/web/menu/busmethp/downloads.htm ; PTO to Add Additional Layer to Reviews of Electronic-Commerce Business Methods, 5 Electronic Com. & L. (BNA) 340 (Apr. 5, 2000).
20 For a recap of the roundtable's discussion, see Jennifer L. Alvey, Panel Explores Validity of PTO Practices in Examining Business Method Patents, 5 Electronic Com. & L. (BNA) 825 (Aug. 9, 2000).
21 H.R. 5364, 106th Cong. (2000).
22 See Bill Would Tighten PTO Procedure, supra note 2.
23 No. 3:99-cv-1991 (D. Conn.).
24 No. 99-Cal-65 (W.D. Wash.).
25 See infra notes 31-36.
26 No. 1:99-cv-690 (W.D. Tex.).
27 No. 2:98-cv-118 (W.D. Pa.).
28 No. 1:99-cv-381 (D. Del.).
29 No. 99-1324, 2000 U.S. App. LEXIS 27454 (Fed. Cir. Nov. 3, 2000).
30 See Interactive Gift Express, Inc. v. Compuserve, Inc., No. 95 Civ. 68871, 1998 WL 247855, at 15 (S.D.N.Y. May 15, 1998) ("In an obvious attempt to expand the scope of its patent beyond that which was intended, plaintiff implausibly asserts that its patent covers certain uses of the Internet and World Wide Web, and applies to certain CD-ROM applications.").
31 73 F. Supp.2d 1288 (W.D. Wash. 1999).
32 See id. at 1237.
33 The defendant has appealed this decision to the Federal Circuit, and the injunction has been stayed pending the outcome of the appeal. The Federal Circuit heard oral arguments on October 2, 2000, but has not announced a decision.
34 See infra Part IV.
35 See id. at 1239-41.
36 The court considered the relative ease of designing around the patent in its balance of harms analysis. See id. at 1248.
37 See Yoches, supra note 4 at 255-56.
38 73 F. Supp.2d at 1245-46.
39 See Yoches, supra note 4 at 255-56.
40 See id.
41 See Alex Lash, Landmark Copyright Trial to Begin (Jun. 24, 1996), at
http://www.news.com/News/Item/04.1649.00.html?st.ne.ni .
42 See id.
43 73 F. Supp.2d at 1244.
44 197 F.3d 1377 (Fed. Cir. 1999). This case dealt with a software patent, but its application to a common Internet search engines makes it relevant to e-commerce.
45 See supra part III.A.
46 73 F. Supp.2d at 1245.
47 See id. at 1382.
48 See id. at 1384-85.
49 See 35 U.S.C. § 101; Chris Holt, Patentability of Internet Business Models, at http://www.ukans.ed/~cybermom/CLJ/holt/holt.htm
(noting that this requirement would not be fulfilled by an aesthetic invention or one that performs an illegal function).
50 See State Street Bank, 149 F.3d at 1375.
51 35 U.S.C. § 102(a).
52 See William D. Wiese, Death of a Myth: The Patenting of Internet Business Models After State Street Bank, 4 Marq. Intell. Prop. L. Rev. 17, 39-40 (2000).
53 See
http://www.mozilla.org/legal/wangsuit.html .
54 See id.; Yoches, supra note 4 at 276.
55 See Amazon.com, 73 F. Supp.2d at 1233-36.
56 For example, Open Market's stocked jumped 12% on the day it announced that it had obtained patents for online shopping carts and real time credit card transactions. See Margret Kane, Open Market's E-commerce Patent Claims Cause a Stir (Mar. 3, 1998), at
http://www.zdnet.com/pcweek/news/0302/03mopen/htm .
57 See 35 U.S.C. § 103(a).
58 Donald S. Chisum,1 Chisum on Patents § 3.01, at 3-4 – 3-5 (2000).
59 One case suggests that Internet application may be enough to make an invention novel. See Paine, Webber, Jackson & Curtis, Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 564 F. Supp. 1358, 1369 (D. Del. 1983) (finding a patent for a computerized cash management system valid and noting that "it would be unpatentable if done by hand").
60 35 U.S.C. § 273(b)(1).

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