Patent - Business Method Patents - Part I

In this first of a series of articles we're going to discuss a specific type of patent called a business method patent.

If a company develops a new method for conducting an e-commerce business they may be able to prevent other companies from using this method for almost twenty years.

The truth is, since 1998 an increasing number of software and Internet companies have been issued patents for designing new ways of doing business. Examples would be new online ordering processes or a unique Internet advertising method. These kind of patents which are usually the combination of software and business methods are called business method patents or Internet patents.

The reason these patents are important is because a company that develops such a patent can keep other companies from using these business methods for 17 years. And if the owner wants, he can make additional money from the patent by licensing out to other companies. If there is a large enough market, the company may make more money from the licenses than from the patent itself.

A very good example of a business method patent is Amazon.com's 1-click payment method. This system allows a customer to bypass the traditional address and credit card forms as long as the customer has an account with Amazon. After clicking on the payment button the order automatically goes through. This patent was granted to Amazon.com in September 1999. The patent number is U.S. Pat No. 5,960,411.

Business method patents are actually a part of a larger family of patents called utility patents. These protect inventions, chemical formulas, processes and other discoveries. A business method is technically classified as a process. The reason is because it is not a physical object like a machine or some form of chemical compound.

During most of the last century the patent office issued very few business method patents. The reason for this is that they claimed that a process could not be patented if it was an abstract idea. The same thing was also said about software because software was said to be unpredictable algorithms.

That all changed in 1998. In July of that year a federal court upheld a patent for a method of calculating the net asset value of mutual funds. The court ruled that patent laws were intended to protect any method regardless of what it was, even an idea. As long as it produced a useful, concrete and tangible result. With this ruling the court made idea and software patents a reality again. After this ruling, business method patents increased by 40%. Also, that year, the U.S. Patent and Trademark Office created a new classification for business method patents. The classification is stated as "Data processing: financial, business practice, management or cost/price determination."

Many patents since this time have been issued for online shopping programs, Amazon's 1-click being the best example. However, because of the gray area of these patents, not having a physical product, an additional layer of review was added to the patent determination process. Technology specialists have been hired specifically to review these type of patent applications.

In the next article in this series we're going to discuss how to go about applying for a business method patent.

Michael Russell
Your Independent guide to Patents