TCS Daily


Business-Method Patents Keep New Economy Clicking

By Thomas M. Blasey - November 13, 2000 12:00 AM

Since a 1998 appellate court confirmed that inventions directed to "business methods" deserve the same protection as any other type of invention, a significant increase has occurred in the number of patents directed to business methods implemented over the Internet.

Amazon.com's much-discussed patent for its "1-Click" shopping method provides an example of such a business-method patent. This particular method lets returning customers, whose billing and shipping information has been previously stored, to browse an inventory and purchase a selected item with a single mouse click, thus the one-click shopping.

Amazon.com has successfully leveraged this patent, obtaining a preliminary injunction last year against Barnes & Noble`s use of the "one-click" method and, more recently, reportedly making a licensing deal with Apple.

Critics claim the 1998 appellate court ruling -- protecting Signature Financial Group's patent of its hub-and-spoke data processing system for administering multiple mutual funds - has encouraged business to seek protection for trivial purposes. They say that such business-method patents threaten the development of electronic commerce. Legislation was enacted last year and further legislation is pending this year to treat "business methods" differently from other types of patented inventions.

So far, though, there's no evidence that business method patents are harming electronic commerce.

In addition, a business method patent, like any other patent, can be "designed around" by developing a different solution to achieve the same basic result. For example, Barnes & Noble, in response to the preliminary injunction, "designed around" the one-click patent by adding a confirmation click (i.e., a "two-click" shopping method). It would seem difficult to argue that (assuming Amazon's patent is not proven invalid) requiring an additional click or two will prevent competitors from competing for online sales. Successful design-around efforts are common in virtually all technologies, and many such designs are in fact entitled to their own patent. Indeed, this is one way in which patents spur innovation- by always encouraging inventors to think of a new way, whether that new way involves building a better mouse trap, or designing a better business method.

Meanwhile, there are plenty of reasons to believe that applying different standards to business methods than other inventions would do more harm than good.

First of all, it is difficult, if not impossible, to precisely define the essential characteristics of a "business method." For example, does a computer-based design tool for designing a product or solution, which is sold or used in business, implement a "business method"? Attempts to treat business method patents differently from other patents will merely generate vigorous arguments over whether a particular patent is or is not a "business method." As the appellate court noted in overturning the lower courts dismissal of Signature's business-method patent, denial of a patent should "not turn on whether the claimed matter does 'business' instead of something else." As the court said, the fundamental inquiry is whether the invention is new, useful, and not obvious.

This has been true throughout this nation's history. Business method patents really aren't new, as critics claim. The Patent Office in a White Paper this year noted that patents for financial methods and apparatuses date back to 1799, with the reward of a patent to Jacob Perkins for an invention for "Detecting Counterfeit Notes." And it found that automated business data processing method patents "did not suddenly spring into being in the late 1990's." Instead, they date to the late 1880s with patents granted to Herman Hollerith for methods and apparatuses that "automated the tabulating and compiling of statistical information for businesses and enterprises, ... revolutionizing business data processing."

Further, even the perceived broad scope of some recent infamous Internet patents does not justify treating business methods as a separate class of invention. In any technology, the broadest patents tend to be issued when the technology is relatively new; this is just as true for the Internet as it was, for example, for integrated circuits. Broad patents in relatively new technologies have historically not impeded the further development of those technologies, and there is no reason to suspect that the Internet will be any different. In the case of the "1-click" and other recent Internet patents of note, these are simply examples of broad patents in what is a very new area. Criticism of these relatively broad patents are enhanced by the incredibly rapid development of the Internet, as critics fail to recall that several years ago when many of these patent applications were filed, the ways in which the Internet could and would be used was far from clear.

Jeff Bezos, Amazon.com founder and chief executive officer, said in defending his firm's patent: "Being a pioneer and innovating for customers is always hard. We spent thousands of hours to develop our 1-Click process, and the reason we have a patent system in this country is to encourage people to take these kinds of risks and make these kinds of investments for customers." This quote correctly recognizes that business method patents are entirely consistent with the goals of the patent system, and these patents should and will continue to encourage and reward new, useful, and unobvious inventions.
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