Patentability of Business Methods

A method of doing business was not traditionally patentable. However, in the latter part of the 20th century, there was a slow realization that the basis for rejecting business-method patent applications was not because the invention to be patented was a business method but because the subject matter of the application did not meet the fundamental requirements for patents such as novelty and non-obviousness. With the widespread use of computers and the development of business methods involving computers, courts were forced to reexamine the question of whether a business method could be patented or, as they had been treated by the U.S. Patent Trademark Office, were inherently unpatentable. In 1998, the U.S. Court of Appeals for the Federal Circuit, ruled that business methods could be patented if they produce a “useful, tangible, and concrete result.” The court concluded that a system that used a computer to calculate a mutual fund share price from a complex set of parameters was not an abstract idea but rather a machine–embodied by the computer–that produced a useful result–the share price.

Because it had long been believed that business methods were not patentable, most companies had not bothered to invest the necessary time and money to apply for business-method patents. The 1998 court decision opened a floodgate of patent applications for business methods, many of which involved computer technologies and methodologies, in many cases for conducting business on the Internet. There quickly developed a widespread concern on the part of companies that they might infringe a business-method patent simply by continuing to conduct their business using well-established methods for which someone all of a sudden held patents. In response, Congress passed the First Inventor Defense Act, which adds to the federal patent statute a defense to patent infringement based on the prior commercial use of a business method.


Under the prior-use defense, a person or company that is sued for the infringement of a business method may escape liability for infringement by showing that it had used the patented method commercially for at least one year before the patent holder had applied for the business-method patent. Commercial use does not necessarily mean public use; use in an internal manufacturing or distribution procedure that contributes to the effectiveness of a business operation qualifies as commercial use for the purposes of the prior-use defense, as would a method that produced a product for final sale to another party. A party asserting the prior-use defense has a burden of proving the circumstances that constitute a successful defense by clear and convincing evidence. If a party asserts a prior-use defense without a reasonable basis to do so, the party will be required to pay the patent holder’s attorney’s fees.

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