The Death of Business Method Patents

Beginning in the late 1990s smart businesses commonly protected their innovative business methods with patents. That has now ended. In its June 2014 Alice decision, the Supreme Court set up hundreds if not thousands of issued U.S. patents on business methods for invalidation and seriously limited the ability to secure new patents.

January 1, 2015

Beginning in the late 1990s smart businesses commonly protected their innovative business methods with patents. That has now ended. In its June 2014 Alice decision, the Supreme Court set up hundreds if not thousands of issued U.S. patents on business methods for invalidation and seriously limited the ability to secure new patents. In part, the Supreme Court’s decision shifts protection of business methods to the implementation of the concept rather than to the concept itself. (This article emphasizes business methods, but most of the concepts also apply to applications software.)

In Alice, the Supreme Court clearly held that you cannot have a patent on business methods unless it includes a technical component which is innovative on its own. If your innovation arises from entrepreneurship, the fact that it is implemented with technology won’t help.

The U.S. Patent & Trademark Office issued a lot of patents before the Supreme Court changed the law. Now that the rules have changed, many of those patents will be held invalid if asserted. If someone else’s patents are troubling you, you should feel more optimistic. Congress and the PTO have made it a lot easier and less expensive to invalidate patents. Now, in addition to the courts, patents can be invalidated through procedures such as covered business method patent review, inter partes review, post grant opposition and ex parte reexamination. If you are sued on a business method patent, the court can now dismiss the case at the very start. Lawsuits can be paused while the PTO considers validity. The courts have quickly fallen into line with this, in part reflecting the burdens of patent cases on judges.

IP protection budgets in this post-Alice world have not changed, but the way those budgets are spent is changing. To protect business methods, including websites and apps, smart business people now focus more on copyrights and “design” patents. Protect your copyright and you can qualify for statutory damages plus attorneys’ fees. This kind of leverage can get a case settled quickly. You might want to consider design patents, which protect the designs on things not the designs of things, for icons and on-screen aesthetics. The good news is that copyrights and design patents can provide significant protection of business methods and cost a lot less. Many business people find that the total cost of protecting innovative business methods is about the same whether they pursue just patents on it or a more robust package which includes fewer patents but is rounded out with copyright and design patent protection.

I love patents, and patents serve multiple important business purposes, but patents rarely define a company’s success. For example, after 15 years in business, Microsoft’s annual revenue exceeded $1B, but the company had just five patents. Patents have not been Google’s friend, either (though like Microsoft it might need to rely upon them more to thwart antitrust enforcement). Despite Alice, patents should remain a part of almost any company’s IP strategy. Investors continue to want to see patents, and they continue to provide excellent market benefits and downside hedge.

What software or business methods are patentable?

The test for the kinds of inventions that may be patented has gotten stricter, but originality alone has never been the test. So far, the courts have given little guidance about what is patentable. Case after case has held a business method invalid, and the US Patent & Trademark Office has also slammed on the brakes.

In general, nearly any kind of methodology that was done in the offline world will not be patentable.

Using mobile devices, networks, automated tracking, or “big data” to accomplish something probably won’t make a business method patentable either.

Technical innovations — typically the stuff of engineers and scientists – continue to be patented.

Despite the current unwelcome environment, this likely will change in time. Thus, a slower approach makes sense. Consider filing provisional patent applications, avoiding expedited examination, and filing applications in sequence instead of in parallel.

Steven C. Sereboff

Steven C. Sereboff

Partner | SoCal IP Law Group LLP

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