Patentibility of Business Models

In the recent past, software was not patentable. The prevailing rationale was that computer code was not patentable subject matter because it primarily involved intellectual steps. Since no one should have a monopoly on truth, programmers had the benefit of sharing each other's techniques, methods and code. They also had little protection against the copycats who borrowed away these ideas.

The policy of protecting intellectual property drives the redefinition of patentable subject matter. Section 101 of the patent statute, covers patentable subject matter. It has not been changed for a long time, but has been reinterpreted to support our new economy. The Untied States left the age of steam engines and steel manufacturing decades ago. As our world matures into the information age, the patent system must find some way to protect new forms of innovation.

In 1996, the United States Patent Office took matters into their own hands and decided to treat methods of doing business the same as any other process patent. None of these patents were carefully scrutinized until the State Street Bank case in the summer of 1999. The United States Federal Circuit Court of Appeals held in State Street Bank & Trust Co. v. Signature Financial Group, Inc. that business models are patentable. Before this case, "methods of doing business" were not considered patentable subject matter.

In the State Street Bank case, Signature Financial had a patent for its Hub and Spoke investment system. The system encompassed drawing capital from multiple mutual funds ("Spokes") into a single fund ("Hub") for investing. The system also included the software for tracking the investment, contributions and returns for each of these funds.

Some patent attorneys think that the Supreme Court will eventually strike down the ruling in the State Street Bank case. This is not likely due to our economy's need to promote new industries.

For now, the PTO continues to issue patents for new and non-obvious business models. This has allowed priceline.com to protect its business model against Microsoft. Soon, patents on business models may be commonplace. Thus, it is best to file early patent application you want filed as soon as possible. It is always better to get in on the ground floor of any booming opportunity.

If you plan to file an Internet related patent, your chances of success are much better if you file extremely early. One internet/software patent application I recently worked on was precluded two weeks later by a patent issued to IBM. The later inventor is basically out of luck because patent applications are confidential and not searchable. Thus, an applicant never knows about earlier filed applications, which claims basically the same subject matter. Filing earlier improves one's odds of winning.

Current as of January 27, 2000.