Business Method Patents

Historical Background

• State Street Bank v. Signature Financial Group (Fed. Cir. 1998) upheld a business method patent on a hub-and-spoke mutual fund accounting system
• Held that the patent statute's 'useful, concrete, and tangible result' test admitted business methods
• Triggered an explosion in business method patent filings
• Subsequent Supreme Court decisions significantly restricted business method patent scope

What Business Method Patents Claim

• Financial transaction processing (payment systems, currency exchange, risk hedging)
• E-commerce methods (online shopping carts, recommendation engines, auction systems)
• Data processing and analysis
• Insurance and financial instruments
• Marketing systems and methods
• Management and organizational methods
• Advertising technology
• Health care administration
• NOTABLE BUSINESS METHOD PATENTS (historical): Amazon's one-click purchasing (US 5,960,411): settled for royalties from Barnes & Noble
• Priceline's 'name your own price' auction model
• PayPal's escrow-based online payments
• Google's AdWords auction ranking system

Current Status

• Most classic 'doing business on the internet' claims that simply automate a known business process on a generic computer are invalid under Alice
• Business method patents that survive Alice must: (1) be directed to a specific technical improvement to a computing system or process
• Or (2) go beyond the abstract idea itself by adding meaningful inventive elements that are not routine, conventional, or well-understood (a 'significantly more' contribution).

Alice Two-step Test

• STEP ONE — Is the claim directed to a patent-ineligible concept (abstract idea, law of nature, natural phenomenon)? STEP TWO — If yes, does the claim add an 'inventive concept' — something significantly more than the abstract idea itself, such that the claim is meaningfully different from the abstract idea in application? WHAT ALICE DID TO BUSINESS METHOD PATENTS: implementing an abstract idea (like risk hedging, escrow, or auction) on a 'generic computer' adds nothing to make it eligible
• The functions of creating accounts, maintaining records, adjusting balances, and issuing automated instructions are routine, conventional, well-understood computer operations — not inventive

Post-alice Invalidation Rate

• Courts have found many business method patents invalid under Alice
• Industry estimates suggest 60-80% of challenged software and business method patents are found ineligible.

Step 1 Survival — not an Abstract Idea

• If the claim is directed to a specific technical solution to a technical problem (not just an abstract concept), it may survive step 1
• ENFISH LLC v. MICROSOFT (Fed. Cir. 2016): patent on a self-referential database table for improved computer function
• Claim was directed to specific improvement in computer function itself
• Not directed to abstract idea — survives step 1
• McRO v. BANDAI NAMCO (Fed. Cir. 2016): patent on automatically animating lip synchronization
• Specific rules produce a specific technical result
• Not abstract

Step 2 Survival — Inventive Concept

• If the claim IS directed to an abstract idea but adds an inventive concept, it may survive step 2
• BASCOM v. AT&T (Fed. Cir. 2016): internet content filtering
• Even if individual elements are routine, their specific combination and arrangement on a network was unconventional
• BERKHEIMER v. HP (Fed. Cir. 2018): whether claimed elements are 'well-understood, routine, conventional' is a factual question — cannot be decided on the pleadings without evidence

What Survives in Practice

• Claims that recite: specific technical improvements to computer functioning
• Novel data structures with technical advantages
• Unconventional technical arrangements of components
• Specific algorithms for solving a technical problem
• Real-world applications with specific technical steps

What Does not Survive

• Claims that recite: general computer implementation of a known business process
• Using a computer to store, retrieve, or transmit information in a conventional way
• Abstract mathematical relationships without meaningful application
• Generic steps (determining, transmitting, storing) without specific technical content.

Focus on the Technical Problem and Technical Solution

• Identify the specific technical problem in the prior art computer systems that the invention solves
• Claim the solution in terms of the technical improvement, not just the business result
• Example: instead of claiming 'a method of hedging financial risk using a computer,' claim 'a method for reducing latency in real-time financial risk calculation by [specific algorithm that produces specific technical improvement]'

Describe Technical Improvements in the Specification

• The specification should explicitly describe: the problem with prior art computing systems
• How the claimed invention specifically improves computing performance, efficiency, or capability
• Why the specific claimed implementation is unconventional

Why This Matters

• Berkheimer v. HP (Fed. Cir. 2018): the 'well-understood, routine, conventional' inquiry in step 2 is a factual question
• A detailed specification describing why the claimed elements are unconventional creates a fact issue that cannot be resolved against the patent owner at the pleadings stage

Claim Structure

• Independent claims should include the specific technical elements that define the unconventional improvement
• Avoid generic claim language that reads on any computer implementation

Prosecution

• Argue specifically that the claimed combination is not routine, conventional, or well-understood
• Cite technical literature showing that the claimed approach was unconventional at the time of invention
• Submit declarations from technical experts if needed.

USPTO Examination Post-alice

• 2014: USPTO issued interim eligibility guidance following Alice
• Examiners began rejecting most business method applications under § 101
• Technology Center 3600 (business methods, e-commerce, finance) rejection rates skyrocketed

2019 Revised Guidance

• USPTO issued new guidance creating a more structured approach
• Step 2A, Prong 1: is the claim directed to one of three categories of abstract ideas (mathematical concepts; certain methods of organizing human activity; mental processes)? Step 2A, Prong 2: does the claim integrate the abstract idea into a practical application (a real-world application)?
• Step 2B: if not, does it add a specific limitation beyond what is well-understood, routine, conventional?
• 2019 guidance provided more examiner structure but has not dramatically changed allowance rates for pure business method claims

PTAB Covered Business Method Review (CBM)

• AIA created a special review proceeding for business method patents (CBM review)
• Available for 'financial product or service' patents

CBM Review Statistics

• High invalidation rate — majority of CBM petitions resulted in claim cancellation
• Majority of § 101 challenges in CBM were successful

CBM Sunset

• The CBM review program expired March 16, 2020 (9 years after AIA)
• No new CBM petitions can be filed
• Pending CBMs were completed

Post-cbm Alternatives

• IPR still available for prior art challenges
• PGR available within 9 months of grant
• District court § 101 motions remain the primary route for challenging business method patents

Impact on Business Method Patent Filings

• Filings in TC 3600 dropped after Alice as applicants focused on more technically oriented claims
• Software companies have adapted to draft claims emphasizing technical improvements.