The following article appears in the journal JOM, 52 (12) (2000), p. 64. JOM is a publication of The Minerals, Metals & Materials Society

Software Patents for Methods of Doing Business–A Second Class Citizen No More

For many years, anyone seeking to patent the use of a computer for functions that were previously performed manually had double trouble if the invention related to a “way of doing business.” First, the Patent and Trademark Office decided that mathematical algorithms were not a statutory category of subject matter that could be protected by patent. Second, “business methods” were held to be unpatentable. These two objections have been eroded over the years.

Recently, software inventions involving algorithms have been eligible for United States patents as long as tangible results are produced. Also, in the mid-1980s, Merrill Lynch won a court ruling that it was entitled to have a patent on its Cash Management System, which involved various types of processing of financial data by computer.

In 1998, the U.S. Court of Appeals for the Federal Circuit in the State Street case destroyed the last remnant of the “method of doing business” objection to obtaining a patent. It ruled that no legal basis exists for such an exception to patentability and that if an invention otherwise meets the standards for patentability, there is no legitimate basis for denying the issuance of a patent. This ruling was made for a software invention that used computerized processing to establish a system for pooling of assets of mutual funds.

The State Street decision, combined with the rapid growth of e-commerce, has led to a large number of patent filings on software inventions related to a method of doing business. Amazon.com, for example, patented its “1-click” system, which enhances the speed and efficiency with which a customer can place an order.

As a result of the patenting changes, people creating new, computerized business systems must consider patent protection. The fact that a computer is performing accounting or financial processing which previously had been performed manually does not preclude patentability if the standards of patentability (i.e., usefulness, novelty, and unobviousness) are met. Simply computerizing an operation may not result in a patentable invention, however. One must look at the differences between the com-puterized system and the prior manual approach, as well as the value added through the use of the computerized system. One also should consider the types of patent protection available, e.g., methods, apparatus, and products.

Another dimension of the State Street ruling is that the patent system has moved farther away from the requirement that there be an application of a mathematical algorithm to produce a “useful, concrete and tangible result.” This prior standard was generally interpreted as requiring a relationship with a physical world. For example, such a result might involve the use of the mathematical algorithm in a computation, which, through a servomechanism, was fed back to a rolling mill controller to adjust the gap between a pair of rolls. When the State Street ruling accepted the processing of quantities of money to provide numerical information not involving direct, physical interaction with the world, a further change in the law occurred. The determination of the share price based upon dollar input was held to be fixed for recording and reporting purposes and was deemed to satisfy the useful, concrete, and tangible result standard. Because way-of-doing-business patenting is no longer a separate category, patents may be available on inventions that involve software for processing data of various types, not necessarily limited to financial data, so long as a useful, concrete, and tangible result has been produced.

Considering the State Street ruling, it is easy to understand why the number of filings on e-commerce-type inventions has increased dramatically. These inventions may involve the sale of goods or services over the Internet, making travel arrangements, or almost any business conducted on the Internet with software that enhances the ease and speed with which information may be delivered and the transaction consummated.

With the elimination of the major hurdles to patenting a mathematical algorithm and a way of doing business, there is no logical basis for making distinctions between financial software and any other software that processes data to produce a useful, concrete, and tangible result. This series of changes will not alter the right to patent certain types of software inventions, which previously have been clearly patentable as a result of their performing a useful function, being part of a physical system, or being part of a unique product. For software developments where either of the two objections to patentability has been applied, however, opportunity exists for obtaining meaningful, valid patent protection. Therefore, those involved with such new technology should thoroughly evaluate the possibility of patent protection.

In view of the clarification of the law and the large number of people who are seeking patents in this area, it is important that anyone considering protecting financial software inventions make an evaluation and, if an application is to be filed, that it be filed promptly.

Arnold B. Silverman is chair of the Intellectual Property Department and a member of Eckert Seamans Cherin & Mellott, LLC in Pittsburgh, Pennsylvania.

For more information, contact A.B. Silverman at Eckert Seamans Cherin & Mellott LLC, 600 Grant Street, 44th Floor, Pittsburgh, Pennsylvania 15219; (412) 566-2077; fax (412) 566-6099; e-mail ARNIE@TELERAMA.LM.COM.