Things to Know Before Enforcing Business Method Patents

Before you decide to enforce your patent rights, you need to understand why relying on the presumption of validity is no longer enough to avoid having your case dismissed and potentially even being sanctioned for filing a frivolous lawsuit.

A Business Method Patent Carries Presumption of Validity

So, what are we talking about when we say a patent is presumed to be valid? Once a patent is issued by the United States Patent and Trademark Office, it carries with it a legal presumption that the patent—by virtue of being issued by the government—is a legally valid patent. This is codified in 35 U.S.C. § 282—the first sentence of which states: “A patent shall be presumed valid.” What this means is that the burden of proof is placed on the party challenging the validity of the patent to prove that the patent is not valid by “clear and convincing evidence.” This is the highest standard of proof recognized in civil law, although it is lower than the “beyond a reasonable doubt” standard in criminal law. The justification for this presumption is that patent applications go through a lengthy examination by subject matter experts at the USPTO who are the first arbiters of eligibility and overall validity. Patent claims are often outright rejected or required to be significantly narrowed before the government will permit the patent to issue—a process that can often take three or more years from the date the application is filed.

Losing Presumption of Validity in Business Method Patents

With that high standard in mind, how could your patent case get dismissed at the get-go for not even being patent eligible when you have this presumption of validity? To answer this question, we first need to look at what is eligible for patent protection and then see why the USPTO would issue an ineligible patent.

There are two types of patents: design and utility. A design patent only protects the ornamental features of an object and not its functionality. Utility patents are what we normally think of when we discuss patents. Among utility patents, there are four distinct types: processes, machines, manufactures, and compositions of matter.

These can be protected narrowly of broadly. A narrowly drafted patent might claim an invention of specific technology while a broadly drafted patent may claim the process of applying a technological innovation to solve a problem or meet a need in a new way. We refer to the latter as “business method” or sometimes just a “method” patent. But even within method patents, they can be drafted narrowly or broadly.

I once litigated a drug testing patent where the difference between infringing and not infringing came down to the value for the specific gravity of urine that was used as a comparative reference within the testing algorithm. If your drug testing algorithm assumed this reference number to be 1.030 your test methodology could have infringed, but if you used 1.020 as your reference, then you clearly did not infringe. On the other end of the spectrum, I once litigated a patent that purported to cover streaming of “minor sports” over the internet. For some reason, the USPTO thought that that was a reasonable limit that made the patent novel and non-obvious over streaming of major sports on the internet.

Post-Alice Business Method Patents

It is a later type of method patents we are most concerned about. In 2014, the Supreme Court issued its opinion in the Alice Corp. v. CLS Bank International case. 573 U.S. 208 (2014). This was probably the most impactful patent law decision in a generation. While the trajectory of the law had been going in this direction for several years (See Mayo v. Prometheus, 566 U.S. 66 (2012) and Association for Molecular Pathology v. Myriad Genetics, Inc., 569 U.S. 576 (2013)), the Alice decision resulted in the most invalidity judgments and the sharpest decline in business method patent applications at the USPTO.

The Patent Act does not allow inventors to patent the “laws of nature, natural phenomena, and abstract ideas” that make up the “basic tools of scientific and technological work” Myriad, 569 U.S. at 589–90 (quoting Prometheus, 566 U.S. at 71). In order to determine whether an invention is patent-eligible, the Supreme Court has devised a two-step test. Alice, 573 U.S. at 217–18. First, the courts must consider whether the claims at issue are directed to a patent-ineligible concept, such as an abstract idea. If patent claims are directed to an abstract concept, courts move on to the second step and look for an “inventive concept” that transforms “the claimed abstract idea into a patent-eligible application.” Id. at 221.

This is where patents that were drafted too broadly get into trouble. When the inventor has conceived of an idea for something in the abstract, and drafts a patent too broadly cover that idea, the patent is probably not eligible for protection. And while this seems obvious now—in light of a succession of Supreme Court cases—there are many patents that were issued prior to this line of cases that are still well within their terms. This means that any method patent that was issued prior to 2014 should be viewed with a more skeptical eye. When the Supreme Court issues a decision affecting the eligibility or validity of patents in general, the USPTO changes the guidance for examining patents and the examiners begin looking to the new law and guidance when they are examining patent applications. But they do not generally go back and reexamine issued patents unless they are requested to do so. Thus, these patents—that would never have been issued today—are still out there with the same presumption of validity.

But this is where that presumption starts to fall apart. The “clear and convincing” evidence standard only applies to evidence. Whether an invention is even eligible for patent protection is generally a question of law, not of fact. Thus, it is easier for a court to look at the four corners of the patent and decern that it is only directed to an abstract idea and therefore not even eligible for patent protection.

Two-Step Analysis of Business Method Patent Validity

The first step in the analysis is rarely a close call because, at some level, anything can be analyzed to abstraction. The Supreme Court has cautioned courts against this because “too broad an interpretation of this exclusionary principle could eviscerate patent law.” Mayo, 566 U.S. at 71. But the Supreme Court has frequently found that patents directed to a method of organizing human activity to be too abstract for protection. And the prohibition on patenting abstract ideas actually goes back to at least 1853 when the Court wrote: “A principle, in the abstract, is a fundamental truth; an original cause; a motive; these cannot be patented, as no one can claim in either of them an exclusive right.” Le Roy v. Tatham, 55 U.S. (14 How.) 156, 175 (1853). In fact, there is a long line of cases that drove through the Twentieth Century to this effect—the names of which are familiar to anyone who studied patent law in law school. See for instance: Funk Bros. Seed Co. v. Kalo Inoculant Co., 333 U.S. 127, 130 (1948)(“patents cannot issue for the discovery of the phenomena of nature”); Gottschalk v. Benson, 409 U.S. 63 (1972)(“mathematical formula” not patentable even if executed by a “digital” computer); and Parker v. Flook, 437 U.S. 584 (1978)( mathematical calculation, even when tied to a specific end use, is unpatentable). With this long history, why was the Court’s holding in Alice so important?

There was an unfortunate time where it was common for an inventor to claim an invention by simply using a computer to do what people had been doing for years without a computer. This was commonly thought to be the trick for getting around the abstract idea problem.

In the Alice case, the patents at issue disclosed a computer-implemented scheme for mitigating the risk that only one party to a financial transaction would pay what it owed, by using a third-party intermediary. In other words, the abstract idea of intermediated settlement. The Court noted that this was a fundamental economic practice, and a building block of the modern economy. The patents in that case were merely a generic computer implementation that failed to transform the abstract idea into a patent-eligible invention.

Many would-be inventors have attempted to skirt this issue by claiming their invention offered improvements to the functionality of a computer or network, but rather than identifying a specific technological improvement, merely relied on generic computer technology, or off-the-self components used in they way there were designed to be used. Sometimes clever patent attorneys draft claims involving general computers at the component level to make them sound more sophisticated such as describing an “information management system” with a “central processing unit” being attached to “random access memory unit” and a “display device.” These patent are not fooling anyone anymore. The new two-step analysis offered by the Supreme Court created a framework for analyzing these patents that often resulted in a finding that the patent was not even eligible for patent protection.

The takeaway is that if the patent merely describes a desirable result or function produced by using generic technology, then it is not really improving computing capabilities or functionality and is probably just using off-the-self technology to do what had previously been done by persons using pen and paper. Thus, it is not really a new process, just a more efficient way of doing an old process. If this is directed in an abstract way, it is not eligible for patent protection. Therefore, before deciding to enforce a patent—particularly if it is broadly drafted and was issued prior to 2014—it should be tested against the current standard of eligibility.

For more information about patent litigation, see our Intellectual Property Litigation and Industry Focused Legal Solutions pages.

This article has been provided for informational purposes only and is not intended and should not be construed to constitute legal advice. Please consult your attorneys in connection with any fact-specific situation under federal law and the applicable state or local laws that may impose additional obligations on you and your company. © 2023 Klemchuk PLLC