Stephen Kunin recently provided the U.S. Patent and Trademark Office perspective on the requirements for patenting business methods. Mr. Kunin who is the Deputy Commissioner for Patent Examination Policy at the PTO spoke at the American Bar Association's 2000 Summer Intellectual Property Law Conference held in Boston.

The 1998 State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368, decision and the rapid growth of e-commerce have combined to heighten awareness of the economic opportunities created by business method patenting among attorneys, clients and the general public. In State Street, the Court of Appeals for the Federal Circuit ("CAFC") rejected the methods of doing business exception to patentable subject matter. The court found that an apparatus claim directed to a data processing system for implementing an investment structure qualified as patentable subject matter.

The preliminary injunction issued by the federal district court in Amazon.com v. Barnes and Noble, 73 F. Supp.2d 1228, provided a clear display of the potential reach of business method patents in e-commerce. The preliminary injunction which issued in December 1999 forced Barnes and Noble to stop using a one click on-line purchasing method in the midst of the busy holiday shopping season.

Mr. Kunin advised that claims should not be categorized as methods of doing business but should be treated like any other process claim. He also indicated that the PTO will rely on the practical application test to determine if claims targeting business methods include patentable subject matter. The practical applications test requires that the claimed subject matter provide a practical application in the technological arts.

Mr. Kunin referenced both the State Street decision and AT&T Corp. v. Excel Communications, 172 F. Supp. 1352, for rejecting the idea that mathematical algorithms and business methods are per se unpatentable. In Excel the CAFC applied State Street to overturn a summary judgement finding for an accused infringer. The district court had concluded that claims directed to a telecommunications method that simply manipulated data to produce additional data were not patentable subject matter. The method produces information that facilitates differential billing of long.distance calls made by a long distance carrier's subscriber. The CAFC panel in Excel determined that, "Because the claimed process applies the Boolean principle to produce a useful, concrete, tangible result without pre-empting other uses of the mathematical principle, on its face the claimed process comfortably falls within the scope of section 101." Mr. Kunin echoed the court when he indicated that the practical application test is satisfied when the claimed invention achieves a concrete, useful and tangible result.

Mr. Kunin then concluded that the search for a practical application is another way of determining if the claimed invention has a specific and substantial utility. He outlined the PTO's preferred methodology for determining if the practical application test is satisfied. The Patent Examiner will: 1) look for asserted utility in the written description; 2) analyze claims using standard claim interpretation rules; 3) identify any significant functionality which achieves concrete, useful and tangible results. The Examiner's findings will then be clearly communicated in their office action.

Mr. Kunin explained that the practical application test is met when a claimed invention meets the requirements of a safe harbor. Specific machines or items of manufacture meet the safe harbor requirements. Processes fall within the practical application safe harbor where they involve: 1) pre-computing measurement of real world parameters; or 2) post computing operation on physical subject matter.

Further, where methods including business methods involve purely the manipulation of data the PTO will find the significant functionality requirement has been met where the data transformation provides "real world benefit". The final share price produced by the method in State Street provides one example. Other examples include data manipulation providing faster data transmission and data encryption providing secured data transmission.

In a related development, on July 19, 2000, the PTO issued a white paper entitled, "Automated Financial or Management Data Processing Methods (Business Methods)". The paper places today's interest in business method patenting in context by reviewing the long history of business method patents. Additionally, the paper describes PTO efforts to keep pace with change in the business method arts wrought by the maturation of microprocessor based data communication and the Internet. The paper also provides a detailed description of PTO efforts at improving examination quality through training and new internal procedures.