Avoiding Prior User Defense to Business Method Patents

The American Inventors Protection Act of 1999 created a new defense to patent infringement for any claim directed to a "method," with that term being defined in the Act as a "method of doing or conducting business." Unfortunately, the Act itself does not define the term any further, and both the courts and the Patent Office have recognized that it is extremely difficult to differentiate claims directed to "business methods" from other claims. While the defense is not transferable and cannot itself be used to invalidate patents, it is nonetheless obviously very important to obtain patents with at least a few claims not covered by the defense.

So, what is a "method of doing or conducting business" for purposes of this new law? While the State Street Bank decision has been described as the decision that made business methods patentable, the court actually stated that it had never invoked the business methods exception to deem an invention unpatentable and that since the 1952 Patent Act, such methods should have been subjected to the same standards of patentability as other methods. Ultimately, the court found that, "[w]hether the claims are directed to subject matter within § 101 should not turn on whether the claimed subject matter does "business" instead of something else."

The court also noted that it agreed with the Patent Office when it removed the business methods exception from the Manual of Patent Examining Procedure. In addition, before the State Street Bank decision, the 1996 Examination Guidelines for Computer Related Inventions from the Patent Office stated that "Office personnel have had difficulty in properly treating claims directed to methods of doing business. Claims should not be categorized as methods of doing business. Instead such claims should be treated like any other process claims." According to the court in State Street Bank, "[w]e agree that this is precisely the manner in which this type of claim should be treated."

Thus, there is a definite recognition by the court and the Patent Office that the term "business method" is not easily defined. Unfortunately, the Legislature did not help provide a better definition when it created this new prior user right defense to infringement that now rests upon deciphering that very term. Besides not providing a definition in the Act itself, the Congressional Record further confuses matters.

For example, one statements is as follows: "...this subtitle focuses on methods for doing and conducting business, including methods used in connection with internal commercial operations as well as those used in connection with the sale or transfer of useful end results -- whether in the form of physical products, or in the form of services, or in the form of some other useful results; for example, results produced through the manipulation of data or other inputs to produce a useful result....".

Likewise, "the term "method" is to be construed broadly. ... "method" includes any internal method of doing business, a method used in the course of doing or conducting business, or a method for conducting business in the public marketplace. It includes a practice, process, activity, or system that is used in the design, formulation, testing, or manufacture of any product or service. The defense will be applicable against method claims, as well as the claims involving machines or articles the manufacturer used to practice such methods (i.e., apparatus claims).

In addition, "[t]he issue of whether an invention is a method is to be determined based on its underlying nature and not on the technicality of the form of the claims in the patent. For example, a method for doing or conducting business that has been claimed in a patent as a programmed machine, as in the State Street case, is a method for purposes of Section 273 if the invention could have as easily been claimed as a method. Form should not rule substance."

However, other Congressional comments suggest that the term should be construed very narrowly in view of the history of the legislative process, much like the "prosecution history" of the Act itself. Besides suggesting that the legislation is limited to providing a defense to patents that otherwise would not have issued prior to State Street Bank, it was noted that "[i]n the patent bill that passed the House last year, all patents were subjected to prior user rights. This Congress, we were initially able to limit this title to processes and methods only. More recently, however, we were able to even further limit this Section to business methods only. This is an important limitation in scope to take note of because now Title II will not affect the vast majority of independent inventors and small business. A first inventor defense that is strictly limited to business methods will severely reduce its applicability."

Despite the confusion, there are still a few suggestions that can be made to avoid the defense. First, separate sets of claims can help create a claim differentiation argument. In other words, a patent with a first group of method claims including terms blatantly related to business could be distinguished from other groups of claims without such terms. Such other groups could also include method, apparatus and article of manufacture claims to further accentuate the distinction.

In addition, it should be remembered that one legislative comment suggested that the defense would apply if an invention "could have as easily been claimed as a method." Thus, if possible, apparatus and article of manufacture claims should be included that do not simply repeat corresponding method steps. In addition, since most structural limitations could be expressed in terms of method steps "providing" or "configuring" such structure, a court would hopefully read at least some meaning into the legislative words "as easily." Consequently, purely structural limitations, as opposed to functional limitations, are arguably not "as easily" claimed as a method.

Moreover, it could also be argued that claims that would clearly have been allowable before State Street Bank are not covered by the defense. Thus, article of manufacture claims and other claims that do not appear to otherwise be mere mathematical algorithms or depend exclusively on the existence of a claimed practical application might escape the reaches of the defense.

In conclusion, it is unfortunately anyone's guess as to how the courts will eventually interpret the new statutory term "method of doing or conducting business." While we can at least be thankful that the term only applies to a defense which is also substantially limited by other terms, as opposed to being a direct limitation on section 101 as some are still pursuing in Congress, the term is so indefinite that several angles of attack should be used to avoid the prior use defense.