Patentable Business Methods. Business methods have been explicitly patentable in the United States since the 1998 Court of Appeals decision in State Street Bank & Trust Co. v. Signature Financial Group, Inc. 47 USPQ2d 1596, 1604 (Fed. Cir. 1998).

The U.S. Supreme Court on 19-JUN-2014 issued a decision in Alice Corp. v. CLS Bank International, 134 S. Ct. 2347 (2014) (No. 13–298) that effectively makes it very difficult to obtain any patent on a business method or on a software application.

Since the Alice decision and through 08-JUN-2016, about 66% of 559 patents subject to Federal Court decisions have been invalidated on patentability issues under section 101 of title 35 the U.S. Code. In addition, the monthly patent application rejection rates on §101 patentability for the U.S. Patent and Trademark Office’s (USPTO) Technical Centers 3620, 3680, and 3690 were over 85% for most of the year 2015.

In addition, as of 31-MAY-2016, the USPTO Patent Trial and Appeal Board (PTAB) has invalidated some or all of the claims in 119 of 122 patents having a final written decision under Covered Business Methods review; and of 988 patents reaching a final written decision under Inter Partes Review, 846 had some or all of the claims invalidated.

Here is Why this Upheaval is Occurring. The Supreme Court in Alice made clear that the presence of a computer specifically programmed to implement an algorithm will not impact one way or the other whether a business method is patentable:

“We conclude that the method claims, which merely require generic computer implementation, fail to transform that abstract idea into a patenteligible invention. . . . Mayo claimed a method for measuring metabolites in the bloodstream in order to calibrate the appropriate dosage of thiopurine drugs in the treatment of autoimmune diseases . . . [but] the process could be carried out in existing computers long in use. . . Given the ubiquity of computers, see 717 F. 3d, at 1286 (Lourie, J., concurring), wholly generic computer implementation is not generally the sort of ‘additional featur[e]’ that provides any ‘practical assurance that the process is more than a drafting effort designed to monopolize the [abstract idea] itself.'”

So, regardless of the presence of a computer in the claims, the invention will not be considered a patent eligible machine, but rather to determine if an invention is even eligible to be considered for a patent, the claims will be evaluated under a two-part test:

First, we determine whether the claims at issue are directed to one of those patent-ineligible concepts [laws of nature, natural phenomena, and abstract ideas]. . .

If so, we then ask, “[w]hat else is there in the claims before us?” . . .

To answer that question, we consider the elements of each claim both individually and “as an ordered combination” to determine whether the additional elements “transform the nature of the claim” into a patent-eligible application. . .

We have described step two of this analysis as a search for an ” ‘inventive concept’”—i.e., an element or combination of elements that is “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.”

The court seemingly requires for patentability that any method claim be operable on an industrial operation or it will be considered an abstract idea:

In Diehr, 450 U. S. 175, by contrast, we held that a computer-implemented process for curing rubber was patent eligible, but not because it involved a computer. The claim employed a “well-known” mathematical equation, but it used that equation in a process designed to solve a technological problem in “conventional industry practice.”

A claim that recites an abstract idea must include “additional features” to ensure “that the [claim] is more than a drafting effort designed to monopolize the [abstract idea].”

While the author of the Alice opinion (Justice Thomas), quoting from an earlier Supreme Court decision (Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U. S. 66), warned that this new holding could be taken too far, there is a strong chance that the USPTO will indeed take it too far–

At the same time, we tread carefully in construing this exclusionary principle lest it swallow all of patent law. Mayo, 566 U. S., at ___ (slip op., at 2), 132 S.Ct. 1289, 182 L.Ed.2d 321 (2012) . At some level, “all inventions . . . embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas.” Id., at ___ (slip op., at 2).

Indeed, all patents can be summarized as a combination of an “inventive concept” or scientific principle plus known components. The earlier Mayo decision and the current Alice decision direct that one must apply the novelty analysis on a component-by-component basis. Thus, this outlines an application review process where the examiner, or a reviewing court, is given carte blanche to make an arbitrary decision of what survives to be patentable.

The Supreme Court in Alice then reaffirmed prior holdings finding ineligible to be even considered for a patent, claims for:

  1. an algorithm for converting binary coded decimal numerals into pure binary form;
  2. a mathematical formula for computing “alarm limits” in a catalytic conversion process;
  3. a method for hedging against the financial risk of price fluctuations;
  4. the concept of intermediated settlement because it is a fundamental economic practice long prevalent in our system of commerce;
  5. simply appending conventional steps, specified at a high level of generality, was not enough to supply an inventive concept;
  6. an algorithm implemented on a general-purpose digital computer. . . . Because the algorithm was an abstract idea. . . the claim had to supply a new and useful application of the idea in order to be patent eligible;
  7. abstract ideas [which] cannot be circumvented by attempting to limit the use of [the idea] to a particular technological environment.

Court decisions since Alice have enlarged the scope of “abstract ideas” to include fundamental economic practices, methods of organizing human activities, mathematical algorithms, ideas themselves, and lastly mental steps. :

The Supreme Court effectively dismisses the proposition that a computer programmed to do something specific is a patentable machine. Previous Federal Circuit law was that a computer that is unprogrammed is simply a paperweight and that it becomes something patentable when it is programmed with an algorithm to perform a useful purpose. (See In re Alappat, 33 F.3d 1526, 1545 (Fed. Cir. 1994) (en banc)“a general purpose computer in effect becomes a special purpose computer once it is programmed to perform particular functions pursuant to instructions from computer software.”) The Supreme Court instead requires looking to the steps performed to see if they are well known (seemingly confusing obviousness with patentability), finding that the claims in question for the concept of intermediated settlement are regularly done on generic computers:

In short, each step does no more than require a generic computer to perform generic computer functions.

Three members of the Court go far beyond the main opinion, presaging perhaps how the USPTO and the lower courts will react to the majority opinion. These three members start off in a concurring opinion written by Justice Sotomayer stating:

“I adhere to the view that any “claim that merely describes a method of doing business does not qualify as a ‘process’ under §101.” Bilski v. Kappos, 561 U. S. 593, 614 (2010) . . .

UPDATE: As of 08-JUN-2016, the Alice decision has resulted in about 64% of about 15,392 patent claims challenged under 35 U.S.C. § 101 to have been invalidated in U.S. Federal Courts. For the 40 cases that reached the Court of Appeals for the Federal Circuit, only 2 cases survived: DDR Holdings v., 773 F.3d at 1258-59 (Fed. Cir. 05-DEC-2014) and Enfish, LLC v. Microsoft Corp. (Fed. Cir. 12-MAY-2016).

The DDR Holdings decision involves claims to an invention fundamentally rooted in improving computer technology. Such inventions are patentable if they (1) disclose a problem ‘necessarily rooted in computer technology,’ and (2) claim a solution that (a) not only departs from the ‘routine and conventional’ use of the technology, but (b) is sufficiently specific so as to negate the risk of pre-emption.”

The Enfish decision stated that certain claims directed to improvements in computerrelated technology, including claims directed to software, are not necessarily abstract. The court specifically noted that some improvements in computer-related technology, such as chip architecture or an LED display, when appropriately claimed, are undoubtedly not abstract. Explaining that software can make non-abstract improvements to computer technology just as hardware can, the court noted that claims directed to software, as opposed to hardware, also are not inherently abstract.

The Court of Appeals for the Federal Circuit handed down a decision on 03-SEP-2014 in buySAFE v. Google (2013-1575). The opinion, from a three judge panel of the Court, applied the Alice decision to invalidate a patent claiming process steps and a computer readable medium device guaranteeing a party’s performance of its online transaction. The panel held that the claims are to an abstract idea because a transaction performance guarantee is “beyond question of ancient lineage.” The court dismissed the patentee’s arguments that the claims were patentable because they included a computer and computer program. The court found the computer components to be generic terms and thus insufficient to meet Alice’s patent eligibility test. The court explained that the inventive concept must be “in the physical realm of things and acts – a ‘new and useful application’ of the ineligible matter in the physical realm.”

A 01-JUL-2015 article published as a guest post on another law firm’s web site discusses lower courts’ implementation of Alice and propensity to invalidate existing software and business method patents.

Perhaps emphasizing that a determination of unpatentable subject matter is highly subjective, the U.S. Patent and Trademarrk Office guidelines issued 30-JUL-2015 says that evidence is not needed as a prerequisite to an examiner’s patent eligibility rejection.

“The courts consider the determination of whether a claim is eligible (which involves identifying whether an exception such as an abstract idea is being claimed) to be a question of law. Accordingly, courts do not rely on evidence that a claimed concept is a judicial exception, and inmost cases resolve the ultimate legal conclusion on eligibility without making any factual findings.” Footnote omitted.


  1. Cybersource Corp. v. Retail Decisions, Inc., 654 F.3d 1366, 1370, 1373 (Fed. Cir. 2011) (holding that “a method for verifying the validity of a credit card transaction over the Internet” was directed to an abstract idea or unpatentable mental process);
  2. Fort Props., Inc. v. Am. Master Lease LLC, 671 F.3d 1317, 1318, 1320 (Fed. Cir. 2012) (concluding that a patent claiming an “investment tool designed to enable property owners to buy and sell properties without incurring tax liability” was drawn to an abstract idea);
  3. Dealertrack, Inc. v. Huber, 674 F.3d 1315, 1331, 1334 (Fed. Cir. 2012) (determining that a computer-implemented method of managing a credit application was drawn to a patent-ineligible abstract idea);
  4. Bancorp Servs., LLC v. Sun Life Assurance Co. of Can., 687 F.3d 1266, 1277 (Fed. Cir. 2012) (holding that a patent claiming “systems and methods for administering and tracking the value of life insurance policies in separate accounts” was directed to an abstract idea);
  5. Accenture Global Servs., GmbH v. Guidewire Software, Inc., 728 F.3d 1336, 1339, 1342 (Fed. Cir. 2013) (determining that claims to automated methods for generating task lists to be performed by an insurance organization were directed to a patent-ineligible abstract idea);
  6. Ultramercial, Inc. v. Hulu LLC, 772 F.3d 709, 712, 714 (Fed. Cir. 2014) (holding that a computer- and Internet-based implementation of displaying an advertisement in exchange for access to copyrighted media was directed to an abstract idea);
  7. buySAFE, Inc. v. Google, Inc., 765 F.3d 1350, 1351, 1355 (Fed. Cir. 2014) (determining that a claim directed toward guaranteeing a party’s performance in an online transaction was directed to an abstract idea);
  8. OIP Techs., Inc. v., Inc., No. 2012-1696, 2015 WL 3622181, at *3-4 (Fed. Cir. June 11, 2015) (holding that methods of offer-based price optimization in an e-commerce environment were drawn to an abstract idea);
  9. Smart- Gene, Inc. v. Advanced Biological Labs., SA, 555 F. App’x 950, 951, 954 (Fed. Cir. 2014) (determining that a computer- implemented method for “guiding the selection of a therapeutic treatment regimen for a patient with a known disease or medical condition” was directed to an abstract idea);
  10. Planet Bingo LLC v. VKGS LLC, 576 F. App’x 1005, 1006 (Fed. Cir. 2014) (determining that claims to a computer- aided management system for bingo games was directed to an abstract idea).
  11. In re Ray Smith (Fed. Cir. March 2016) (claims directed to rules for a variation of Blackjack are directed to the abstract idea of a “method of conducting a wagering game.”)
  12. Wireless Media Innovations v. Maher Terminals, LLC, Global Terminal & Container Services, LLC, (Fed. Cir. February 8, 2016) (Not Patentable — computer program adapted for inventory management in the shipyard industry, even if the claimed management system requires the physical transportation of inventory in the facility).

Thus, under the current state of the law as of 04-SEP-2014, the risk is high that ordinary business method claims and software algorithm claims that do not operate on an industrial process will be found to be unpatentable, or if having been issued in a patent, then to be invalid as directed to unpatentable subject matter.

If the method is patent eligible, then the usual tests are considered. As with other inventions, a business method invention to be patentable must be new, useful, non-obvious, and not indefinite.

Particularly vulnerable inventions involve adding a computer for what might otherwise be performed in the mind of an individual. For example, “a claimed process wherein all of the process steps may be performed entirely in the human mind is obviously not tied to any machine and does not transform any article into a different state or thing. As a result, it would not be patent-eligible under § 101.”

The kind of patent involved. Business method patent applications are filed as utility patent applications.

Business method inventions are not categorized in “business method” claims, but rather they are treated like any other invention claiming a process in a series of steps. However, most fall within patent classification 705 and in that classification, about 5,000 U.S. patents issued in the 5 year period spanning 2001 to 2005.

According to the United States Patent and Trademark Office, automated financial/management business data processing method patents did not suddenly spring into being in 1998.  Rather, the first cited are 1889 patents (395,781; 395,782; and 395,783) involving automated the tabulating and compiling of statistical information for businesses and enterprises.


Defining Business Methods. Business methods are loosely defined.  Generally they may be categorized as methods for performing data processing or calculation operations in the–

  • practice, administration or management of an enterprise;
  • processing of financial data; or
  • determination of the charge for goods or services.


Rigorous Reviews. Partly because of the criticism of allowing too many questionable business method patents and partly because of the tendency of applicants to seek broad claims in their applications, the United States Patent and Trademark Office subjects business method patent applications to two reviews before allowing an application:  the first by the examiner who scrutinizes the prior art (secret U.S. patents, patent applications (domestic and foreign), and non-patent literature); and the second by a select group of reviewers (composed of management, quality review examiners, special program examiners, and others).

Rejection Rate and How Long It Takes.  As a result of rigorous reviews, about 84% of electronic commerce business method applications and about 43% of the business method patent applications overall, are rejected by the Patent Office.  This compares to a rejection rate of about 35% of other patent applications.  Additionally, the processing time for a business method application is about three-and-a-half years compared with about two years for others.

Rest of the World. Business method patents in most of the rest of the world face even more significant hurdles than in the United States.  Generally, these relate to an invention having a “technical” component.

The European Patent Office, acting for 32 member states, rejects patent applications which do not have a “technical character.” An invention must relate to a “technical” problem and have “technical” features. While “technical” is not defined in the law, it has been interpreted to require a physical feature that is useful to solve an industrial problem. Article 52 of the European Patent Convention contains an explicit bar to patenting “methods of doing business.”

Perhaps a bit more liberal is Australia, where a process claim on a business method must have “A physical effect in the sense of a concrete effect or phenomenon or manifestation or transformation,” according to Federal Court of Australia – Full Court in Grant v Commissioner of Patents (FCAFC 120, July 18, 2006).

However, the Australian Patent Office issued an opinion on 21-OCT-2010 in a case titled “Iowa Lottery” that cast doubt on the treatment of business method claims unless carefully crafted to avoid simple business methods and include operability of a machine, such as a computer. The Deputy Commissioner of Patents concludes (at para 17) that: “As I indicated in my decision in Invention Pathways Pty Ltd [2010] APO 10[,] I do not believe there is any authority in Australian law for the proposition that the mere identification of a physical effect is sufficient for patentability.

In Japan, patentable subject matter involves “a technical idea utilizing a law of nature.”  Business methods are generally regarded as software related inventions and are considered to have a technical nature.


Patentable Business Methods. The four largest groupings of business method inventions are directed to the general business operations–

1.  Determining Who Your Customers Are, and The Products/Services They Need/Want

  • Operations Research – Market Analysis

2.  Informing Customers You Exist, Showing Them Your Products & Services, and Getting Them to Purchase

  • Advertising Management;
  • Catalog Systems;
  • Incentive Programs; and,
  • Redemption of Coupon

3.  Exchanging Money and Credit Before, During, and After the Business Transaction

  • Credit and Loan Processing;
  • Point of Sale Systems;
  • Billing;
  • Funds Transfer;
  • Banking;
  • Clearinghouses;
  • Tax Processing; and,
  • Investment Planning

4.  Tracking Resources, Money, And Products

  • Human Resource Management;
  • Scheduling;
  • Accounting; and,
  • Inventory Monitoring


Software. Most business method patents today involve a software implementation.  See the Software Patent page for more information on computer program patentability.  Visit the page on utility patent applications to understand the costs and next steps.

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