Monday, October 29, 2007Tracking innovationPatent rights in service industriesBy Je� Young, Special to the Daily Report

Many whose comfortable status quo has been disrupted by the advance ofbusiness method patents say patents should be limited to industrial and high-techinnovations. For generations, typical commercial enterprises have freely copiedcompetitors ’ new product o�erings and marketing approaches. Purchasedproducts or computers might be patented, but the supplier dealt with any patentinfringement allegations.

But now the center of gravity o� nnovation in the economy is shifting, as the valueof intangible corporate assets has overtaken that of bricks and mortar. The patentsystem has adapted, based on the 1998 State Street Bank decision of theFederal Circuit Court of Appeals, in which business methods were foundpatentable. Creative business minds, not just scientists and engineers, are takingadvantage to protect worthy ideas against copying for the limited life of a patent.In fact, the U.S. Patent and Trademark O�ce must cope with a deluge of patentapplications for inventions in �nancial and other “non-technical ” industries. Thebanking, securities and insurance industries have seen some companies commitquickly to a strategy of building patent portfolios ahead of their competitors toboost their competitive advantage. E-commerce, marketing and education alsoare areas o� ncreased patent activity.

A business method for patent purposes is any improvement in organizing oroperating a business, from corporate structure to internal procedures tomarketing approaches.

Recently issued patents illustrate the type o� nventions the Patent O�ce now willapprove. Bancorp Services has obtained a patent (7,249,037) for a method formanaging life insurance policies that includes a stable value protectedinvestment. Infringement of the patent appears to require speci�ed calculations ofmanagement fees and investment values related to tracking, reconciling andadministering life insurance policies in separate accounts. GE CorporateFinancial Services obtained a patent (7,254,558) for a method of prioritizing debtcollections. A speci�c equation calculates a collection priority value for each debtbased on the number of days past due, the value of the debt, the customer’s totaloutstanding balance, the customer’s credit score, the customer’s internalpayment history, the number of days since an action due date for the debt andthe total number of open items for that customer.

Turning to di�erent service industries, World Picom Corp. of Japan has obtained a U.S. patent (7,257,547) for arestaurant occupancy managing system using portable table top terminals into which customers can enter their dinnerorders. Combining educational and marketing objectives, Tabula Digita of New York obtained a patent (7,257,367) fora method for rewarding educational accomplishment by a person not eligible to open a credit account. A major�nancial services company opens an account to hold the person’s reward credits and secures payment to allow theperson to purchase items from vendors who provide the person’s purchase history data to the �nancial company formarketing purposes.

Related patent links:

• Patent # 7,249,037

• Patent # 7,254,558

• Patent # 7,257,547

• Patent # 7,257,367

Je� Young is the senior patentprosecution attorney in Alston &Bird ’s Atlanta o�ce and co -leader of the �rm ’s BusinessMethod/E -Commerce MarketingTask Force. He can be reachedat (404) 881-7857 orje�[email protected].

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Unlike many business method patents, the invention of the Tabula Digita patent can be implemented without acomputer. However, a recent decision of the Federal Circuit Court of Appeals suggests that such inventions areeligible for patenting only if they involve a machine or transform a tangible material from one form to another. As aresult, the new corps of business method inventors may have to seek patents on their inventions integrated intocomputer systems or networks.

Advocates of the open source software approach tend to oppose business method patents, although some largesoftware companies have a foot in both camps, participating in open source while seeking patents on importantapplications. Opponents of patents on tax strategies have gone so far as to introduce legislation in Congress thatwould ban patents on tax planning methods, except tax preparation software and other tools used solely to domathematical calculations or prepare returns.

Much of the protest against business method patents has focused on allegations that the Patent O�ce is issuing“bad” patents, too many of which describe long-standing business practices. The Patent O�ce did require time toadjust to examining business related inventions. But in response to criticism, the Patent O�ce then tightened itscriteria so much that the allowance rate for business method patents has dropped to 11 to 20 percent as compared tojust under 50 percent overall. To handle the volume of applications, the Patent O�ce is hiring many new examinerswith business backgrounds.

No valid patent can be issued for concepts that would have been obvious to a person of ordinary skill in the �eld. TheSupreme Court, in KSR Int’l Co. v. Tele�ex Inc., recently made the obviousness test tougher for inventors. Patentexaminers, judges and juries will be looking more than in the past at the common sense of skilled persons and notingwhen a combination o� amiliar elements with known methods simply yields predictable results. Inventions fortechnological advances that would occur in the ordinary course given market demand, without “real innovation, ” willnot pass the test.

Also, the Federal Circuit decisions noted above may restrict the extent to which an inventor can rely on the creativebusiness method aspects of a computer system to show it is not obvious.

Already a court has invalidated a business method patent using the court’s guidance in KSR . In Advanceme Inc. v.RapidPay LLC, the U.S. District Court for the Eastern District of Texas, in August, 2007, considered a patent for acomputerized method for securing debt with future credit card receivables. After considering evidence of severalearlier �nancial products along the same lines, the court found that the invention before it was merely a variation ofprior techniques prompted by market forces.

However, many patents are valid. Proving a patent invalid requires clear and convincing evidence, preferablyevidence of prior knowledge not considered by the Patent O�ce in granting the patent. Thus, the new patentenvironment poses risks to the unwary. In addition to Advanceme Inc., several owners of business method patentshave brought suits to enforce their patents. Also “patent trolls” have targeted �nancial institutions, asserting patents inareas such as automating call center and stock market trading.

Every Penny Counts Inc., an “intellectual property company, ” has sued major credit card companies alleging that“open” and “closed ” prepaid card programs infringe its patent. An earlier suit pitched TradeCard Inc., against banksover a patent for an electronic tool that facilitates global trade letter of credit and open account transactions. PayPal, aunit of eBay, sued a bank for conducting �nancial transactions over the Internet in a way allegedly infringing a PayPalpatent for an online bill payment system.

A company bene�ts from understanding the dual role of owning patent rights— o�ensive and defensive. Patents canbe used o�ensively to protect a company ’s competitive advantage or to generate signi�cant revenue throughlicensing of the patented invention. Defensively, owning patent rights may help to deter a competitor from bringing asuit when it fears a counterclaim for patent infringement. Also, cross-licensing of patents can provide a basis forsettling commercial disputes. Some management teams and boards of directors have taken steps to protectcorporate inventions and prepare to avoid liability for patent infringement as part of their corporate stewardshipresponsibilities.

Companies facing a more patent-rich competitive environment would be wise to explore the following steps:

1. Assess where patent barriers to competition are located and who controls them.

2. Implement online watching searches for competitor patents.

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3. Conduct freedom to operate studies for proposed products.

4. Map industry patents to minimize risk o� nfringement and focus e�orts to obtain patents on areas that are notalready blanketed with patents.

5. Train personnel in patent law basics.

6. Find and protect innovations by business people in the organization.

JEFF YOUNG is the senior patent prosecution attorney in Alston & Bird’s Atlanta o�ce and co -leader of the �rm ’sBusiness Method/E-Commerce Marketing Task Force. He can be reached at (404) 881-7857 orje�[email protected].

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