An original idea

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If your business is run on original ideas, you probably know something about business method patents.

A business method patent is a patent directed to a new way of doing business. Historically, only tangible things, such as machines, were considered patentable. But as banks, human resources firms, car dealerships and the like sought to obtain patents on their innovative ways of doing business, in 1998, the U.S. patent system was changed so that business methods could be patented.

Despite the enormous possibilities presented by this significant change in U.S. patent law, equally significant difficulties presented themselves with business method patents. Under U.S. patent law, patents may only be awarded to new or novel inventions. A patent examiner in Washington makes this determination by comparing the invention to other, known inventions in the same field.

A patent can be acquired for any sort of document or tangible prototype of an invention. However, due to practical limitations on searching for documents or prototypes, patent examiners have typically searched only for already-issued U.S. patents to evaluate the novelty of an invention.

In other words, if an inventor invented a new mousetrap, the examiner in Washington examining the patent application would compare it to previously patented mousetraps. If a sufficient difference were found, the new mousetrap would be deemed novel and awarded a patent.

Herein lies the problem for business method patents. Prior to 1998, business methods were generally not patentable. Therefore, inventors did not apply for patent applications directed to business method inventions. When the law changed in 1998 and a flood of business method patents was filed in a U.S. Patent and Trademark office, examiners had difficulty finding “prior art” patents of business methods.

Many people believe that patent examiners awarded patents to business methods that were actually not novel and therefore not patentable.

A patent that has been wrongly issued by the U. S. Patent and Trademark Office can be proved invalid. An invalid patent cannot be enforced against an infringer, essentially making it powerless. A party sued for patent infringement can defend itself by proving the patent invalid during litigation.

But patent infringement litigation can be expensive, often costing more than $100,000. Another way to prove a patent invalid is by filing a proceeding the U.S. Patent and Trademark office calls re-examination. In such a case, the person filing for re-examination can set before the patent examiner other nonpatent prior art that he or she believes should have been considered when the patent was approved.

However, even re-examination can cost $10,000 to $20,000, and few people will file unless they have a significant financial interest in doing so.

The financial opportunity afforded by business method patents outweighs the problems associated with them. Most business method patents concern Internet businesses such as Amazon’s “one-click” patent on its purchasing system and Priceline.com’s patent on a reverse auction.

These companies, as well as others, have concluded that the difficulties of business method patents are justified by the enormous opportunity they represent. Roger Emerson is a shareholder in the intellectual property law firm of Emerson & Associates. He can be reached at [email protected]