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Oct 30, 2008

Federal Court Kills Patents on Business Methods

Ed: The tEarn patent-pending is not a business process, but transformation of devices in a network.

The decade of patents on business methods looks to be ending.

Policy and Law

Ten years ago, in a case called State Street Bank vs. Signature Financial Group, a federal circuit court found that novel methods for doing business on computers were patentable. That opened the gates to a flood of “business method patents” of features like Amazon.com’s “1-Click” checkout and Priceline.com’s “name your own price” tools, which involve less technological ingenuity than ethereal inventiveness and legal muscle.

This year, the State Street ruling was challenged by a closely observed case that is generally known as re Bilski. On Thursday, the dozen judges of the United States Court of Appeals for the Federal Circuit ruled 9 to 3 to reverse the State Street ruling and end the era of business method patents.

In the ruling, the judges said that a proper test for determining patent eligibility is whether an invention is tied to a particular machine or whether it transforms a physical article. The decision will likely be appealed to the Supreme Court, but the larger question is whether the Supremes will hear Bilski or simply let business method patents die quietly. (There is some good analysis of the decision at TechdirtPatently-O and Groklaw.)

The impact of the Bilksi decision will likely be felt most in technology circles, where business method patents have been used to build start-ups and conduct cross-licensing agreements, and by small “troll” firms to legally assault large tech companies.

The tech giants “will breathe a sigh of relief,” said Kevin G. Rivette, the former vice president for intellectual property strategy at IBM. The trolls will now have considerably weaker legal ammunition, he said.

However, start-ups might be disappointed to find that the patents in their portfolio are now worth considerably less than they thought. “A lot of the dot-coms relied on this kind of patenting and thought they could go out and get royalties on them when everything else failed,” Mr. Rivette said. “You are going to see lot of patents that were considered valuable dry up. That’s not a bad thing, but it will affect some balance sheets.”

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