Marketers See Reason for Hope or Dismay in Supreme Court Patent Ruling

Posted by Paul Christ June 29, 2010

Labels: Legal Issue in Marketing, Trends

Supreme Court Hedges on Business Method Patents (CNET News)

Supreme Court Decision on Business Method Patents Our recent post covering the value of patents as a form of intellectual property protection only scratches the surface of this complicated area. While most marketers view these issues with a glazed look on their faces, the implications of intellectual property are significant. For instance, another intellectual property area receiving considerable media coverage, and one marketers should be well versed, is a specific type of patent - the business method patent. Many marketers have been awarded these patents including Amazon for its “1-click purchase” process, Yahoo for delivering advertisements based on keyword searching, and Priceline for its “name your own price” bidding method.

The fact business processes, and in particular marketing methods, are eligible for patent protection is often not well understood by most marketing professionals. Such lack of awareness may cause significant problems on two fronts. First, marketers who are not aware that patents may be obtained on marketing methods could be giving away intellectual property rights and with it competitive advantage, including substantial loss of revenue. Second, and perhaps more important, a lack of understanding of business method patents may result in infringement lawsuits that could devastate a business.

Marketers who are aware of the power of patents often have the misconception that patents can only be obtained on an invention of a tangible item. However, the 1998 court decision in the State Street Bank & Trust Co. v. Signature Financial Group, Inc. case changed the patent landscape by allowing patents to be obtained for how a business function is performed, such as explaining the steps in how a business process is carried out.

Over the next 10 years an enormous number of companies were granted U.S. patents for business method including many covering marketing methods. However, marketers and others seeking legal protection for their methods faced a roadblock in 2008 when a U.S. Court of Appeals ruled that a business method must meet the test of “machine or transformation” in order to be patentable. Essentially, the test looks at whether the patent process requires or is tied to a machine (e.g., is a new type of equipment), or whether it changes something from one form to another (e.g., changes a raw material into something new). This ruling effectively blocked business methods patents that solely describe a process by which business is done.

But now things may be changing again, and the business method patent based on process alone may not be totally dead. As discussed in this story, the U.S. Supreme Court rejected the U.S. Court of Appeals’ limits on business method patents. The result of this decision is likely to lead to another wave of businesses submitting business method patent applications and, of course, a wave of lawsuits by patent owners. For these reasons, marketers should pay close attention.

Patents have been granted for the process of exercising a cat with a laser pointer, for reserving office bathrooms, and for enticing customers to order more food at fast-food restaurants. A patent was even granted for the process of obtaining a patent. In 2007 alone, the Patent Office received more than 10,000 applications for business method patents. The office has a backlog today of more than 600,000 applications overall.

Given the 5-4 Supreme Court vote, how, confident should marketers be that business method patents will remain viable over the next 10 years?

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