Mid-Atlantic Health Law TOPICS

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Are Your Business Methods Patentable?

 Patent protection may now be available for certain types of business methods that previously might have been unprotectable. A recent court decision opened the door for companies, including those in the health care field, to protect their "methods of doing business," and to stop others from copying such methods if they are unique and novel.

A patent grants the right to prevent others from making, using or selling that which is patented. To be patentable, an invention must be useful, novel and non-obvious. The invention must also either be a process, machine, object made by humans or machines, composition of matter, or a new use of any of the foregoing.

A. State Street Bank The new legal development in this area arises from the case of State Street Bank & Trust v. Signature Financial Group. The court in that case held that methods of doing business may be patentable as "processes," so long as they produce a useful, concrete and tangible result. More specifically, the court found that a financial institution's computerized system for managing mutual fund investments was patentable. Moreover, in reaching this conclusion, the court in State Street Bank specifically relied on two prior cases involving health care inventions, one of which was patentable and one of which was not.

On the one hand, the court cited a case that determined that a system for aiding a neurologist in diagnosing patients was not patentable, because it was just a memory device that did not produce any new tangible result. In contrast, a machine that transformed electrocardiograph signals from a patient's heartbeat, by performing a series of mathematical calculations, produced a useful, concrete, and tangible thing, a report on the condition of the patient's heart, and was, therefore, patentable.

B. Prior Silent Use

Each patentable business practice also must be shown to be novel. Businesses seeking patent protection for business methods may often encounter a serious hurdle, because someone else may already be using the same business practice.

Further, it is very possible that many companies have been silently employing the same business methods for years, under a cloak of trade secret protection. Ironically, the understandable desire to keep such methods confidential may actually jeopardize the silent user's ability to continue practicing its business method. A subsequent user might use the same business method, claim it as "new," and patent it. If prior users have kept their business methods confidential as trade secrets, there might be little public documentation that would assist the first silent user's invalidation of the subsequent user's business method patent on the grounds that the method is not new. Prior but non-public inventors may have to yield to later inventors who obtain a patent.

C. Implications

This trend in intellectual property protection dictates that health care entities should establish standards governing the development of "method of business" inventions. Even if you previously have not thought of your enterprise as producing patentable inventions, you should now:

  1. Consider requiring employees and independent contractors to assign ownership of any inventions to your company.
  2. Consider documenting employees' development efforts, possibly by requiring them to record their efforts in bound notebooks dated by supervisors. This documentation will assist you in defeating others' claims of earlier invention.
  3. Consider commissioning a patent search to determine whether your business method has been patented by someone else; if it has, you could be liable for treble damages and attorney's fees, and could face an injunction.
  4. Consider the advantages of maintaining your business practices as trade secrets, patenting them, or disclosing them (thereby precluding others from obtaining exclusionary rights to such practices).
  5. Consider reviewing contracts with software suppliers and other consultants to ensure that the contracts contain warranty and indemnification provisions that cover patent infringement.
  6. Consider the difficulty in monitoring others' infringement of business method patents, since business methods are rarely publicized.
  7. Consider the cross-licensing arrangements and possible licensing profits that could result from developing a patent portfolio.

State Street Bank may have uncovered a new asset for many businesses. You should now consider if one or more of your business methods is such a useful, novel and non-obvious asset.