Business method patents have been the source of controversy ever since their formal recognition by the Federal Circuit in the late 1990's.1 Since this time, practitioners, jurists and commentators have questioned the providence of allowing business method claims.
In their landmark decision eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 396 (2006), concurring Justices Kennedy, Breyer, Souter, and Stevens issued a warning to courts to be on the look out for "the potential vagueness and suspect validity" of business method patents. More recently, the Federal Circuit has decided to reconsider its precedent regarding business method patents, in the case of In re Bilsky, where the Federal Circuit voted to review en banc the fundamental issue of "[w]hether it is appropriate to reconsider State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999), in this case and, if so, whether those cases should be overruled ..." In re Bilsky, 2007-1130 (February 15, 2008). One unique aspect of business method patents which clients and practitioners are well-advised to consider is the increased role of potential inequitable conduct issues with regard to such patents.
Inequitable conduct is a defense to patent infringement claims, and may be established by demonstrating:
[f]ailure to disclose material information during the patent procurement process or the submission of material false information, with the intent to mislead or deceive the patent examiner into granting the patent . . . The determination of the issue of inequitable conduct when these premises are established is within the district court's discretion, for materiality and intent must be weighed, and the consequence assessed, in light of all the circumstances. Glaverbal Societe Anonyme v. Northlake Marketing, 45 F.3d 1550, 1556-57 (Fed. Cir. 1995).
Although none of the Federal Circuit's decisions discussing business method patents have addressed the issue directly, one aspect of such patents that renders them distinct from more traditional patents is the lack of a readily-available body of prior art from which to assess the patentability of the business method claims. When an applicant applies for a patent claims involving more traditional subject areas, say within the field of semiconductor manufacturing technology, the PTO Examiner assigned to the application will have a bounty of prior patents, articles and other printed literature available to the examiner within the PTO's available databases. These materials will have been indexed to the particular subject matter of semiconductor manufacturing technology, making it relatively easy to cross-check such prior art materials to the claimed invention.
However, with respect to a business method claim, for instance the "1-Click®" method for placing a purchase order over the internet (subject of Amazon.com, Inc. v. Barnesandnoble.com, Inc., 239 F.3d 1343 (Fed. Cir. 2001)), there is no readily available and indexed "art" for methods of placing purchase orders. This absence of an available and useable body of art renders a patent examiner more dependent on the good faith disclosure by the patent applicant of the relevant prior art, with a correspondingly increased risk of inequitable conduct issues with respect to potential non-disclosures.
The defense of inequitable conduct is almost always a challenging one to prove. "The factual premises of materiality and intent must be proved by clear and convincing evidence . . ." in order to establish the inequitable conduct defense. Glaverbal , supra, at 1557. And although patent applicants have a duty of candor to disclose prior art known to them, there is no affirmative duty for that applicant to search for existing prior art. FMC Corp. v. Hennessy Indus, Inc., 836 F.2d 521, 526 (Fed. Cir. 1987). Finally, a finding of simple or gross negligence "does not of itself justify an inference of intent to deceive; the involved conduct, viewed in light of all the evidence indicative of good faith, must indicate sufficient culpability to require a finding of intent to deceive." Kingsdown Medical Consultants v. Hollister Inc., 863 F.2d 867, 876 (Fed. Cir. 1988).
In the area of business method patents, because the patent applicant is likely to have much greater knowledge of the available prior art than an examiner will have access to, the examiner necessarily must rely more on the prior art submitted by the patent applicant than in a more typical patent application within the hard sciences.2 Since knowledge about these business methods is concentrated in the practices and policies of the firms that use them, even common methods are not documented in a manner that patent examiners can consult. See, Rochelle Cooper Dreyfuss, Are Business Methods Bad For Business?, 16 Santa Clara Computer & High Tech L.J.263, 269 (2000). This creates asymmetry between the information possessed by the applicant and the PTO. Id., see also, Jay P. Kesan, Carrots And Sticks To Create A Better Patent System, 17 Berkeley Tech. L.J. 763, 767 (2002).
Business methods patents that solve problems within narrow or "cottage" industries may be especially fertile patents for inequitable conduct claims. This is because applicants who are participants in such industries are likely to have been exposed to websites and other public materials that will not be readily accessible to PTO patent examiners. When considering how to defend against a business method patent claim, practitioners would be well advised to consider the potential existence of inequitable conduct evidence within their cases, through discovery into the applicants' involvement with and/or exposure to the undisclosed prior art. Whereas in most cases such efforts are unlikely to be rewarded due to the high threshold for establishing inequitable conduct, in business method patent cases, such efforts have a good change of paying off.
Footnotes
1.The Federal Circuit first recognized the validity of business method patents in its decisions State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999).
2.As the result of this dynamic, commentators have discussed the phenomenon of business method patents being routinely issued by the PTO despite the existence of clearly anticipatory prior art. Robert P. Merges, As Many as Six Impossible Patents Before Breakfast: Property Rights for Business Concepts and Patent System Reform, 14 Berkeley Tech. L. J. 577, 589 (1999). Such commentators contend that this is partly attributed to the PTO's searchable databases being antiquated and ill-situated to the task of reviewing these applications. Peter R. Lando, Business Method Patents: Update Post State Street, 9 Tex. Intel. Prop. L.J. 403, 404-405 (2001) (citing James Gleick, Patently Absurd, 2000, http://www.around.com/patent.html ).
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