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Business method
patents are here to stay. However,
sophisticated businesses with numerous in-house attorneys have yet to
understand the risks created by business method patents. The finance and insurance industries are
particularly behind the times in their lack of appreciation of how business
method patents affect them. So are
information technology departments, sales and marketing departments of
companies in almost every industry.
The State Street
case, State Street Bank & Trust Co.
v. Signature Financial Group Inc., 47 U.S.P.Q.2d 1596, 149 F.3d 1368 (Fed.
Cir. 1998), resulted in widespread recognition (if not hype) that business
methods are subject matter eligible for patenting. Most sophisticated businesses in the finance or insurance
industries have even filed for patents, with companies like Citibank and Wells
Fargo having received dozens of U.S. patents and continuing to build sizeable
portfolios. Recognizing that business
method patents can be obtained, and obtaining them is not enough.
What is too
often ignored in these industries, and others, is an understanding of how to
manage the risks associated with business method patents. If left unmanaged, these risks can be alarming
given the costs of patent litigation, and sizeable damage awards. Tools for managing these risks are available
— they are used by all types of industries where patent protection and risk of
patent infringement exposure is a routine concern. However, these tools have yet to be incorporated into managing
risks for business-type processes. Six
key principles follow which are particularly geared to those who need to
internalize the risks and opportunities of business method patents.
1. Manage ownership
Perhaps because
business innovations have not always been seen as patentable, there is not
enough forethought given to securing ownership rights. One specific instance of this is in managing
employee expectations. While engineers
and scientists are typically required to assign any invention developed (on the
job and sometimes otherwise) to their employer, IT employees, product managers
and others business-type employees who may invent, do not always have an
employment agreement that speaks to any duties or obligations relating to
inventions. Common duties and
obligations regarding inventions include assigning patent rights and assisting
in patent prosecution and patent enforcement.
Without an agreement, a company may still own rights to the employee's
invention by operation of state law.
Yet, resolving ownership may be costly and securing voluntary
cooperation from an ex-employee may be impossible. Having a proper agreement in place first clarifies what the
expectations are and secures employees' help in assigning each patent
application to the employer and participating in patent prosecution and
enforcement if needed.
2. Identify and document innovations
Another problem
is that potentially patentable business processes are not identified, or not identified
early enough in order to procure patent protection. Patent rights in the U.S. are subject to statutory bars defined
in 35 U.S.C. § 102(b). U.S. patent
applications must be filed within one year of any public use, sale or offer for
sale of the invention. Most countries
do not have this one-year grace period and therefore patent filings to be made
before this type of activity.
Innovative business processes that are potentially patentable must be
identified early on before these statutory bar activities occur, or else the
potential for patentability is lost.
What often leads to this loss is a company's lack of a systematic method
for identifying business innovations as soon as possible. Innovations should be evaluated for
patentability prior to public release and as early in the development process
as possible. There is no requirement
that a product must be complete before a patent application can be filed.
Even if patent
protection is not pursued on the innovations identified, identifying these
innovations is useful for documentation purposes. Such documentation may be essential to establish a "prior
user" defense under 35 U.S.C. § 273, a "prior invention" defense
under 35 U.S.C. § 102(g), or a "public use" defense under 35 U.S.C. §
102(b) should someone else later be successful in procuring patent protection
on the same innovation and attempt to enforce that patent protection against
you.
3. Evaluate the right to use
Evaluating the
right to use an innovation is closely related to identifying innovations. Once an innovation has been identified, not
only can its patentability be examined, but this identification also assists in
determining whether or not use of the innovation might be in violation of someone
else's patent rights. A search can be
performed of existing patents that have claims that raise infringement
concerns. If infringement concerns
exist, then it is highly advantageous to be aware of these matters early in
order to limit or eliminate liability concerns, and to minimize business
interruption. In some cases, business
processes can be modified so as not to infringe existing patent rights. In other cases, you can obtain an
appropriate licensing arrangement while gaining a better position to
negotiate. You will be in a far better
position to negotiate a license if the need for a license is identified before
infringement has actually occurred.
4. Monitor the industry
Understanding
what is going on in one's particular industry provides employees a better
perspective for determining whether or not what they are developing is
something truly innovative. A part of
the monitoring process should include tracking the patent activity of
competitors. Monitoring does not
necessarily need to be a separate program, but should include frequent review
of issued patents or patent publications from key competitors and watching to
see if competitors are advertising their products or services as "patent
pending" or with patent numbers.
5. Transfer liability
Another method of managing liability for patent infringement is through
obtaining indemnification agreements with suppliers of products or services and
through defensive insurance policies.
When business products or services are purchased from others, make sure
that the contract contains appropriate indemnification for patent infringement
and that the contracting party has the means to make good on the
indemnification through insurance or otherwise. Even if services are outsourced, patent infringement liability is
not necessarily absolved. Indemnification
and insurance may not always be commercially viable possibilities, but
indemnification should be considered in contracting with vendors. Whether or not patent liability is a risk
that needs to be insured against should also be considered.
6. Educate employees
A final key to managing risks related to business method patents is to
educate employees. Innovators and
decision makers need to be aware of both the opportunities and the risks
associated with business method patents.
Employees in traditional business areas and information system areas
need to be conditioned to understand how patent rights can affect the business
— for better or for worse.
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