THIS is the second and concluding part of the article on business model patents published on March 17.

With the continued filing of patent claims on seemingly abstract ideas, American courts gradually accepted claims for patents (which though primarily based on a mathematical formula) eventually resulted in some sort of physical transformation of data.

On occasion, courts have upheld the validity of claims for a computerised cash management account system for implementing a process, which would have been unpatentable if done by hand. Similarly, claims for a record keeping system for financial accounts where the claims (relating to ``machine'') in part comprised programmed computers have been upheld.

The Court explained that granting the patent would not preclude the use of the method of doing business, but just the particular implementation of the method. However, the limits of what is a the general method and what is the particular implementation would vary greatly from case to case.

The real watershed for the patenting of business models came (in 1998) in the form of judgment of the Federal Circuit in the case of State Street Bank & Trust Co vs Signature Financial Group. This case involved a claim for the patenting of a hub and spoke accounting system for a multi-tiered partnership of funds.

Granting a favourable order, the Court reaffirmed that a computer system that transforms data into a useful and concrete result is patentable, even if the result is an intangible such as financial data and even if the system is implemented by a mathematical algorithm.

In another significant instance, Priceline.com was awarded a patent for its business method of buyer-driven auctions or reverse auctions. Another patent has been allegedly granted to Sightsound.com for a ``method for transmitting a desired digital video or audio signal stored on a first memory of a first party to a second memory of a second party''.

At present, sightsound.com has filed a patent infringement suit against cdnow.com (one of the largest music retailers on the Internet) and has issued legal notices to mp3.com, demanding a percentage of its sales as royalty for the use of patent.

Whilst this development has been welcomed by one section of the populace, there are several who are critical of where this development would lead to. There is a fair amount of confusion and ambiguity as to what extent patent protection would be given for business models. The scope of transformation and the requirement of physicality tests (though slowly becoming outmoded tests) are also not crystal clear and developing.

As a venture capitalist expressed, ``This is land grab of the obvious. What if Amazon.com had patented the idea of selling goods on the Internet? The online world would be a ridiculous place!''

It is yet too early to predict the stand that the courts would evolve, given the fact that it would eventually have to be a decision based on the realities of the Internet and the kind of exclusivity that can be given to a single person. If everyone who has a wide patent claim pursues litigation, it would have to eventually end in a shake-out and crystallisation of new intellectual property right parameters.

The only go at the moment seems to be to address the concern by narrowing the patents by tying in the statutory language of ``machines'' and ``processes'' with the requirement of physicality/transformation touchstone.

The Indian situation

Indian laws do not provide any precedent for the patent of business models. Although patents may be obtained for ``process, method or manner of manufacture'', there is no history to determine if business models have been considered as patentable subject matter.

In spite of the fact that business model patents are being granted only in the US at the moment, it may not be too premature to initiate discussion on the pros and cons of such a legal model in our country, given the explosion of the dotcoms.