Patenting of business models

Intellectual property is fast gaining importance in the growing knowledge economy. Property as conventionally understood referred to tangible property _ real estate, movable property, goods, etc. Intellectual property (IP) refers to the rights that a person has over the intangible ideas or expressions that are made out of him/her applying his mind and effort.

IP rights are broadly categorised into copyrights, trademarks, designs and patents. Like over other property, a person owning IP rights has the benefits of exclusive use and possession.

Patents are generally granted to ``inventions''. Inventions include both tangible products as well as processes. A person owning a patent over a certain product or process has the sole right to use the product or process. He/she is entitled to pursue a claim against another person using such a product or process without prior permission.

In the business world, patents have performed essentially two commercial functions i.e., creating a market barrier to other competitors and charging royalties on the licence of patents to third parties.

Business model patents are a specialised form of patents where claims are made for the exclusive rights over certain processes which are business functions. This is distinct from purely scientific functions which have been the stronghold of patents in the past.

Traditionally, patents are granted to inventions (both processes and products) based on three essential criteria:

I Novelty _ there is no prior knowledge / publication ("prior art'') of the invention.

I Utility _ the invention has a definite use value to the general populace.

I Non-obviousness _ the invention is not obvious to a person who has specialised knowledge of the field of invention.

As the law of patents developed over the years, an additional requirement of tangibility has been introduced de facto in the granting of patents.

However, over the past few years, with the rise of the Internet and commerce on the Internet, it has become imperative to afford protection to those who discover new processes and products to maximise the benefits of business operations. The lead in developing the new jurisprudence to protect this form of intellectual property has been taken by the American courts which have made express statements for the recognition of patents for business models.

Initially, in the US, patents were not given to ``methods of doing business'' and ``mathematical algorithms''. These were exceptions developed by Courts as limitations on the grant of process patents.

Very often business models involving mathematical processes were rejected as being too abstract and not being capable of being reduced to a tangible form. In many cases, the methods of doing business have not been granted patents due to the lack of physical activity. To illustrate, in one case ex parte Murray, claims for an accounting method comprising the steps for entering, sorting, debiting and totaling expenditures and printing an analysis statement were rejected on the grounds that the claims pre-empted a mathematical algorithm for calculating expenses.

In another case, in re Schrader, the Federal Circuit invalidated a patent for combining bids at an auction to determining the winning bid on the grounds that it was a mathematical algorithm. The main grounds of the decisions were based on the fact that the Court did not find sufficient physical activity, such as data transformation, to preserve the validity of the patent.

Moreover, ``mathematical algorithms'' and ``methods of doing business'' were rejected due to concerns that what was the common knowledge of mankind would be appropriated as the exclusive property of a private person. This has particular reference in the case of business methods which have no physical transformation but involve the calculation of abstract results (of great value, no doubt!) from other abstract variables.

This may result in the patenting of a business method which facilitates or makes efficient, something which was not unknown earlier. For example, would a process patent on a calculator which performs complex multiplications preclude the others from carrying on multiplication?

For a long time, the US Patent and Trademarks Office had rejected claims which involved ``mathematical algorithms'' or ``methods of doing business'' at the first stage itself, without enquiring if other conditions of novelty and utility had been satisfied. In reality, it appears that the Courts which created these exceptions relied on other factors such as novelty, obviousness, physical transformation and concerns of appropriation from public domain.

(To be concluded.)