In the U.S., the law had long held that a patent could not be obtained for a method of doing business. Then in 1998, the United States Court of Appeals for the Federal Circuit decided State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), cert. denied, 119 S. Ct. 851 (1999), which held that a patent could be obtained for a method of doing business. Since State Street Bank, the United States Patent and Trademark Office ("PTO") has been deluged with applications seeking patent protection for business methods, including ways of doing business over the Internet. For example, in 1999 alone, the PTO issued an estimated 600 business method patents and 3,000 Internet-related patents. These patents cover a broad range of processes and methods used on the Internet, including brokerage systems, electronic shopping cart systems, "reverse auctions", downloading of audio and video recordings, linking to online stores, payments by credit card and even the use of "affiliate" models. The result? A new patent minefield for any company using the Internet and potentially any Internet user.
The proliferation of Internet business method patents has made it imperative for any company using the Internet to implement an Internet patent strategy. The remainder of this piece outlines a number of key points which should be considered in devising an Internet patent strategy.
- Seek Business Method Patents for Methods or Processes Used on Your Web Site that are Novel and Provide a Competitive Benefit.
- Adopt Record-Keeping Procedures that are Adequate to Capture and Describe the Business Methods and Processes Used in Your Business.
- Review Agreements with Consultants and Employees to Confirm that Your Business Owns the Patent Rights in Any Business Methods or Processes Being Used.
- Make Sure that Third Party Content and Service Providers Have Given Adequate Indemnities and Warranties Against Claims of Patent Infringement.
- Review Insurance Policies to Determine Whether You Have Adequate Coverage for Business Method Patents.
- Review and Revise Terms and Conditions of Use to Limit Your Exposure to Claims for Patent Infringement.
- Adopt a Policy for Archiving Outdated Computer Systems, Software, Documentation and Records.
- Adopt a Strategy for Investigating Known Patents to Discharge Adequately the Duty of Due Care.
Even if you are philosophically opposed to business method patents or would be disinclined to enforce a business method patent against an infringer, you should still have your web site audited to determine if you may be eligible to obtain patent protection for any of the business methods or processes that you use, and then seek patent protection where it might be available. Business method patents provide both offensive and defensive advantages that can be useful in conducting an Internet business. Offensively, business method patents can be used to generate additional revenue through licensing others to use them. In addition, the very existence of your business method patents may deter others, particularly would-be competitors, from using the same unique or commercially beneficial methods that you have patented.
Perhaps even more important, business method patents can provide your business with a key defensive weapon. Suppose that your business receives a letter from another company alleging that your e-commerce business infringes a patent. Owning your own business method patents may provide added negotiation leverage and enable you to respond by alleging that the other company is infringing your patents. The net result may be a cross-license of each other's patents, instead of your company having to pay a license fee to continue use of your Web site, to redesign your Web site, or to defend a patent infringement lawsuit. Business method patents can also be a valuable defensive weapon because the very existence of a patent portfolio may deter other companies, including competitors, from accusing your company of patent infringement for fear that you will countersue for infringement of your patents.
In many industries, it is routine for the research and development personnel ("inventors") to keep detailed notebooks that document their daily activities. These records can then be used, for example, to prove that your company made a particular invention and is entitled to a patent. They can also prove that your company came up with a particular invention before someone else in order to invalidate a patent issued to someone else or to negate a charge of infringement. As part of an Internet patent strategy, adequate record-keeping procedures should be implemented to ensure that any employees or consultants who are responsible for developing, implementing or maintaining your e-commerce business and Web site adequately capture and describe their daily activities, including the methods they consider or use.
Because business methods were not entitled to patent protection prior to 1998, standard employee and outside consultant agreements in many industries, for example the banking and financial services industry, do not include provisions assigning all rights in any intellectual property, patents and inventions to the employer. These agreements should be reviewed and, if necessary, revised to ensure that all rights in any intellectual property, patents and inventions are assigned to the employer. To the extent possible, employees and consultants that initially signed an agreement that did not contain an appropriate assignment should also be required to execute a new agreement that assigns these rights.
Most Internet sites contain content provided by others, or rely on others to provide services, such as hosting, access, or the supply and distribution of goods or services. Unbeknownst to you, the content or services provided by others may infringe a business method patent, or may infringe a business method patent when used in connection with your e-commerce business. If the content or services provided by a third party infringes a patent, your company may be infringing that patent by using the content or services in its e-commerce business. To protect against this possibility, you should scrutinize third party content and service provider agreements to make sure that these agreements contain adequate warranties and indemnities against claims of patent infringement arising from the use of content or services provided by third parties.
Frequently, general business insurance policies cover claims for "advertising injury," but do not include any specific language that covers claims for infringement of patents or intellectual property rights. This is particularly true for industries such as the banking and financial services industry, where the risk of a claim for patent infringement had been relatively low before 1998 because a patent could not be obtained for a business method. Because the language "advertising injury" alone may not cover claims for patent infringement (see e.g., U.S. Test, Inc. v. NDE Environmental Corp., 196 F.3d 1376 (Fed. Cir. 1999)), existing insurance policies should be reviewed to make sure that your e-commerce business is adequately covered for claims of patent infringement, especially claims for infringement of business method patents.
Business method patents are infringed only when each of the method steps in the patent claims which define the invention are performed. In the Internet realm, the method steps are often performed by the user rather than by the business or Web site provider. In such circumstances, the Internet business can be liable for infringing the patent only if it has actively induced or contributed to the infringement by the user. To the extent possible, terms and conditions of use should be drafted to minimize the risk of patent infringement claims based on how the user chooses to navigate the Web site. For example, the terms and conditions should be neutral and avoid encouraging users to follow a particular method or process. Where possible, the Web site should be designed to give users alternate ways to conduct any transaction. Especially in the business-to-business context, the terms and conditions of use should include appropriate warranties, indemnities and disclaimers to shift the risk of patent infringement to the users of the Web site.
Frequently, when a company upgrades its computer systems or software, the old system and any related materials are not retained. Instead, they are destroyed or returned to the supplier. Any records that show how the prior system functioned may be retained, but usually just for a short period of time under a corporate document retention policy. These outdated materials, however, could provide vital evidence that your company used a particular business method or process well before a party that has accused your company of patent infringement. Rather than discarding these materials, your company should retain these materials for at least 10 years. Alternatively, to the extent the confidentiality of outdated materials is not a significant concern, these materials could be made publicly available, for example, by donating them to a public depository like the Software Patent Institute.
In the United States, a party that wilfully (intentionally) infringes a patent can be liable for treble damages and reasonable attorneys' fees and costs. A risk that infringement may be found wilfull exists whenever a party accused of infringement has actual knowledge of the patent and they fail to discharge the affirmative duty to exercise due care to avoid infringement. One way to discharge the duty of due care is by retaining competent counsel to review the patent and provide a competent opinion that your business is not infringing the patent or that the patent is invalid. Another way to discharge the duty of due care is to "design around," i.e., redesign the Web site, so that infringement is avoided. To minimize the risk of a wilfull infringement finding, your company should undertake an internal audit to determine what patents are actually known, especially to the Web site developers and legal counsel. After identifying these patents, a strategy should be adopted that adequately ensures that any duty of due care has been discharged with respect to these patents.
The content of this article is intended only to provide general guidelines related to this particular matter. For your specific circumstances, full specialist advice is recommended.
