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Bar News - May 9, 2008

Patented Legal Methods – Light at the End of the Tunnel Or Oncoming Train?


Paul C. Remus

The Wall Street Journal reported last summer, "It’s tough enough to figure out whether a complex tax strategy is right for you—let alone legal. Now there’s something else to worry about – getting sued by someone who has patented the technique."

Tax methods patents have received considerable press in recent months. They were initially greeted with disbelief and concern by taxpayers and tax specialists alike, but their existence is gradually gaining acceptance. Since the Court of Appeals for the Federal Circuit held that business methods were patentable in 1998, 41 patents have been issued that are classified as tax methods, techniques and strategies, and at least 61 patent applications are pending.

The debate over tax methods patents has laid the groundwork for discussion of the next development in patent law: patentable legal methods. Tax methods, after all, are just a specialized type of legal method. They implicate federal and state tax laws and affect taxpayer rights and obligations under those laws. A patent has already been issued for "Systems and methods for making jury selection determinations" (U.S. Patent No. 6,607,389) and other legal methods patents are currently pending. Given the current competitive nature of the practice of law, it is only a matter of time before lawyers in all fields take note of this profit-maximizing opportunity.

In order to be patentable, an invention must meet four requirements: it must (1) constitute patentable subject matter, and it must be (2) useful, (3) novel, and (4) non-obvious. This article assumes that new legal methods will be developed that are useful, novel and non-obvious. It is the first of these requirements that performs a gate-keeping function, defining the eligibility of a class of inventions for patent protection.

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefore; subject to the conditions and requirements of this title. (35 U.S.C. §101).

This definition encompasses four categories of statutory subject matter: process, machine, manufacture or composition of matter. A "process" differs from the other categories in that a process is not a structural entity but rather "a series of steps leading to a useful result." Tax and legal methods, and all methods for that matter, fall within the process category.

In 2005, in response to confusion created by the developing case law, the U.S. Patent and Trademark Office (the "PTO") provided further guidance on patentable subject matter eligibility (the "Guidelines"). The Guidelines set out four steps to be used in determining eligible subject matter. As described in more detail below, these four steps entail asking whether the claimed invention: (1) falls into a statutory category, (2) falls within a judicial exception, (3) provides a practical application, and (4) wholly preempts a judicial exception.

1. Statutory Category. As we have seen, a legal method is a process. Moreover, practitioners agree that a careful draftsman can make almost any invention fit into one of the statutory categories. For example, the Guidelines explain that "legal agreements per se, for example, a claim to an insurance policy," are not statutory subject matter, but "the method of creating the characteristics of such a policy" is statutory subject matter. As will be seen in the examples below, there is little substantive difference between a claim to a legal agreement and a claim to a method of determining the terms of the legal agreement.

2. Judicial Exception. The Guidelines recognize the three exceptions to patentable subject matter established by the Supreme Court: laws of nature, natural phenomena and abstract ideas. The Guidelines list "legal rights" as an example of unpatentable abstract ideas. Needless to say, legal methods will affect legal rights, but the question is whether they will do so in a way that triggers the abstract idea exception. Certain cases will be clear. Claimed methods that expressly reference legal rights, such as a claim for a novel cause of action, will fall within the abstract idea exception. But as illustrated below, many legal methods will indirectly impact or affect legal rights without explicitly referencing those rights. While the implicated legal rights may add to these methods’ ultimate utility, they will not be directly implicated in the method’s subject matter.

3. Practical Applications. The Guidelines state that an invention that falls within one of the three judicial exceptions is nonetheless patentable if it either "transforms" an article or physical object to a different state or thing; or produces "a useful, concrete and tangible result." A result is useful if it is (i) specific, (ii) substantial and (iii) credible. It is concrete if it is assured and can be substantially repeatable. It is tangible if it sets forth a practical application of the claimed judicial exception to produce a real-world result.

The Court, in State Street 149 F.2d 1363, focused not on whether an abstract idea was sufficiently involved to trigger the exception, but on whether the invention produced a "useful, concrete and tangible" result. The determinative question was whether "the claimed invention, when looked at as a whole, is an abstract idea, such as a disembodied mathematical concept, or whether the invention produces a practical application, which achieves a useful, concrete and tangible result." If such a result is produced, the claimed invention is patentable subject matter. If it is not, the invention is disqualified under the abstract idea exception.

4. Preemption. The Guidelines note that other court decisions contain one qualification to the principle that an invention involving an abstract idea is patentable if practically applied: the claimed invention may not preempt "every substantial practical application" of an abstract idea. If it does, the abstract idea itself is, in effect, patentable. Thus, the rule requires patentable subject matter based on a mathematical algorithm to "produce a useful, concrete, tangible result without pre-empting other uses of the mathematical principle."

An analysis under the Guidelines confirms that many, though not all, legal methods will qualify as patentable subject matter. The following example demonstrates when legal methods do constitute eligible subject matter. The example was novel, useful and non-obvious at the time it was created. It was not the subject of a patent application, presumably because it was thought not to constitute patentable subject matter.

Software is generally licensed -- not sold -- pursuant to a license agreement with various terms beneficial to the licensor. Lawyers faced with the question of how to obtain an end-user acceptance of a license agreement invented the click-wrap license, described by one court as follows:

You plunk down a pretty penny for the latest and greatest software, speed back to your computer, tear open the box, shove the CD-ROM into the computer, click on "install" and, after scrolling past a license agreement which would take at least fifteen minutes to read, find yourself staring at the following dialog box: "I agree." Do you click on the box? You probably do not agree in your heart of hearts, but you click anyway, not about to let some pesky legalese delay the moment for which you’ve been waiting. Is that "click-wrap" license agreement enforceable? Yes . . .

A claim describing a particular click-wrap license itself does not qualify as statutory subject matter. As noted, the Guidelines explicitly state that "legal agreements per se" are not statutory subject matter. However, a "method of creating the characteristics of such a policy" could be statutory subject matter, and here, a claim to a method of determining what terms are to be included in the click-wrap license could be. Such a claim could read as follows:

A method for determining the terms to be included in a license for software comprising:

• requiring terms for a software license that are proposed by a prospective licensor to be displayed on a monitor to a prospective licensee;

• inviting the prospective licensee to indicate concurrence with the terms;

• generating a concurrence to the terms in response to a single action by the prospective licensee; and

• making the software accessible to the prospective licensee.

The claim has been written to avoid any reference to a legal right and may therefore avoid the abstract idea exception. But the claimed method would constitute patentable subject matter even if it is judged to fall within the exception because it implicates legal rights. The State Street test asks whether "when looked at as a whole," the claimed invention appears to be an abstract idea, "or whether the invention produces a practical application, which achieves a useful, concrete and tangible result." The reproducible, real world result is the determination of terms to be included in the license. And the method does not preempt all applications of the implicated rights because the parties could still agree to the terms to be included in the license in a variety of different ways.

You may view a patent on your useful, novel and non-obvious legal method as the light at the end of the tunnel of billable hours. However, before you rush out to patent it, consider some of the problems that arise from patented legal methods. If your client, on your advice, uses a legal method that is patented, who has infringed the patent, you or your client? Also, have you committed mal-practice by not knowing that the legal method was patented? The ethical questions raised by patented legal methods may be an oncoming train.

Paul C. Remus is an attorney with Devine, Millimet & Branch PA in Manchester. He writes frequently for Bar News on the subject of Intellectual Property.

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