A ruling last week in a dispute involving the merchant processor Paymentech LP is another sign that the courts have narrowed their views on what types of business process advances can be patented and what constitutes infringement, legal experts said.
In decisions dating back almost a decade, the courts have held that companies can patent specific methods for handling their various business practices, even if some components of these methods have been used before. But in a series of recent decisions, courts at various levels, including the Supreme Court, have chipped away at this policy and raised the bar considerably for companies hoping to advance claims of patent infringement.
In the Paymentech case, BMC Resources Inc. accused the merchant processor of using BMC's patented technology for handling debit payments made by phone. In the Sept. 20 ruling against BMC, however, the Appeals Court for the Federal Circuit said Paymentech "performed some but not all of the steps" of BMC's patented process, and noted that "direct infringement requires a party to perform or use each and every step."
(Paymentech, a joint venture of First Data Corp. and Bank One Corp., merged in 2005 with the Chase Merchant Services joint venture of First Data and JPMorgan Chase & Co. to become Chase Paymentech Solutions LLC.)
Gerald L. Fellows, a partner in the Phoenix law firm Greenberg Traurig, said the ruling could prompt other companies to adopt a similar strategy in patent cases.
"This is another line of defense that has been established by the federal circuit," said Mr. Fellows, who was not involved in the case. "It's very good for defendants who are accused of infringing."
Mr. Fellows said he was preparing a notice to his clients and colleagues advising them of the potential new defense tactic. "This is going to be a big case," he said.
Christopher R. Benson of the Dallas law firm Fulbright & Jaworski, who represented BMC, said Thursday that he planned to ask the court to review the decision. "It's not final yet," he said.
James W. Dabney, a litigation partner in the New York office of Fried, Frank, Harris, Shriver, & Jacobson, said the courts have been progressively clamping down on patent claims for business processes for several years.
"The Supreme Court has been mooting out issue after issue," said Mr. Dabney, who successfully argued before the U.S. Supreme Court last November that federal courts had adopted an overly broad approach for patenting business processes.
A decision in August also narrowed the scope of business process patents. In that case a federal trial court in Texas voided a patent held by AdvanceMe Inc., a Kennesaw, Ga., receivables processor, saying its process for automated debt repayment, was based on ideas that had already been in use in the market.
U.S. District Judge Leonard Davis wrote that AdvanceMe "implemented an aggressive marketing and business development program that brought this financing method to widespread use," but "did not invent a new business method."
He wrote that the company "built on long-established prior art, packaged the idea in a new way, and marketed it aggressively," and though the concept "exhibits excellent entrepreneurship, it does not entitle AdvanceMe to a legal monopoly on this method."
Judge Davis based his ruling on an April Supreme Court decision, in KSR International Co. v. Teleflex Inc., that experts say has changed the rules for evaluating business process patents.
That decision, which did not involve financial services companies, set a new standard for what types of business processes could be patented. It held that companies cannot patent processes that to an average person would be an obvious advance over current procedures.
The KSR test overruled the existing rules for evaluating business processes, which the Supreme Court defined in a 1998 case, State Street Bank and Trust v. Signature Financial Group. That ruling gave companies the right to link existing ideas and procedures to create a new process and then patent that combination.
Mr. Fellows said the KSR ruling has significantly restricted what types of processes can be patented and will make it much more difficult for plaintiffs to sue successfully for infringement. It "may be the most important case in the last 10 years" in patent law, he said.
(The KSR business method involved placing electronic sensors on automotive accelerator pedals to control the flow of fuel.)
He noted that in patent disputes involving banking, "financial services companies are more likely to be accused" of infringement than they are to file a complaint. By raising the bar for proving infringement, "these case law changes ? bode well for the financial services industry."
Mark P. Kesslen, chairman of the intellectual property group at the New York law firm Lowenstein Sandler PC, said that a series of decisions in recent years have benefitted banks, by eliminating automatic injunctions against infringers, by enabling prospective defendants to file pre-emptive lawsuits for declaratory judgments in jurisdictions of their own choosing, and by raising the obviousness standard.
Mr. Kesslen said it is notable that the AdvanceMe case came from the eastern district of Texas, which has a reputation for sympathy towards patent plaintiffs.
That is also the jurisdiction of a major banking patent dispute. The item processor DataTreasury Corp. has filed lawsuits accusing about 60 banks and technology providers of infringing its patents for the process of creating and storing digital check images.
Rod Cooper of the Dallas law firm Nix, Patterson & Roach LLP, who represents DataTreasury, said he was not concerned about the ruling in the Paymentech dispute.
"They could not show the court there was a direct infringer," he said. "It doesn't trouble me as a patent lawyer."
