Insurers Urged to Check Business Process Patents After Bilski Ruling

November 18, 2008

A recent federal court ruling could jeopardize the way some insurance, banking and high technology companies protect their business methods through patents.

The United States Court of Appeals for the Federal Circuit recently ruled against Bernard Bilski, who sought to patent a method for managing weather-related risk through commodities trading. He went to court to challenge a ruling by the U.S. Patent and Trademark Office, which rejected his application.

Patent officials ruled that Bilski’s business idea was not eligible for patent protection because it did not involve a particular machine and did not physically transform anything.

The appeals court essentially agreed with the patent officials, ruling that valid process patents either have to be “tied to a particular machine,” though the court did not spell out what constitutes a “machine,” or the patents must involve a transformation of articles or material to a different state or thing.

This “machine-or-transformation test” that the federal appeals court relied upon had been developed in Supreme Court cases in the 1970s.

The Bilski decision was watched closely by financial services and technology industries in particular since they hold thousands of patents on business systems that could now be questioned. Defendants in patent infringement cases could maintain that those business concept patents are now invalid because of the Bilski case.

“There’s an old saying that the best ideas are stolen,” said John Harris, a partner in the intellectual property practice at Morris, Manning & Martin, LLP, and a patent attorney for over 28 years. “This ruling makes it easier for some good ideas to be stolen, because process patents will be harder to get. Unless companies that specialize in data processing technologies immediately examine and adjust their patents and patenting strategies, their competitors can start using their ideas.”

Harris said software, network security and data management companies, as well as insurance and financial services firms, could be at risk for increased competition from companies that can freely use their ideas as a result of this ruling.

Harris advises companies to examine their patents to be sure they hold up under the new interpretation of the law. Some companies may need to apply for new patents — if they still can. If they have patent applications currently pending, they may need to re-work them.

Progressive Insurance is one major insurer that holds several patents for its insurance processes. The company holds a patent for its usage-based auto insurance rating system. This system, known as Autograph, bases consumers’ auto insurance rates, in part, on how much, when and where the vehicle is driven. Progressive has also received U.S. patents for one of its methods of processing vehicle damage claims, which it calls its concierge level of claims service, and for its online policy service system.

But the Ohio-based insurer said it is confident its patents will withstand any challenge following the Bilski court decision.

“While the Bilski decision changed the standard for granting business method patents going forward, the decision affirmed that business methods remain patentable subject matter, and we feel good about our ability to enforce our patent portfolio,” Leah Knapp, public relations manager for Progressive Insurance, told Insurance Journal.

ISO Insurance Technology Solutions, a business unit of Insurance Services Office, Inc., reported in March that it had been granted a patent for its approach to implementing and maintaining rating and policy processing product definitions for its DesignerAccess software, which is the cornerstone of ISO Rating Service and the AscendantOne Policy Management Suite.

ISO declined comment on what effect, if any, the Bilski decision might have on its patent.

The Bilski ruling could be appealed to the U.S. Supreme Court. But Harris said many companies should review their patent filings now, since the ruling applies nationwide.

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