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Litigating the Business Method Patent: Pitfalls for Unwary Defendants

BY William G. Pecau
August 31, 2006

The lion's share of business method and e-commerce patents is grouped in the now infamous Class 705 at the U.S. Patent and Trademark Office ('USPTO'). This specialized class that encompasses data processing involving financial, business practice, management, and cost/price determination has experienced a surge in popularity rivaled only by the likes of nanotechnology. From 2001 to 2005, more than 5000 U.S. patents were issued in Class 705. Growth in 705 patenting has been so pronounced that this 5-year period has produced about the same number of new patents as the previous 15-year period.

Fear of the 705 patent troll ' the small entity or holding company without a tangible product that wields an intangible asset in the form of a patent deed in order to procure large damage awards or settlements ' has recently led Class 705's most prominent litigation targets to ask Congress to reform the patent laws to provide relief. Despite this legislative wrangling, the Class 705 plaintiff remains potent, aggressive, and seemingly ever-present.

To the dismay of the traditional Class 705 patentees in the computer and information technology industries as well as the financial services sector, a new brand of posturing by patent plaintiffs and plaintiffs' counsel now presents defendants with a difficult assortment of issues from a fairly disturbing perspective. These companies are not being sued by a competitor. Nonetheless, they are being drawn into showdowns involving a complex matrix of business and litigation risks.

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