By Savithri Rajeev

Business method patents are a comparatively new genus of patent which essentially includes granting of patents for business methods adopted by various economic enterprises. Even though a concrete definition of what amounts to business methods is nowhere defined, the Advisory Council on Intellectual Property (ACIP) has developed a summarized definition of business methods. According to ACIP, business system is a method of operating any aspect of an economic enterprise. This definition is inclusive of areas relating to marketing, transacting, finance, trading, resource management, and customer service.[i]  It may also be understood as any commercial technique or strategy developed by an individual or an economic enterprise with a profit motive or for gaining market share and power. One of the most well known examples of business method patent is the patent awarded to Amazon for “One-click shopping”, the first of its kind system to simplify shopping experience for its customers, which enables the customer to purchase items of his choice by simply clicking an ‘Order’ button. All the information of the user required for the transaction is stored in the database of the website.

Netflix – Blockbuster controversy illustrates the importance of business method patents. Since their inception in 1997 and 1985 respectively, both Netflix and Blockbuster were pioneers in the American DVD rental market. In 2003, Netflix came up with an online DVD rental mechanism wherein the customers were able to choose, receive and return the DVDs of their choice, and that too without incurring any late fees and with free shipping.  This prompted competitors like Blockbuster and Wal-Mart to come up with similar strategies to survive in the market. Just like Netflix, Blockbuster also started to rent DVD online with free shipping. Netflix was awarded with two business model patents in 2006 covering its online rental mechanism as well as the strategy of exclusion of late fees.  Consequently, a patent infringement suit was filed by Netflix against Blockbuster. Though the dispute was settled out of court, this controversy shows the significance of business method patents in today’s rapidly developing world.

However, the Indian legal position on business method patent is quite different S. 3(k) of the Indian Patent Act, 1970 expressly excludes business methods from being patentable.[ii] The only remedy to overcome this exception is if the business method involves a technical subject matter. The fact that this part of the section still remains very much the same in spite of various recent amendments made to the Patent Act is noteworthy. This position is reflected in the Intellectual Board Appellate Board (IPAB) decision in Yahoo v. Controller, and Rediff.[iii] Yahoo! Inc. filed a patent application titled “A method of operating a computer network search apparatus.” The invention facilitated advertisers to secure the most favorable area on a webpage to place their advertisement through a bidding process. On the basis of the value of the payment made by them, the advertisements were placed. The Controller of patents and later the IPAB came to the conclusion that the same is not patentable citing the reasons that it fell within the exception of patentable inventions provided under S. 3(k) of the Indian Patent Act, 1970 and also lack of novelty. The IPAB, while refusing to grant a patent for Yahoo’s invention, held that the said invention lacks novelty as it is nothing but a mere combination of an auction method and Yellow Pages.

Thus, a combined reading of S.3 (k) of the Indian Patent Act, 1970 along with the Yahoo ! Inc. case amply makes it clear that the Indian law expressly excludes business methods from patentable inventions. However, despite this legislative and judicial position of express exclusion, when it comes to its implementation, the reality is far different. Studies show that the Indian Patent Office grants patent to business methods.  Some of the examples include the patent granted to Afton Chemical Corporation for ‘fuel composition comprising fuel and lubricating oil composition’ for enhancing fuel value of used or waste lubricating oilsto Google for “methods developed to collect information for advertising.”[vii]

With rapid advance of technology and e-commerce, India has witnessed accelerating growth in terms of economic efficiency. In order to take it further, entrepreneurs and owners of unique business methods should be encouraged by allowing business method patents for the same. It can also act as a major revenue generating source as the filing and registration of patent is not free of cost. It is high time that the government bring in some sort of consensus regarding the patentability of business method in India.


[i] Report on a Review of the Patenting of Business Systems – ACIP.

[ii] Section 3 which deals with inventions not patentable states that “The following are not inventions within the meaning of this Act… ..(k) a mathematical or business method or a computer program per se or algorithms;.”

[iii] OA/22/2010/PT/CH [iv] Patent No.240258 [v] Patent No. 252951 [vi] Patent No. 217341 [vii] Patent No. 252220 , Patent No. 246483

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