Introduction
In U.S. patent law, an invention can take different forms – it might be a product, a machine, a composition of matter, or a process. Within the category of processes, there is a special subset often referred to as business method patents. Understanding the distinction between a general process patent and a business method patent is important for innovators and legal professionals alike. This article provides an in-depth look at what each term means, how U.S. law (including statutes like 35 U.S.C. § 101) treats them, and how courts have interpreted their patentability. We will explore statutory definitions from the U.S. Patent and Trademark Office (USPTO), landmark court decisions (such as Bilski v. Kappos and Alice Corp. v. CLS Bank International), the historical evolution and controversy of business method patents, and a side-by-side comparison of the two types. Real-world examples are included to illustrate each concept in practice.
What Is a Process Patent?
A process patent is a patent that claims a method of doing something – essentially a series of steps or actions to achieve a result. Under U.S. law, the term “process” is defined very broadly. In fact, 35 U.S.C. § 100(b) provides that “the term ‘process’ means process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material” law.cornell.edu. The USPTO treats “process” and “method” as synonymous terms uspto.gov. In other words, any method of doing something useful – whether it’s curing rubber, refining oil, encrypting data, or operating a new type of machinery – can potentially be patented as a process, provided it meets the general patentability requirements (more on those shortly).
To qualify for a process patent, the invention must fall within the scope of patentable subject matter defined by 35 U.S.C. § 101. This foundational statute says that “[w]hoever 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 therefor…” law.cornell.edu. A process is thus one of the four principal categories of inventions explicitly deemed patentable by Congress. For example, a manufacturing process (like a new method for synthesizing a pharmaceutical compound or a novel technique for 3D printing) can be protected by a process patent if it is new, useful, and non-obvious. An often-cited real-world example is the process for curing rubber with the aid of a computer algorithm that was at issue in Diamond v. Diehr (1981). In that case, the Supreme Court held the rubber-curing method patent-eligible because it applied a mathematical formula within a physical industrial process – illustrating that applying a scientific principle in a practical, technical process can qualify for patent protection uspto.gov. In general, process patents cover a wide scope of fields, from industrial and chemical processes to computer-implemented methods, as long as they are more than just an abstract idea or law of nature.
What Is a Business Method Patent?
A business method patent is a specific type of process patent that involves a method of doing business – typically innovations in financial services, commerce, or other organizational activities. The USPTO defines a business method patent as “a utility patent that protects a method of doing business.” uspto.gov In practice, this can cover methods for online shopping, banking, insurance, advertising, and similar activities. The USPTO even has specialized examiners for these applications: for instance, Technology Center 3600 includes workgroups focused on data processing for financial and business practices uspto.gov. Some examples of subject matter that fall under business methods include: systems for one-click online purchasing, techniques for hedging financial risk, methods for managing investment portfolios, or platforms for reward programs and coupons.
It’s important to note that “business method” is not a formally separate category under the statute – it is essentially a subcategory of “process.” A business method patent is pursued through the same legal framework as any process patent. However, because business methods often rely on abstract concepts of commerce or finance, they have faced special scrutiny under patent law (as we’ll see with court decisions). A famous real-world example of a business method patent is Amazon’s “1-Click” ordering system, which was patented in the late 1990s. This patent covered a technique allowing customers to complete an online purchase with a single click by using stored payment and address information. Amazon even enforced this patent against a competitor: in 1999, Amazon sued Barnes & Noble for infringing its one-click online shopping method, and a court issued an injunction requiring the competitor to add a second click to its process corporate.findlaw.com. This case exemplified how a method of doing business (online retail in this instance) could be patented and enforced as intellectual property.
Statutory Basis and Patentability (35 U.S.C. § 101 and Related Statutes)
Both process patents and business method patents derive their legitimacy from the same section of the law: 35 U.S.C. § 101. This statute is the gatekeeper of patentable subject matter. It broadly permits patents on any new and useful “process, machine, manufacture, or composition of matter” law.cornell.edu, signaling an intent to allow patents for a wide array of human innovations. Indeed, the Supreme Court famously said patentable subject matter includes “anything under the sun that is made by man.” Nonetheless, not everything that falls linguistically within the word “process” is automatically patent-eligible – there are important judicial exceptions. The Supreme Court has identified three types of subject matter that are excluded from eligibility even if they appear to be a process: laws of nature, physical phenomena, and abstract ideas uspto.gov. A claimed process that monopolizes a fundamental principle or an abstract idea (without a concrete application) will be barred by these exceptions. This limitation is crucial in understanding business method patents, because many business methods lean toward abstract ideas (e.g. methods of organizing human activity or fundamental economic practices).
Process patents in general must satisfy all the normal requirements of patentability. That means a process must be useful (provide some identifiable benefit), novel (not fully anticipated by prior art), and non-obvious (not an obvious variation of what came before). These requirements are codified in 35 U.S.C. §§ 101, 102, and 103. Additionally, the patent application must describe the process in sufficient detail (35 U.S.C. § 112 requires a clear written description and enablement). Business method inventions are subject to these same criteria. There is no separate section of the Patent Act that says “business methods get different rules” – they do not. However, two special statutory provisions have targeted business methods in particular ways:
- Prior Use Defense (35 U.S.C. § 273): In 1999, partly in response to the surge of business method patents, Congress enacted a “first inventor defense” for prior users of certain methods. This provision (now § 273) gives a company that was already using a business method at least one year before someone else filed a patent on it the right to continue using the method, even if that patent is granted corporate.findlaw.com. Essentially, it’s a shield for businesses who might otherwise be sued for infringing a later business method patent on a technique they had been practicing in secret.
- Covered Business Method Review (AIA § 18): The America Invents Act of 2011 created a temporary post-grant review program specifically for “covered business method” patents. Under this program, which ran from 2012 until its sunset in 2020, certain business method patents (mostly in the financial sector) could be challenged at the USPTO after issuance on various grounds including subject matter eligibility jdsupra.com. This was an unusual measure – other post-grant reviews typically only allowed challenges based on prior patents or publications, but the CBM review let challengers argue that a business method patent claimed an abstract idea and should have never been granted jdsupra.com. The CBM program has now expired, reflecting a policy decision to limit special treatment for business method patents going forward.
In summary, under the statutes, process patents (including business methods) are clearly contemplated by law, but business methods have prompted additional legal safeguards (like the prior-use defense and the CBM review) due to concerns about their scope and validity. Ultimately, any process or business method must first pass the § 101 test of being a type of invention the patent system is meant to protect – which brings us to how the courts have interpreted these requirements.
Court Interpretations: From State Street to Bilski to Alice
The patentability of business methods has been a hotly debated topic in courts for decades. Process patents per se were long accepted (as long as they were technological or industrial in nature), but “business method” patents historically faced skepticism. Earlier court decisions had even referred to a “business methods exception,” implying that methods of doing business were not patentable. However, the landscape has shifted back and forth:
- State Street Bank v. Signature Financial Group (Fed. Cir. 1998): This Federal Circuit decision famously opened the door for modern business method patents. In State Street, the court considered a software-implemented method for pooling mutual fund assets (essentially a financial services method). The Federal Circuit eliminated the so-called business method exception, holding that there was no categorical ban on patenting business methods corporate.findlaw.com. The court introduced a then-important test: a process is patentable if it produces a “useful, concrete, and tangible result” corporate.findlaw.com. Under this lenient standard, many previously unpatentable ideas became eligible. State Street unleashed a wave of business method patent filings – for example, by 1999 the USPTO saw a sharp increase (over 2,600 business method applications filed in 1999 alone, with hundreds of patents issued) corporate.findlaw.com. Companies like Priceline obtained patents on techniques such as online reverse auctions and aggressively enforced them corporate.findlaw.com. This boom also led to controversy: critics argued the USPTO was granting patents on obvious or abstract ideas (some questioned if Amazon’s one-click was too trivial), and even Jeff Bezos (Amazon’s CEO) publicly called for tighter patent standards in this area corporate.findlaw.com.
- In re Bilski (Fed. Cir. 2008): Roughly a decade after State Street, the pendulum swung in the other direction. The case of Bernard Bilski’s patent application (for a method of hedging commodity price risk) reached the Federal Circuit en banc. The court rejected Bilski’s claims and established a new test: the “machine-or-transformation” test. Under this test, a process could be patent-eligible under § 101 only if (a) it is tied to a particular machine or (b) it transforms an article into a different state or thing. Bilski’s business method met neither prong (it was just a series of steps for managing risk), so it was deemed not patentable. This was effectively a blow to pure business method patents, many of which are not tied to specific machines or physical transformations.
- Bilski v. Kappos (U.S. Supreme Court 2010): The Supreme Court took up the Bilski case and issued a nuanced decision. The Court unanimously agreed that Bilski’s claimed method of hedging risk was not patent-eligible – it was an attempt to patent an abstract idea (the concept of hedging itself) and merely applying that idea in the context of commodities trading was not enough supreme.justia.com. Importantly, the Supreme Court did not completely forbid business method patents. The Justices said the machine-or-transformation test is a “useful clue” but “not the sole test” for process patent eligibility supreme.justia.com | proskauer.com. By rejecting Bilski’s particular patent as too abstract, the Court signaled that abstract business concepts are unpatentable – but it left the door open for other process inventions. In Bilski, the Court acknowledged the breadth of the term “process” in § 101 (citing the § 100(b) definition) but emphasized that long-standing judicial exceptions (like the abstract idea doctrine) still apply supreme.justia.com. The takeaway was that having a useful purpose in business is not enough – the invention must be specific and concrete, not a fundamental economic principle. (Notably, a concurring opinion by Justice Stevens would have categorically ruled all business methods unpatentable, but that view did not get a majority.)
- Alice Corp. v. CLS Bank International (U.S. Supreme Court 2014): This landmark case brought further clarity – and strictness – to the patent eligibility of business methods, especially computer-implemented ones. Alice Corporation had patents on a scheme for intermediated settlement (using a third-party computer system as an intermediary to mitigate settlement risk in financial trades). The Supreme Court unanimously struck down Alice’s claims as patent-ineligible. The Court applied a now-famous two-step test (often called the Alice/Mayo test, after this case and an earlier life-sciences case, Mayo v. Prometheus): Step 1: Determine if the claims are directed to an abstract idea (or other excluded concept). Step 2: If so, ask whether the claim elements, considered individually and as an ordered combination, add “something extra” that transforms the idea into a patent-eligible application – this “something extra” is often termed an “inventive concept.” In Alice’s case, Step 1 was satisfied because the core idea – intermediated financial settlement – was deemed “a fundamental economic practice long prevalent in our system of commerce,” i.e. an abstract idea supreme.justia.com. At Step 2, the Court found nothing inventive in merely implementing that idea on a generic computer. The claims basically said “use a computer to keep shadow accounts and adjust balances” – these were conventional computer functions that did not improve any technology supreme.justia.com. As the Court put it, “Stating an abstract idea, adding the words ‘apply it with a computer,’ simply combines two steps, with the same deficient result” supreme.justia.com. Thus, Alice’s patents were invalid. This decision underscored that many business method patents (especially those that just computerize a known economic practice) will fail § 101. It provided a clearer rule going forward: abstract ideas aren’t patentable unless the implementation has a genuine technological innovation. After Alice, lower courts (and the USPTO) invalidated large numbers of business method and software patents under this stricter standard. The Alice ruling essentially cemented the principle that a purely software or algorithm-based business method needs to demonstrate a technical improvement or at least a non-generic implementation to be patent-eligible supreme.justia.com.
- Post-Alice Developments: Following Alice, the Federal Circuit and district courts have applied the two-step test in numerous cases, often striking down broad business method claims. For instance, patents on things like financial risk management, online advertising methods, or escrow arrangements have been invalidated as abstract. In contrast, a few computer-implemented methods survived when they were tied to specific technical solutions (for example, a method in the DDR Holdings case was upheld because it addressed a challenge particular to the Internet). The USPTO also responded by issuing updated examination guidelines to help examiners identify abstract ideas and determine what counts as a practical application. Patent applicants in business method fields learned to draft claims with concrete technical details to try to pass the Alice test. It’s worth noting that the temporary Covered Business Method (CBM) review (2012–2020) mentioned earlier was heavily used right after Alice – during that time, the Patent Trial and Appeal Board had an extremely high invalidation rate (over 90% in 2014–2015) for patents challenged as covering abstract business ideas jdsupra.com. By 2020 the CBM program expired, and as of mid-2025, the Alice framework remains the governing law. There have been ongoing discussions and calls for reform (some stakeholders argue the abstract idea test is too fuzzy and hurts innovation, while others believe it effectively filters out weak patents). So far, however, no new statute has replaced § 101, and the Supreme Court has not revisited the issue since Alice. Thus, process patents in general remain patent-eligible, but business method patents in particular must clear the high bar set by Bilski and Alice.
Historical Development and Controversy of Business Method Patents
The idea of patenting methods of doing business has seen swings of the pendulum, often reflecting the tension between encouraging innovation and preventing monopolies on abstract ideas. Historically, many assumed methods of doing business were outside the realm of patents. Courts in the early 20th century, for example, were hostile to business method patents – they invalidated patents on things like bookkeeping techniques and hotel reservation systems, citing that these were not the kinds of “inventions” the patent laws meant to protect. This created what was informally known as the “business methods exception.”
The modern era of business method patents began in the late 1990s with the State Street decision (discussed above), which explicitly abolished any blanket exception. After State Street, the USPTO was inundated with business-related patent applications, ranging from financial algorithms to internet-commerce techniques. By the early 2000s, controversy was in full swing. Critics pointed out that many business methods had little prior art in patent literature – they were often practices from the business world or simple ideas that patent examiners struggled to research – resulting in patents on seemingly obvious ideas. The USPTO, facing public pressure, implemented initiatives to improve examination quality in this area (for example, hiring examiners with business and software expertise, and hosting “Business Methods Partnership” meetings with industry to get feedback on examination standards). High-profile patents like Amazon’s 1-Click drew media attention and skepticism. Even Jeff Bezos, while defending Amazon’s specific patents, publicly suggested that perhaps patent terms for software and business methods should be made shorter given the fast-moving nature of technology corporate.findlaw.com.
The pushback led to incremental reforms. Congress’s 1999 prior-user defense (35 U.S.C. § 273) was one safeguard to protect companies from surprise lawsuits over long-used methods corporate.findlaw.com. Later, the 2011 America Invents Act not only set up the CBM review program but also excluded certain categories like tax strategies from being considered novel inventions (essentially disallowing patents on most methods of reducing taxes, which are a form of business method). Over time, the sheer number of litigations involving dubious business method patents (often wielded by patent licensing companies) gave rise to the “patent troll” narrative, further fueling patent reform debates.
After the Supreme Court’s Bilski and Alice decisions, the USPTO and courts began reining in business method patents. Statistically, business method patent grants dropped in the years after Alice, and many issued patents were invalidated by courts or through CBM proceedings. Supporters of business method patents argue that not all such innovations are abstract – some involve complex computer networks, cybersecurity measures for online transactions, or other technical implementations that truly solve problems in the digital economy. These proponents point out that the line between a mere “abstract idea” and a patent-worthy invention can be blurry. On the other hand, critics contend that fundamental business innovations (like new financial instruments or e-commerce models) can usually be kept as trade secrets or simply executed in the market without the need for patent protection – and that granting exclusive rights on them can hinder competition. This debate continues in the legal community, with periodic calls to clarify § 101 or adjust the balance. For now, business method patents are legal and possible to obtain, but they are approached with caution and often require demonstrating a clear technical contribution.
Comparison Table: Process Patent vs. Business Method Patent
The following table summarizes key differences and considerations between general process patents and the subset of business method patents:
Aspect Process Patents Business Method Patents Definition & Scope
Any new and useful method or process of performing a task or achieving a result. Encompasses technical, industrial, or scientific processes in any field (manufacturing, chemical, electrical, etc.). Legally, “process” is defined broadly in 35 U.S.C. § 100(b) to include any art or method law.cornell.edu. A subcategory of process patents focusing on methods of doing business – i.e. economic or managerial processes. Includes methods in areas like finance, banking, e-commerce, marketing, and operations management. The USPTO defines a business method patent as a “utility patent that protects a method of doing business” uspto.gov. Statutory Basis Explicitly authorized by statute: a “process” is one of the four patent-eligible categories in 35 U.S.C. § 101 law.cornell.edu. Also defined in 35 U.S.C. § 100(b) (process = art or method) as noted above. No additional special statute needed – process patents have been part of patent law framework since the beginning. No separate category in the statute – falls under the § 101 category of “process.” However, the law indirectly acknowledged this subset through the America Invents Act’s definition of “covered business method” patents for post-grant review purposes. (The CBM review program, active 2012–2020, applied only to certain business method patents in the financial sector jdsupra.com.) Aside from procedural programs like CBM, business methods follow the same statutory provisions as any process. Subject Matter Eligibility Generally subject to the same patent-eligibility rules as other inventions. A process must not be an attempt to claim a law of nature, natural phenomenon, or abstract idea (the three judicial exceptions) uspto.gov. Traditional process patents (e.g. manufacturing methods) usually involve physical steps or technical operations, which tend to pass the eligibility test as long as they produce a concrete result. For example, a process that transforms raw material into a product is typically patent-eligible (as in the rubber-curing process that involved a mathematical formula but was upheld because it integrated that formula into a physical process) uspto.gov. More frequently faces eligibility challenges under § 101. Business methods often deal with abstract ideas (economic practices or schemes) at their core. Courts will scrutinize whether a claimed business method is merely an abstract “organizing human activity” or fundamental economic concept. If so, to be patent-eligible it must include an “inventive concept” – a novel technical implementation or limitation that transforms the idea into a specific application supreme.justia.com. Many business method claims have been invalidated for being directed to abstract ideas (e.g., hedging risk supreme.justia.com or intermediated settlement supreme.justia.com) without enough additional innovation. In short, a business method patent needs to show something beyond just a business idea – often a technological improvement or tied machine – to satisfy eligibility. Patentability Requirements Must meet standard requirements: novelty (not previously known), non-obviousness, and usefulness, as well as adequate disclosure. These requirements (under 35 U.S.C. §§ 102, 103, 112) apply equally to all process patents. For example, an industrial process would be examined against prior technical literature and patents to ensure it isn’t already known or an obvious variation. There are no extra novelty or non-obviousness criteria unique to “process” beyond what all inventions face. Same core requirements of novelty, non-obviousness, etc., apply. However, meeting these can be tricky in practice: relevant prior art for business methods might be found in non-patent sources (business practices, academic papers, software systems). The USPTO often classifies and searches business method applications in specific databases (including financial and internet arts). Additionally, due to past quality concerns, the USPTO has implemented higher scrutiny on disclosure – examiners may require detailed algorithms or flowcharts if a business method is software-implemented, to ensure the patent is fully enabling and not overly broad. The prior user defense (35 U.S.C. § 273) is a factor in enforcement (not a patentability requirement per se, but it means even a valid business method patent might not prevail against an accused infringer who can prove prior use) corporate.findlaw.com. Examination Process patent applications are assigned to an art unit based on their field (for instance, chemical processes go to chemical examiners, etc.). The examination involves checking § 101 eligibility (which is usually straightforward for clearly technical processes), and searching prior art. After the Alice decision, USPTO examiners assess even traditional process claims for any abstract idea issues, but most classic industrial processes easily pass, as they inherently involve tangible steps. Business method applications are often examined in USPTO Tech Center 3600, which has specialized units for financial and business data processing uspto.gov. Examiners in these units are well-versed in § 101 jurisprudence and will typically perform an Alice two-step analysis on the claims. It’s common for business method applications to receive initial rejections under § 101 (for being abstract) – applicants must then amend or argue that their invention has a specific practical application or technical solution. The USPTO has issued specific guidance (including examples and training updates) to ensure consistent examination of business methods in light of recent case law. In sum, the bar is higher in examination for business methods: they must clear not only the usual hurdles of novelty and non-obviousness but also convince the examiner that the subject matter is eligible and not too abstract.
Enforceability & Legal Challenges
Once granted, a process patent is enforced like any patent – the patentee can sue infringers in federal court or at the U.S. International Trade Commission. There are no special litigation rules just for process patents; however, the general principles of claim interpretation and infringement (literal or equivalents) apply. One challenge in enforcing some process patents (especially those involving multiple steps performed by different parties) is the law of divided infringement – proving that a single entity performs every step of the claimed process, or orchestrates the performance, can be complex. Otherwise, process patents enjoy the same legal status as other patents. Business method patents are enforceable in court as well, but they have been particularly prone to post-grant challenges and defenses. During the 2012–2020 period, an accused infringer could file for Covered Business Method review, which often put the litigation on hold and resulted in many patents being invalidated on § 101 grounds jdsupra.com. Even after CBM’s sunset, defendants in infringement cases frequently move to dismiss or for summary judgment by arguing the patent is an abstract idea under Alice. Courts have indeed thrown out many business method patent lawsuits early on this basis. Additionally, as mentioned, an accused infringer can invoke the prior use defense if applicable, which is unique to business method patents and can defeat an infringement claim even if the patent is valid corporate.findlaw.com. As a result, owning a business method patent can provide less certainty – it might be harder to defend and easier for others to design around or invalidate. On the flip side, a well-drafted business method patent that survives these challenges can be quite valuable, but patentees must be prepared for a fight on eligibility in almost every enforcement attempt.
Real-World Examples
Example 1: Industrial/Technical Process – U.S. Patent for curing rubber: A method involving heating rubber in a mold and using a computer to calculate optimal cure time was patented (and upheld in court) because it improved manufacturing precision uspto.gov.
Example 2: Chemical Process – A patented method for synthesizing a new pharmaceutical compound or a more efficient process for water purification.
Example 3: Data Processing Algorithm (with a technical effect) – e.g., a method for encoding digital images that reduces file size without loss of quality (if claimed as a series of steps, this is a process patent; it would be eligible if it provides a technological improvement).
Example 1: E-commerce Method – Amazon’s 1-Click ordering patent covered a way of completing online purchases with a single action using stored customer information corporate.findlaw.com. This is a textbook business method patent (a method of conducting online sales).
Example 2: Financial Method – State Street’s patent on a hub-and-spoke mutual fund accounting system was a business method implemented through software, allowing calculation and allocation of profits across fund subsidiaries (considered patentable in 1998 under the useful-concrete-tangible test).
Example 3: Transaction Risk Management – Bilski’s proposed method of hedging energy price fluctuations (though ultimately deemed an unpatentable abstract idea supreme.justia.com) is illustrative of the type of financial strategy business method that inventors attempted to patent.
Other examples that have been patented include methods for secure credit card transaction processing, online auction techniques, and loyalty reward point systems – all of which involve doing business in new ways, usually with the aid of computer networks.
Conclusion
In summary, process patents and business method patents are closely related but distinguishable concepts in U.S. patent law. Every business method patent is a process, but not every process is a business method. A process patent can protect innovations ranging from factory techniques to computer algorithms, whereas a business method patent targets innovations in commercial or financial operations. U.S. law, through 35 U.S.C. § 101, provides the doorway for both, but judicial decisions ensure that the door is only open to those inventions that represent true innovation rather than abstract ideas.
Over the past few decades, business method patents have journeyed from being nearly nonexistent, to widely accepted and controversial, and now to cautiously granted with stringent scrutiny. Key court rulings like Bilski and Alice have drawn a line, making clear that an abstract business idea isn’t patentable unless it’s implemented in a novel, practical way. For inventors and companies, this means that if you develop a new business-related innovation, you should emphasize its concrete technological aspects when seeking a patent. Meanwhile, traditional process inventions (in engineering, chemistry, etc.) continue to be a mainstay of the patent system, provided they meet all criteria.
By understanding the differences outlined above – in definition, scope, legal treatment, and historical context – both the general public and legal professionals can better appreciate how U.S. patent law navigates the spectrum from broad processes to specific business methods. As the innovation economy evolves (think of fintech, blockchain, and AI-driven business models), the dialogue between inventors, the USPTO, and the courts will undoubtedly continue to shape what business methods are worthy of patent protection and where the line on abstract ideas is drawn. For now, the framework is set: inventiveness and concrete application are key to turning a great idea (business or otherwise) into a patented process.
Sources:
The definitions, laws, and cases discussed above are grounded in the U.S. Patent Act and interpretative court decisions. Key references include Title 35 of the U.S. Code (especially §§ 100(b) and 101) law.cornell.edu, official USPTO guidelines and resources on business method patents uspto.gov, and landmark judicial opinions such as State Street (Fed. Cir. 1998) corporate.findlaw.com, Bilski v. Kappos (2010) supreme.justia.com, and Alice Corp. v. CLS Bank (2014) supreme.justia.com, among others, which together elucidate the distinction and legal standards for process and business method patents.
