A Sleeping Tiger? Business Method Patent Protection for Franchise Systems

July 30, 2002 Published Work
Reprinted with permission of the Franchise Law Journal (American Bar Association), Volume 22, Number 1, Summer 2002

Recent developments in the U.S. patent law, spurred in part by the growing market potential of the Internet, have widened the application of business method patents. In 1998, in State Street Bank & Trust Co. v. Signature Financial Group, the Federal Circuit dispelled a long-standing misconception that business methods were mere abstract ideas and thus unpatentable. In the wake of State Street, many companies have been successful in using business method patents to protect how they operate their businesses. For example, just as the Christmas shopping season was getting under way, Amazon.com, which had obtained a business method patent on its "one-click" method of ordering, was able to enjoin the operation of a similar website by BarnesandNoble.com. Walker Digital obtained a patent for an online reverse auction that became the business model for Priceline.com. As of June 2002, Priceline.com had a market capitalization of about $900 million. The experience of Amazon.com and Walker Digital and the growth of business method patents generally suggest that business method patents can be an integral part of a franchisor's franchise system and a significant asset for building and protecting its brand equity.