Two important recent events are likely to influence the patenting of inventions related to the insurance industry. First, on June 28, 2010, the U.S. Supreme Court issued its long-awaited opinion in Bilski v. Kappos ( The Bilski decision is the Supreme Court's most recent statement on what types of inventions are eligible to receive patents. For a detailed discussion of the Bilski opinion, please see our Legal News Alert at Second, on July 27, in response to the Bilski decision, the U.S. Patent and Trademark Office (USPTO) updated its guidelines for evaluating patent applications on subject matter eligibility. The guidelines, which provide concrete insight on how the USPTO will treat specific types of patent applications, are available online at

The insurance industry, of course, is no stranger to business method patents. Insurance companies have sought to patent all manner of business methods and related innovations, including underwriting systems, insurance and retirement planning products, modeling techniques, customer and B-2-B Web site features, and so forth. A number of high profile patent lawsuits also have been filed involving insurance companies. While some of the patent lawsuits have been filed by non-practicing entities, a number of patent lawsuits pit large insurance companies against each other.


Many speculated that the Bilski decision would categorically abolish business method patents. That did not happen. While the Supreme Court ruled that the invention at issue was not patentable, it refused to adopt a broad exclusion against business method patents. In Bilski, the invention related to a process for hedging risk. The Supreme Court indicated that this fact alone did not preclude the invention from being eligible for a patent. Rather, the problem was that the invention was defined too abstractly. According to the Court, “Claims 1 and 4 in petitioners' application explain the basic concept of hedging, or protecting against risk: ‘Hedging is a fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class.'” Slip op. at 15. The Court's reasoning suggests that if Mr. Bilski had defined his invention in more practical terms and less abstractly, it may have been eligible for a patent.

USPTO Guidelines

The USPTO guidelines shed further light on how the USPTO will treat specific types of patent applications. As instructed by the Supreme Court decision in Bilski, the USPTO will evaluate patent claims “as a whole” to determine patent eligibility. Thus, it would be improper for a patent examiner to dissect the invention into old and new elements and then ignore the old elements in assessing whether the invention is too abstract to be patent-eligible. Hence, patent applicants would be well advised to consider including a computerized implementation of their invention in their patent application. Even though the computer hardware (without the inventive software) may be old, the patent examiner may not ignore the presence of the computer hardware in conducting the patent-eligibility analysis. Of course, to receive patent protection, the invention also must meet the separate requirements that it represents a new and non-obvious advance over what is already known. However, the inventive software elements can be used to meet those tests, even though the otherwise old elements relating to the computer hardware are relied upon to qualify as patent-eligible.

The guidelines also include provisions that are pertinent to insurance-related inventions. Specifically, they discuss the patent eligibility of “general concepts” such as economic practices or theories (e.g., hedging, insurance, financial transactions, marketing); legal theories (e.g., contracts, dispute resolution, rules of law); concepts relating to “how business should be conducted,” and so forth. In evaluating such inventions, the guidelines instruct patent examiners to weigh various factors to assess whether the patent applicant is seeking a patent on merely the general concept in the abstract or on a particular practical application of the concept. One factor weighing against patent eligibility is if the invention is defined so abstractly that granting the patent would effectively grant a monopoly over the general concept. Another factor weighing against patent eligibility is if performance of the invention is subjective and imperceptible rather than observable and verifiable. A factor that weighs in favor of patent eligibility is if the invention is described as being implemented in some tangible way. This suggests the advisability of including a computerized implementation of the invention in the claims of the patent application. For example, an insurance product described purely in terms of a legal contract may be too imperceptible and intangible to be patent-eligible. The insurance product may stand a better chance of being patent-eligible if it is instead described in terms of the computer system that performs the processing necessary to support the insurance product, particularly if further steps are added (e.g., a step of communicating electronic signals to other computer systems to perform other tasks, such as receiving information about an insurance claim or triggering a payment to a policy owner).

State Street Bank

Although State Street Bank ultimately came to stand for the broad patent eligibility of business methods based on the “useful, tangible, concrete result” test enunciated in that case, that test was much broader than it needed to be to find the State Street Bank invention to be patent-eligible. Unlike the invention in Bilski, the State Street Bank invention was defined in terms of a computer system.

While uniformly critical of the very broad useful, tangible, concrete result test of State Street Bank, the USPTO, Federal Circuit, and Supreme Court do not appear to have been critical of the specific holding that the computer-implemented invention in State Street Bank was eligible for a patent. The fact that State Street Bank was not overruled suggests that the use of a claim format similar to that in State Street Bank, which defined the invention in terms of its computerized implementation, may be sufficient to render the invention patent-eligible. Whether an invention is defined in terms of a computer and software (as in State Street Bank) or purely in terms of a business process (as in Bilski) is often determined as much or more by how the patent is drafted than by the nature of the underlying innovation.

Looking to the Future

Companies should expect to continue to see patents issuing that relate to the insurance industry. Prior to the decision in Bilski, the USPTO provided guidelines to patent examiners for evaluating patent eligibility issues that were based on the machine-or-transformation test. While the Supreme Court rejected the machine-or-transformation test as the sole test for patent eligibility, all nine Justices appear to agree that it is a useful tool for evaluating patent eligibility. Hence, companies should not expect to see a dramatic shift in the types of patents being granted by the USPTO. Companies in the insurance industry also face threats in connection with patents from other industries. Various companies have been sued on patents that the patent owners assert cover technologies used by the companies in their everyday business operations, such as in their marketing operations, in their implementations of their Web sites, and so forth.

The Value of IP Programs

With that in mind, companies should consider developing and maintaining IP programs that parallel the IP programs of companies in other industries more traditionally impacted by patents. First, companies should pursue patents on important innovations, particularly where those innovations are outward-facing, capable of being reverse engineered, or otherwise not readily susceptible to trade secret protection.

There are many reasons companies seek patents. For example, patents can help a company carve out a niche in the marketplace. There are obvious competitive advantages to offering a product or service that no other company is able to offer. Additionally, patents can serve a defensive purpose, in that owning patents may reduce the risk of being sued for patent infringement by other companies and thus may help to maintain a company's freedom to operate. If your company is sued by another company on a patent matter, but holds a patent that is being infringed by the other company, the risk of cross-claims can lead to settlement of the litigation at a fraction of what it would have cost to settle without the patent. Indeed, if a company owns a substantial portfolio of patents relative to its competitors, that alone can serve as an effective deterrent when one of its competitors is considering suing the company on a patent issue. When both companies have roughly equal-sized patent portfolios, that can create an environment in which neither company is likely to sue the other because to do so would result in mutually assured destruction. If one company has a clearly superior patent position, that can often provide significant leverage against its competitors.

Second, companies also should consider performing patent searches before introducing new products and services in the marketplace. Performing a patent search before investing in new product development is analogous to performing research before investing in a company. A patent search helps ensure that the return on investment for the new product development will meet expectations. If a new product is being developed in an area that is already heavily patented by others, the costs to gain access to the necessary patent rights may create an ongoing drain to the profitability of the product that is being introduced.

Third, companies should stay abreast of the patent positions of their competitors. If a competitor does not patent any of its innovations, then there is no risk of being accused of patent infringement by that competitor when copying that competitor's innovations. Care may need to be taken to avoid other types of intellectual property infringement, e.g., trade secret, when copying; however, those risks are typically much more easily managed than patent infringement risks. Conversely, if a competitor aggressively seeks to patent all of its innovations, then the cost of resolving potential infringement claims needs to be taken into account when predicting the return on investment of any new product development that may infringe that company's patent rights.

Finally, while patents provide the strongest form of protection for many innovations, it is important to use patents as part of an orchestrated intellectual property strategy that also effectively employs other types of intellectual property protection. Trade secret protection, for example, may be more suitable in some circumstances to protect “under the hood” underwriting algorithms that would be difficult for an outsider to reverse engineer. A critical consideration in the context of trade secret law is to ensure that your company is taking sufficiently “reasonable efforts” to maintain the secrecy of the trade secret. It is important to ensure that your company is exercising the appropriate care with regard to its trade secrets in order to permit your company to successfully claim its trade secret status later on during litigation.