Business Methods by the Numbers: A Look Inside PTO Class 705

The United States Patent Classification System is a system for organizing all U.S. patents into a smaller sub-collection of patents based on common subject matter. Each subject matter division includes a major component, which is called a class, and a minor component, which is called a subclass.  Few classes draw as much attention as class 705.  Class 705 is the generic class for innovations relating to the performing of data processing operations where the apparatus or method is uniquely designed for or utilized in the practice, administration, or management of an enterprise, or in the processing of financial data.  Class 705 was created in 1997 from the business and cost/price sections of computer classes 395 and 364.

The mere designation of an arrangement as a “business machine” or a document as a “business form” or “business chart” without any particular business function will not cause classification within class 705.  There must be significant claim recitation of the data processing system or of a calculating computer while at the same time having only nominal recitation of any external art environment within the claims.  If the claim mentions a particular tangible apparatus in combination with performing data processing or calculation operations then the invention is categorized in the classification that most closely matches the tangible apparatus.  In other words, class 705 relates to business method patents and the processing of financial data.

For fun I recently logged into PatentCore, which provides statistical information about each Art Unit and all of the patent examiners, in order to find out what I could learn about class 705. There are 10 Art Units assigned to examine patent applications assigned to class 705. See Classes Arranged Numerically with Art Unit. What I found out about certain Art Units was astonishing.

Currently, the data in this system is a collection of approximately 1.2 million patent files, and is on track to have 1.5 million by the end of January 2012.  For those Art Units assigned to class 705 there are 14,307 patent files loaded into the PatentCore system, which is certainly not all of the patent files from class 705, but by any fair measure this is a very meaningful subset.  After all, without a tool like this those who sought to do any kind of statistical analysis were left to randomly select several dozen, or maybe several hundred, files in order to attempt to identify patterns.

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Upon reviewing the data from PatentCore I was struck by the difference in allowance rate between the 10 Art Units assigned to class 705.  The table below shows great variation.  The percent allowed is reached by taking the number of cases allowed and dividing by number of cases allowed plus the number of cases abandoned.  Pending cases were not considered.

Generally speaking, there are a lot of factors that go into allowance rate.  With class 705, however, there are far more than meet the eye.  Back in about 2005 the United States Patent and Trademark Office started clamping down on these types of patents, subjecting them to a so-called “two-pair of eyes” review before allowing a patent.  That meant that any allowance had to be confirmed by a second examiner.  As you can probably imagine the allowance rate dropped significantly.

Furthermore, in 2008 the United States Court of Appeals for the Federal Circuit decided Bilski and announced the machine-or-transformation test, which essentially rendered many patent applications unpatentable due to the drafting techniques used years earlier when the application was originally filed.  The Supreme Court largely adopted the Federal Circuit test and today the machine-or-transformation test is best viewed as a safe harbor; satisfy it and you have a patentable invention.  Nevertheless, from at least 2002 through today there has been an evolving understanding of what is required to obtain a patent in class 705, so lower than expected allowance rates shouldn’t necessarily be a cause for alarm.

But how do you explain what the data shows for Art Unit 3622 and Art Unit 3689?  Even discounting for evolving standards and allowing some leeway for data sample size, a 6.8% and 4.3% allowance rate seems quite low.  Intrigued, I drilled deeper.

With respect to Art Unit 3622, here is just some of the information I discovered from PatentCore:

• Average time between filing date and patent issuance ~ 5 years, 9 months, 9 days
• Application with shortest pendency before patent issuance ~ 1 year, 3 months, 27 days
• Application with longest pendency before patent issuance ~ 10 years, 0 months, 29 days
• 16.4% of cases allowed required the filing of a notice of appeal
• 66.7% of appealed cases lead to patent issuance after BPAI decision

With respect to Art Unit 3689, here is just some of the information I discovered from PatentCore:

• Average time between filing date and patent issuance ~ 7 years, 4 months, 9 days
• Application with shortest pendency before patent issuance ~ 4 years, 9 months, 14 days
• Application with longest pendency before patent issuance ~ 9 years, 3 months, 9 days
• 77.8% of cases allowed required the filing of a notice of appeal
• 71.4% of appealed cases lead to patent issuance after BPAI decision

What these numbers tell you is if your application is in Art Unit 3622 or 3689 you are in for a long wait to obtain a patent.  The numbers also show that if you carry the case all the way through appeal there is quite a high success rate for applicants; 66.7% when in Art Unit 3622 and 71.4% when in Art Unit 3689.

It is hard to know for sure what is going on in Art Units 3622 and 3689, but one number jumps out at me as particularly alarming.  In Art Unit 3689 nearly 4 out of 5 of the applications they allow require the applicant to hop on the appeal track.

Let’s assume for a moment that we lived in a world where clients simply gave up and didn’t pursue appeals to the Board.  That isn’t so far fetched really, is it?  How many clients do you have that simply abandon applications when they can’t get anywhere with the patent examiner?  Sure there is recourse — the appeals track — but that is a long, arduous and expensive path.  In class 705 how many technologies will remain commercially viable and exploitable after an 8 or 9 year wait that is typically required for applications that require an appeal?

We all know clients will decide to abandon patentable inventions because of the time and cost involved with appealing an examiner decision.  So it is certainly worthwhile to look at the subset of patent applications that were granted or abandoned without following the appeal track.  If you were to focus on those cases that were not appealed this is what the allowance rate would look like:

The percentage of allowed cases does not appreciably drop when you remove appealed cases from the Art Unit 3622 statistics, but the percentage of allowed cases is more than cut in half for Art Unit 3689.  Something just doesn’t seem right about an Art Unit where you have a 2% chance of getting a patent without an appeal and a 77.8% chance of getting a patent if you pursue an appeal.

There does not seem to be a bias against or in favor of large or small companies in Art Units 3622 and 3689.  Rather it seems everyone has difficulty getting patents. Of course, the appeals are going to be mostly (if not exclusively) from the well funded, which is unfortunate but just the way the legal system is set up both inside and outside the Patent Office. Nevertheless, it might be useful to take a look at the top 10 owners/assignees within the Art Units according to the information contained in PatentCore.

Art Unit 3622 Top 10

1. MICROSOFT CORPORATION
2. INTERNATIONAL BUSINESS MACHINES CORPORATION
3. YAHOO! INC.
4. AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC.
5. GOOGLE INC.
6. FUJITSU LIMITED
7. NEC CORPORATION
8. FIRST DATA CORPORATION
9. IGC SYSTEMS, INC.
10. RETAILDNA, LLC

Art Unit 3689 Top 10

1. INTERNATIONAL BUSINESS MACHINES CORPORATION
2. FUJITSU LIMITED
3. MICROSOFT CORPORATION
4. GENERAL MOTORS CORPORATION
5. CATERPILLAR INC.
6. FORD MOTOR COMPANY
7. SAP AG
8. GENERAL ELECTRIC COMPANY
9. HON HAI PRECISION INDUSTRY CO., LTD.
10. AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC.

Conclusion

What does this all mean?  It appears as if there are several Art Units tasked with examining in class 705 that make it very difficult to obtain a patent without at least filing a notice of appeal.  That information is critical for attorneys and agents to have.  Frequently clients blame the attorney or agent because they believe that the Patent Office couldn’t make it so difficult to obtain a patent.  Unfortunately, there are what seem to be pockets of resistance within the Patent Office.  You absolutely need to set client expectations.

PatentCore data, which can be drilled down to each examiner within the Art Unit, makes it possible to set client expectations, but also to engage in strategy.  If you get stuck with an examiner that doesn’t seem to issue many patents or in an Art Unit like 3689 where there is a 2% chance you will get a patent without an appeal, you might find it worthwhile to immediately file a new patent application that articulates the invention in a slightly different way in order to attempt to get assigned to a different Art Unit.

For example, take a look at U.S. Patent No.7,228,226 for a method of analyzing commuting routes.  Doesn’t this look like a business method patent?  Yet it was assigned to Art Unit 3661, which according to PatentCore has an allowance rate of 84.4% (2,838 allowances and 526 abandoned applications) and only an average wait to a patent of 3 years and 6 days.  The ‘226 patent was issued in just a few months without acceleration!

Armed with statistical information patent attorneys and patent agents can now better prepare clients for the realities of patent prosecution, but we can also now engage in strategic lawyering in order to better represent our clients.