When one thinks of patents, the insurance industry seldom comesto mind. Yet as a professional in the insurance industry, you mayone day find it necessary to obtain a patent. Approximately 175insurance-related patents have been issued by the U.S. Patent andTrademark Office.

In general, a patent represents the grant of a property right toan inventor, issued by the Patent and Trademark Office. The rightconferred by the patent grant is, in the language of the statuteand of the grant itself, the right to exclude others from making,using, offering for sale, or selling the invention in the U.S. orimporting the invention into the U.S.

Most insurance-related patents cover software. Consider, forinstance, U.S. Patent No. 6,128,598, entitled System and Method forGenerating and Executing Insurance Policies for Foreign ExchangeLosses. This patent covers a computerized method for providingforeign-exchange insurance policies that offer protection againstunpredictable foreign-exchange rate fluctuations.

An analysis of U.S. Patent Class 705/4, which is defined assubject matter drawn to a computer-implemented system or method forwriting an insurance policy or processing an insurance claim,reveals approximately 37 percent of insurance-related patentspertain to property/casualty insurance, 26 percent to lifeinsurance, 23 percent to health insurance, and the remaining 14percent to other types of insurance.

Although patents can be a powerful tool, they can be relativelycostly and time-consuming to obtain. An alternate option commonlyused in the insurance industry is simply to keep software programssecret. However, this tactic runs the risk that competitors may beable to discover how the program works (e.g., by reverseengineering) and then simply copy it.

In recent years, patents have been extended to subject matternot previously considered. For example, patents now can cover dataprocessing systems. One fascinating example that illustrates thecurrent landscape is the landmark State Street Bankcase.

The issue in State Street was whether a patent for adata processing system to implement an investment structure formanaging mutual funds was valid. The system, identified by theproprietary name Hub and Spoke, facilitated a structure wherebymutual funds (spokes) could pool their assets in an investmentportfolio (hub) organized as a partnership. The inventioncalculated and stored data representing the percentage share eachspoke fund holds in the hub portfolio, any daily activity affectingthe portfolios assets, and allocations of gains, losses, andexpenses to each of the spoke member funds.

Initially, the U.S. District Court found the patent invalidbecause it was directed to a mathematical algorithm and to a methodof doing business, which were asserted not to be subject matterpatentable under U.S. patent law. However, on appeal, the U.S.Court of Appeals for the Federal Circuit reversed and remanded,holding that the claimed process was patentable subject matter. Inso ruling, the court decided the mathematical algorithm exceptiondid not apply because the invention produced useful, concrete, andtangible results. Most important, the court took the opportunity tolay the ill-conceived business method exception to rest.

Even before the State Street decision was handed downin 1998, the U.S. Patent and Trademark Office had been issuing asmall number of insurance-related patents. What StateStreet did was to validate these patents and to remove anyuncertainty.

Although the business method exception no longer exists, thereare still various hurdles to be overcome before the Patent Officewill issue a patent. As with other types of inventions, aninsurance-related software program must be novel and nonobvious toone of ordinary skill. If you are considering patenting as anoption, your patent attorney should not only understand the legalissues but also the business itself.

George D. Morgan is a registered patent attorney. He can bereached at [email protected].