The inability to patent financial products directly makes it more challenging for a patent agent/attorney to serve their clients and for the clients, in turn, to get broadly effective patents on their inventions. They can’t directly claim a type of insurance product that incorporates their inventive business method. Instead they have to carefully analyze the underlying technological processes (typically embedded in computer software) required to implement their inventions in insurance products and try to patent those.

An excellent example of a successful effort in this area is US 6,235,176, "Computer apparatus and method for defined contribution and profit sharing pension and disability plan". The inventor, Matt Schoen, invented a way to incorporate disability coverage into a defined contribution employee 401k plan. If the employee became disabled, the insurer would continue the employee’s contributions. Matt did not and could not patent the disability product or policy itself. What he did patent was a computerized method for administering a large number of these policies. The patent was granted and Matt has since successfully licensed the patent to a third party. They, in turn, have brought a product enabled by the technological art disclosed in the patent to market.

The reason why financial products are not currently considered patentable by the US Patent Office is that they are not believed to be "statutory subject matter". The law, 35 U.S.C. 101, states that the only things you can get patents on are inventions that are either processes for doing something useful, a new composition of matter, a machine, or a manufactured item. A process for providing insurance is a process for doing something useful and the Court of Appeals for the Federal Circuit (effectively the supreme court for most patent cases) has ruled that it is therefore patentable. An insurance product, however, is considered by the US Patent Office to be a contract and not a "manufactured item" or any of the other three categories and hence is not patentable.

Many patent agents and attorneys disagree strongly with the Patent Office in this matter. Backed by their clients, they are working a number of rejected patents on financial products and insurance policies up through the appeals process. Elsewhere in this issue, for example, we mention that AIG just had a patent issue on a nuclear decommissioning insurance method (US 6,772,128 - see "AIG Joins the Issued Patent Club"). AIG’s patent attorneys originally included in their patent application claims on the insurance policy itself. They even put a copy of the policy form right in their application (US 2003/0033171 A1). They weren’t able to patent the insurance policy this time around, but they have since refilled the case and are trying again.

Of course, those familiar with the insurance business recognize that an insurance product is, essentially, an agreement between an insurance company and an insured. The insurance agreement is documented by the insurance policy. So, many other issues may be raised if it turns out that an "insurance policy" can be patented. There may be many consequences that we can only now imagine.