Recognizing What Is Patentable In An Insurance Product

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Part Three of a Series

One television network used the idea that if you hadnt seen its programming before, its new to you in order to promote the summer reruns. That was an innovative approach to selling used stuff. In patents, however, ignorance of the past does not make an old idea new again. Patentability is bestowed on inventions that are publicly new to everybody. They also have to be useful and “not obvious.”

Usefulness is a fairly easy threshold to meet. An invention needs only to have some credible, “specific and substantial utility” to be patentable. In the field of software, it must produce a “useful, concrete and tangible result.” A software program that merely manipulates numbers does not have utility. However, if the resulting numbers can make a useful product, such as the price for an insurance offering or an illustrated benefit result, then the software meets the utility requirement.

“Not obvious” is a much more difficult threshold to meet. The full quote from the law is:

“A patent may not be obtainedif the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains.”

The term “obvious” has been given specific meaning in the United States Patent and Trademark Office through various court cases. This meaning is subtly and significantly different from its common meaning. In everyday usage “obvious” means “what another skilled person might have done in a similar situation.” In the patent office, however, it means, “what another skilled person might have done if they relied only on what the prior art has taught or suggested.” If its not in the prior art, its not obvious.

To the patent office “prior art” is any written publication that was publicly available prior to the date an invention was made.

Misunderstanding this difference in meaning leads to missed opportunities in terms of what can and cannot be patented. Too often, inventors dismiss the patentability of their innovations because they figure “anyone could have done it.” Alternatively, inventors can be overconfident in the patentability of their innovations because they are not fully aware of everything previously published in their area. The solution to both problems is to do a thorough prior art search before a patent application is filed.

In his or her innovative, “ah ha” moment of invention, the path to an inventive solution may, indeed, be obvious to the inventor. There is absolutely no requirement that invention be difficult or take a long time. Its the rest of us who need to be impressed by the inventors ability to put together perhaps ordinary materials or methods in ways they have never been combined before to produce a surprising result. If you are an inventor and you can surprise yourself, all the better.

Thomas Frey of the DaVinci Institute sees innovation and invention as being composed of a series of failures capped ultimately by a final success. This implies that a characteristic of innovation is that it is a process that almost always involves early failure. This characteristic is completely at odds with the way companies in general, and especially insurance companies, are managed. Failure, especially repeated failure, is not normally tolerated. It can get to be rather expensive.

So, it could be said that you can recognize innovation by the failures that precede it and anticipate it by the level of determination in the inventor. Determination is critical in getting a patent because the process can take years.

In the world of insurance, innovation leading to a patentable invention almost always involves what is called a “business method.” A business method is an abstract idea of a new or better way to do business. But, an abstract idea alone is not patentable. Typically, in the insurance industry the abstract idea is made practical as a computer implemented business method.

The Patent Office uses a classification schedule to keep track of the patents it issues. In 1997, the Patent Office created Class 705, which is titled: Data Processing, Financial, Business Practice, Management, or Cost/Price Determination. Generically this class defines what can be called business methods.

Class 705 has many subclasses. Subclass 4 is reserved for insurance business methods, which are described as computer implemented systems or methods. By way of example these methods include processes for writing insurance policies; processing insurance claims; marketing insurance; and may also include ways of structuring or packaging insurance products so as to produce new and useful results, such as insurance at reduced cost, reduced or spreading of risk, tailoring benefits to specific needs or claim exposures.

Insurance patents need not be specifically associated with a computer. Progressive Insurance, for example, recently patented its “pay as you go” auto insurance invention. The patent describes the logical steps required to determine an insurance cost for a vehicle based on the operator profile and monitored driving characteristics. The invention uses a computerized GPS plus cell phone system to monitor driving characteristics.

Since this is the first embodiment of a way to implement a “pay as you go” auto insurance product, however, Progressive has been able to claim exclusive right to any method of insuring a vehicle that incorporates all its steps, irrespective of whether or not a computer or any other specific piece of equipment is used to carry it out.

Usually, an innovative idea comes as the result of a search for a solution, or a better solution, to a problem. Innovation is, in a sense, problem-solving. Often it is based on improving the functionality of earlier problem-solving work done by others. Innovation that solves a problem clearly produces a tangible result and is going to be useful, assuming, of course, the problem needs a solution.

An important requirement of a patentable invention is that it must work. The inventor must describe his or her invention in a patent application with enough detail so that anyone else skilled in the art of the invention could make it and use it. If you cant do that, then you havent really invented anything and you will know how the “inventors” of cold fusion felt when they were denied a patent because no one as skilled in the art as they were could reproduce their results.

On the plus side of invention, however, you need not let current laws or regulations get in the way of your innovative spirit. Inventions may be patented even if they do not satisfy existing law or regulation. A patent, however, will not be issued if the invention is contrary to public policy. In the highly regulated insurance industry, focusing innovation only on that which is permitted or enabled by existing law or regulation could be quite inhibiting.

Insurance law and regulation tends to narrowly focus on existing practice, as does tax law affecting insurance products, because of a philosophy that that which is not being done does not need to be regulated. Accelerated Death Benefit provisions provide what many feel to be a valuable additional benefit in a life insurance policy, but they initially stretched existing tax law, which eventually was changed to accommodate the new, inventive benefit.

So, if you have an idea youve been mulling over for a while and are afraid someone else might steal it, you might have valuable intellectual property worth protecting with a patent. The process of applying for a patent is the subject of the next article in this series.

Tom Bakos, FSA, MAAA, is a consulting actuary with Tom Bakos Consulting Inc., Ridgway, Colo. He can be reached via e-mail at tbakos@BakosEnterprises. com.

Mark Nowotarski is with Markets, Patents & Alliances, Stamford, Conn. He can be reached at mnowotarski@ marketsandpatents.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, May 26, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.