Business method patents cover most forms of pay-as-you-drive (PAYD) insurance. These patents are a barrier to companies offering such insurance, but they appear to be vulnerable to challenge. The landmark U.S. Federal Circuit Court of Appeals decision, State Street Bank & Trust Company v. Signature Financial, Inc., led to a step change increase in the number of business method patents issued. Whatever the willingness to license the PAYD patents may be, no known licenses have been issued to date within the U.S. and executives at insurance companies have been reluctant to move forward to test PAYD insurance because of these patents. Section 103 of the Patent Act does not permit patenting a would-be invention if obvious to a person of ordinary skill in the pertinent art at the time the invention was made. In the case of PAYD insurance, the literature (or prior art as it is known in patent law) contains many examples of it being contemplated, potentially making the patents covering such insurance vulnerable to reexamination or court challenge. Of further significance, the April 2007 U.S. Supreme Court ruling in KSR International Co. v. Teleflex, Inc., rejected a widely-used narrow definition of the term obvious, which appears to make the subject patents even more vulnerable. Should these patents fall, the opportunity exists to achieve substantial decreases in congestion, greenhouse gas emissions, air pollution, crash injuries and fatalities, and insurance claims, all following directly from the 9 to 20 percent voluntary reduction in driving that various studies project would result from PAYD insurance.
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