Part I: General Patent Challenges in the Insurance and Workers’ Compensation Industry 

The United States Patent and Trademark Office (USPTO) has its early origins at the beginnings of the U.S. government. It was established by the Patent Act of 1790 and was signed into law by President George Washington on April 10, 1790. The act structured a system and process for granting patents and set up a then three-person committee, including the secretary of state (Thomas Jefferson), the secretary of war (Henry Knox), and the attorney general (Edmund Randolph), to review patent applications. This group was known as the “Commissioners for the Promotion of Useful Arts.”  

Understanding Patent Rights and Benefits 

A patent is a legal right granted by the government that provides an “inventor” exclusive control over their “invention” for a specific period, typically 20 years from the date of filing. This legal right prevents others from making, using, selling, or distributing the patented invention without the inventor’s permission. The purpose of patents is to encourage innovation by providing inventors with the assurance that their time and resources will be protected and provide benefit from their creative work. For professionals in the insurance industry, patents might seem like a  vague legal concept typically reserved for hi-tech companies or complicated manufacturing processes. However, as many industries increasingly integrate AI and other advanced technologies, understanding patents becomes crucial for protecting intellectual property, maintaining a competitive edge, and understanding opportunity for further advancement of efficiency and utility in the insurance sector. 

Approving Patents with  the USPTO  

The USPTO is the federal agency responsible for reviewing patent applications and deciding whether an invention qualifies for patent protection. The process of securing a patent involves several steps, beginning with the invention itself. The idea must be new, non-obvious, and useful to be considered for a patent. In the insurance field, this might involve developing a new software tool to streamline workers’ compensation claims processing or an algorithm to improve the accuracy of impairment ratings. Once the invention is clearly defined, it is advisable to conduct a thorough patent search to determine whether similar inventions already exist. If a comparable tool or method is already patented, any invention must offer something significantly different or improved to be considered for a patent. 

Once the invention is found to be novel, the next step is to file a patent application. This application must detail the invention thoroughly, explaining how it works, the specific problem it solves, and how it differs from existing solutions or “prior art.” The USPTO assigns an examiner who will review the application to ensure that the invention meets the legal requirements of novelty, non-obviousness, and utility. If the examiner determines that the invention meets these criteria, the patent will be granted. If not, the application may be rejected. However, applicants have the opportunity to appeal the decision or amend the application to address the issues raised by the examiner. 

Characteristics of a Patentable Invention 

Any invention being submitted to the USPTO for patent approval must demonstrate the following characteristics:  

Novelty 

A key question for any patent application is whether the invention is truly patentable. For an invention to qualify as a patent, it must meet several critical legal standards. One of the most important is “novelty.” To be considered novel, an invention must be new—something that has not been previously known, used, or patented by others practiced in the art. For example, if a company in the insurance industry develops a software tool that integrates workers’ compensation data with impairment rating models in a novel way, it may be eligible for a patent. However, if similar tools already exist, this new version must offer substantial improvements, benefits, or differences to meet the novelty requirement. 

Non-Obviousness 

It is important to understand the standard for “non-obviousness,” in the eyes of the USPTO. An invention cannot simply be an obvious improvement on an existing technology or practice; it must involve some degree of innovation that would not be readily apparent to someone skilled in the field. This is often a subjective determination, and disputes over what is or isn’t “obvious” frequently arise in patent applications. For example, if an invention is a software tool that automates a workers' compensation claims process that adjusters have been manually performing for years, it might be considered obvious. However, if the tool uses a novel algorithm that analyzes claims data in a unique way to predict outcomes or describe claim conditions more accurately, it may pass this non-obviousness test. 

Utility 

The final key requirement for patentability is utility. An invention must have some practical use or provide a benefit in the field to be considered for a patent. This is also referred to as “utility.” In the context of the insurance industry, this could mean developing a tool that improves efficiency, accuracy, or decision-making in claims processing. For instance, a software system that can predict when a workers' compensation claimant will reach Maximum Medical Improvement (MMI) could offer substantial utility by helping adjusters manage claims more effectively, set reserves, and create management timelines to substantially reduce settlement times, while bringing a new level of standardization to the process. 

Even when an invention meets these basic criteria, there are still significant legal challenges that may need to be addressed. One of the most important ones, particularly for software-related inventions, is the issue of abstract ideas. In the landmark Supreme Court case Alice Corp. v. CLS Bank International [573 U.S. 208 (2014)], the court ruled that abstract ideas including basic economic principles or generic algorithms, are not patentable unless they are applied in a novel and non-obvious way. This ruling has continued to carry important implications for injury-pricing innovations in the insurance industry, which often involve processes or calculations that could be considered abstract. 

Uniqueness 

For example, if you develop a piece of software that automates a claims process that is already well-established in the industry, the courts may consider this an abstract idea and reject the patent application. However, if the software introduces a unique approach—such as a new algorithm that predicts claim reserves based on a complex set of inputs and resultant action items—it may have an improved chance of passing the abstract idea test. The distinction between an abstract idea and a patentable invention often depends on how the idea is implemented and whether it offers a novel technological solution that addresses a recognized industry-specific or larger societal problem. 

Challenges Patenting Algorithms 

There are other challenges around the patentability of algorithms. Algorithms serve at the core of software innovations in the insurance industry. Courts have generally ruled that mathematical algorithms alone are abstract ideas and not patentable. This means that for an algorithm to be eligible for a patent, it must be applied to solve a specific technical problem and/or a unique solution to a challenge in the field. For example, an algorithm that calculates impairment ratings based on workers’ compensation data might not be patentable on its own. But if the algorithm applies the data in a novel way, such as data matching and augmentation that significantly improves the accuracy of impairment ratings or streamlines claims processing, it may be considered patentable. 

Seeking Legal Advice 

Given the complexity of the patent process and the legal challenges that arise, it is essential to seek professional guidance when navigating this landscape and approaching idea design. Patent law is highly technical and specific, particularly in industries like insurance and workers’ compensation where innovation often involves software and relies heavily on data analysis. A patent attorney group with experience in these areas can help determine whether an idea is likely to be considered novel, non-obvious, and useful enough to qualify for patent protection. 

Patent attorneys require both a technical and/or a scientific background and legal training. They typically hold an undergraduate degree in majors like engineering, biology, chemistry, or computer science, which is required to sit for the USPTO Patent Bar Exam. After completing a technical degree, they go on to earn a Juris Doctor (JD) from law school, where they focus on intellectual property law. Once they pass both the state and patent bar exams, they are qualified to practice patent law, helping to guide development and protect intellectual property rights for inventors and companies. 

Protecting IP in an AI World 

In conclusion, patents offer major opportunities for innovation in the insurance industry and workers’ compensation, particularly as new technologies like artificial intelligence and data analytics become more integrated into workers' compensation and impairment rating processes. As noted in this article, the path to obtaining a patent is not always straightforward, and navigating the legal standards for patentability is critical. In this first part of a two-part series, the concept of the basic patents process of obtaining invention protection through the USPTO is discussed.  

Part II will examine how emerging technologies, particularly AI, complicate the patent process and add a new layer of nuance and complexity to securing patents for innovations in the insurance field. By understanding the foundational principles and the more advanced challenges, insurance professionals can better understand the value of the patent process and better design and protect new intellectual property in an increasingly competitive industry arena.  

About the Authors 

John Alchemy, M.D., QME, DABFP, has 30 years of clinical and legal experience in California Workers' Compensation. He is the founder of Impairment Ratings Specialists, A Medical Corporation, and Alchemy Logic Systems, operating as RateFast, an industry-leading software and data analytics platform for workers' compensation. Dr. Alchemy holds eight USPTO patents in the fields of insurance, impairment rating, and database validation and design, with additional patents pending. 

Avery Steffen, J.D., graduated from UCLA Law School in 2023 and is actively practicing in Sacramento, Calif. He has experience in the California workers' compensation administrative system. Mr. Steffen has authored educational articles for the California Medical Unit's continuing education program with the retired judge Hon. Steve Siemers, focusing on impairment rating for qualified medical evaluators. 

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