Business Method Patents

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  • 1. Business Method Patents : A Study in the US and the EU Sudipta De Sarkar. LL.M. 08-35. LL.M. 2 nd Year (IPR) NALSAR University of Law, Hyderabad.
  • 2. What it is :
    • “ Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter or any new and useful improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of this title”……..Section 101,Title 35.
    • can be defined as an utility patent which involves “ a method of doing or conducting business”;
    • 1) manufacturing: producing the goods or services;
    • (2) selling: marketing and distributing the goods or services;
    • (3) accounting: keeping records about the goods or services;
  • 3. The Business Method Patent Improvement Act, 2000
    • Section 2 of the Act defined the term ‘business method’ as
    • (1) a method of administering, managing, or otherwise operating an enterprise or organization, including a technique used in doing or conducting business; or (B) processing financial data ;” and as
    • (2) any technique used in athletics, instruction, or personal skills ; and as
    • (3) any computer-assisted implementation of a method described in (1) or technique described in (2 ).
  • 4. Some Examples of BMPs :
    • a business form with novel headings ;
    • A method of parking cars at a drive-in theatre that optimizes viewing angles ;
    • a vending process for use in selling stocks and other commodities ;
    • a method for implementing an interstate and national fire-fighting system ;
    • a “ one-click checkout method ” for use on the Internet, as patented by
  • 5. …… ..examples contd.
    • an “ online reverse auctioning service ” for items such as airline tickets, automobiles, hotel rooms, mortgages, etc., as patented by ;
    • a “ process for selling content (including downloadable books and film) directly to consumers at remote locations without having to stock warehouses full of products at those locations ”, assigned to E-Data Corp ;
    • a “ method for administering mutual funds ” assigned to Signature Financial Group, Inc
  • 6. Software patents and BMPs
    • Similarity in confusion persists due to :
    • lack of physical existence;
    • no definite location; and
    • the capacity to blur idea and expression.
    • The relationship :
    • Universal Truth + Construction = New Method + New Machine
    • Algorithm + Software Design = New Business Method
  • 7.
    • ……… but difference is there
    • One Product-Many Patents
    • One Patent-Many Products, et al.
  • 8. Development in the US Legislative and administrative.
    • Removal of the business method exception, Post State Street, results in a huge rush;
    • The issuance of ‘bad’ business method patents;
    • for example :
    • business method “ for quickly choosing and measuring the correct spices for specific cuisines ”;
    • a method for swallowing a pill;
    • a method for putting a golf ball;
    • method for doing exercise by lifting a box. etc.
  • 9.
    • The First Inventor Defense Act,2000 brings in the “First inventor defence”.
    • The Business Method Patent Improvement Act of 2000 introduced in the House of Representatives.
    • Similar Bill introduced in 2001.
  • 10.
    • U.S.P.T.O. action : The Business Methods Patents Initiative,2000.
    • It was a two-pronged program : Industry outreach and quality improvement.
    • The Quality Improvement Plan and Second Pair of Eyes Review (SPER).
    • The Community Patent Review Project : Peer to Peer Patent Review.
  • 11. Judicial Approach in the US
    • Second Circuit develops this exception in Hotel Security Checking Co. v. Lorraine Co ; but ground of rejection was lack of novelty.
    • Court of Appeals for the Federal Circuit , formed in 1982, favours adopting this approach.
    • But the US Supreme Court adopts expansive interpretation in Diamond v. Chakraborty
  • 12. The build-up to State Street……..
    • USPTO sticks to its original position, citing federal circuit rulings, and holds BMPs as non-patentable subject matter;
    • Section 706.03 MPEP, issued by the PTO, classifies BMPs as not being within the statutory classes;
    • Dissenting opinion in In Re Schrader( Fed. Cir.1994), deems the ‘exception’ as being obsolete and error prone, worthy of retirement from Section 101.
  • 13.
    • In 1996, PTO deletes Section 706.03 from the MPEP;
    • PTO 1996 guidelines for computer related inventions asks for BM claims to be treated as normal process claims;
    • These prepare the ground for the ruling in State Street Bank.
  • 14. State Street v. Signature Financial.
    • Patent directed at a hub-and-spoke system for implementing an investment structure;
    • Unanimous decision favours the BMPs as patentable subject matter;
    • Held, “ so long as algorithms are reduced to some type of practical application (that is, a useful, concrete, and tangible result), they become patentable .”
    • The business method exception was rejected as an “ ill-conceived doctrine merely represented the application of some general, but no longer applicable legal principl e”
  • 15.
    • The Court concludes that “ patentability should not turn on whether the claimed subject matter does ‘business’ instead of something else ”;
    • “ any overly broad patent claims should be handled by the traditional patentability requirements of novelty, non-obviousness and definiteness”;
    • Decision re-affirmed in AT&T Corp v. Excel Communications : Court upholds the State Street test over the ‘physical transformation test’.
  • 16. Consequences of the ruling…..
    • State Street ruling hailed as the advent of a ‘industrial age’; the judiciary was complemented for shedding the “illusions of physicality” and recognizing “innovations” in a much broader sense.
    • The First Inventor defence was predicted for widespread usage;
    • USPTO flooded with BM claims. In 1999, 2600 applications received, of which 301 were granted; In 2000, over 7500 applications were received, of which over 1000 were granted.
  • 17. Status of BMPs in the EU
    • In 2000. the European Commission invites consultation on patentability of “ computer-related inventions ”.
    • The prime motive was the US position after State Street case, and economic considerations.
    • Study Contract and Consultation paper issued for checking feasibility.
  • 18.
    • Study Contract recommended that lowering patentability threshold might result in issuance of bad patents. Thus , technical contribution by the BMP was said to be a requisite.
    • The Consultation Paper suggested harmonization of EU and US laws, but stated requirements of being “ susceptible of industrial application ”, which can be satisfied only if it makes any “ technical contribution ”.
  • 19.
    • The Consultation Paper divided BMPs into 2 categories :
    • Technical BMPs, and
    • Non Technical BMPs.
  • 20.
    • Pension Benefits Systems case - T 0931/95 [2002]
    • The judgment in the case held that “ the technical character of the invention is not enough, but that the inventive step should be of a technical nature as well ”
    • This has given rise to the “technical contributions requirement”
  • 21. The EPOs Position
    • If the claimed invention is a method of conducting business, disconnected with an apparatus from carrying out that claim, it will fail under Articles 52(2) and 52(3) of the EPC.
    • However, if directed at an apparatus, it will be judged under the steps of industrial application, novelty and involving an inventive step, which must make some “technical contribution”
  • 22. The Problem faced in cases of BMPs.
    • Database limitations in the search of prior art;
    • Patent examiners lacking expertise;
    • Over-zealous patenting may harm competition; etc.
  • 23. Remedial Measures.
    • The First Inventor Defense;
    • Jeff Bezo’s recommendations to reduce the life span of these ‘special patents’ to about 3-5 years, with at least 1 month time given for public comments, prior to its issuance.
    • The USPTO plan involving Industry outreach and Quality Improvement;
    • Recommendations of AIPLA.
    • ………… contd .
  • 24.
    • Contd…..
    • BMPs should be protected under the same framework of laws as governing other patents;
    • PTO should build a database adequate for prior art search;
    • PTO must hire well trained examiners;
    • Third party examination should be allowed;
    • The inventor in US should not be unfairly disadvantaged against his competitor as in the EU or any other
  • 25. The judgment in Bilski
    • It rejected the “useful, concrete and tangible” test of State Street judgment.
    • In its place, it reaffirmed the “machine or transformation” test.
    • Had left the ‘machine” part of the test to future cases but ruled that the “transformation’ must be central to the purpose of the claimed process.
  • 26. Bilski and other tests :
    • Freeman-Walter-Abele Test: Deemed “inadequate.”
    • Alappat’s and State Street’s Useful, Concrete, and Tangible Test: Deemed “insufficient.”
    • Technological Arts Test: Deemed “unclear.”
    • Categorical Business Method Exclusion: Deemed “unlawful.”
    • Physical Steps Test: Deemed nonexistent
  • 27. Possible Outcome of Bilski’s appeal…..
    • Supreme Court may substantively follow the “machine or transformation” test but make it less restrictive;
    • The Supreme Court can adopt a stricter approach, by making the test definitive;
    • It can hold that pure business methods are not patent-eligible because they are essentially abstract ideas, and remain silent for the time what types of hybrid business method patents may qualify.
    • the Supreme Court can create a general categorical exclusion for business methods, making both pure business method and hybrid business method processes unpatentable
  • 28.
    • I believe that the Court is more likely to adopt the first option ,i.e., make the test as a guiding test. Moreover, there will be
    • There will be judgment on the “machine” part of the test;
    • There will be a division among BMPs, on the grounds as in EU;
    • Any recent development in the US will have a reaction on EU, possibly bringing the much awaited EU legislation on the subject
  • 29.
    • Thank You