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 Univ...
What it is : <ul><li>“ Whoever invents or discovers any new and useful process, machine, manufacture, or composition of ma...
The Business Method Patent Improvement Act, 2000 <ul><li>Section 2 of the Act defined the term ‘business method’ as  </li>...
Some Examples of BMPs : <ul><li>a business form with novel headings ; </li></ul><ul><li>A method of parking cars at a driv...
…… ..examples contd. <ul><li>an “ online reverse auctioning service ” for items such as airline tickets, automobiles, hote...
Software patents and BMPs  <ul><li>Similarity in confusion persists due to : </li></ul><ul><li>lack of physical existence;...
<ul><li>……… but difference is there </li></ul><ul><li>One Product-Many Patents </li></ul><ul><li>One Patent-Many Products,...
Development in the US Legislative and administrative. <ul><li>Removal of the business method exception, Post State Street,...
<ul><li>The First Inventor Defense Act,2000 brings in the “First inventor defence”. </li></ul><ul><li>The Business Method ...
<ul><li>U.S.P.T.O. action : The Business Methods Patents Initiative,2000. </li></ul><ul><li>It was a two-pronged program :...
Judicial Approach in the US <ul><li>Second Circuit develops this exception in  Hotel Security Checking Co. v. Lorraine Co ...
The build-up to State Street…….. <ul><li>USPTO sticks to its original position, citing federal circuit rulings, and holds ...
<ul><li>In 1996, PTO deletes Section 706.03 from the MPEP; </li></ul><ul><li>PTO 1996 guidelines for computer related inve...
State Street v. Signature Financial. <ul><li>Patent directed at a hub-and-spoke system for implementing an investment stru...
<ul><li>The Court concludes that “ patentability  should not turn on whether the claimed subject matter does ‘business’ in...
Consequences of the ruling….. <ul><li>State Street ruling hailed as the advent of a ‘industrial age’; the judiciary was co...
Status of BMPs in the EU <ul><li>In 2000. the European Commission invites consultation  on patentability of “ computer-rel...
<ul><li>Study Contract recommended that lowering patentability threshold might result in issuance of bad patents. Thus , t...
<ul><li>The Consultation Paper divided BMPs into 2 categories : </li></ul><ul><li>Technical BMPs, and  </li></ul><ul><li>N...
<ul><li>Pension Benefits Systems case -  T 0931/95 [2002]  </li></ul><ul><li>The judgment in the case held that “ the tech...
  The EPOs Position <ul><li>If the claimed invention is a method of conducting business, disconnected with an apparatus fr...
The Problem faced in cases of BMPs. <ul><li>Database limitations in the search of  prior art; </li></ul><ul><li>Patent exa...
Remedial Measures. <ul><li>The First Inventor Defense; </li></ul><ul><li>Jeff  Bezo’s  recommendations to reduce the life ...
<ul><li>Contd….. </li></ul><ul><li>BMPs should be protected under the same framework of laws as governing other patents; <...
The judgment in Bilski <ul><li>It rejected the “useful, concrete and tangible” test of State Street judgment. </li></ul><u...
Bilski and other tests : <ul><li>Freeman-Walter-Abele Test: Deemed “inadequate.” </li></ul><ul><li>Alappat’s and State Str...
Possible Outcome of Bilski’s appeal….. <ul><li>Supreme Court may substantively follow the “machine or transformation” test...
<ul><li>I believe that the Court is more likely to adopt the first option ,i.e., make the test as a guiding test. Moreover...
<ul><li>Thank You </li></ul>
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Business Method Patents

  1. 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. 2. What it is : <ul><li>“ 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. </li></ul><ul><li>can be defined as an utility patent which involves “ a method of doing or conducting business”; </li></ul><ul><li>1) manufacturing: producing the goods or services; </li></ul><ul><li>(2) selling: marketing and distributing the goods or services; </li></ul><ul><li>(3) accounting: keeping records about the goods or services; </li></ul>
  3. 3. The Business Method Patent Improvement Act, 2000 <ul><li>Section 2 of the Act defined the term ‘business method’ as </li></ul><ul><li>(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 </li></ul><ul><li>(2) any technique used in athletics, instruction, or personal skills ; and as </li></ul><ul><li>(3) any computer-assisted implementation of a method described in (1) or technique described in (2 ). </li></ul>
  4. 4. Some Examples of BMPs : <ul><li>a business form with novel headings ; </li></ul><ul><li>A method of parking cars at a drive-in theatre that optimizes viewing angles ; </li></ul><ul><li>a vending process for use in selling stocks and other commodities ; </li></ul><ul><li>a method for implementing an interstate and national fire-fighting system ; </li></ul><ul><li>a “ one-click checkout method ” for use on the Internet, as patented by Amazon.com </li></ul>
  5. 5. …… ..examples contd. <ul><li>an “ online reverse auctioning service ” for items such as airline tickets, automobiles, hotel rooms, mortgages, etc., as patented by Priceline.com ; </li></ul><ul><li>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 ; </li></ul><ul><li>a “ method for administering mutual funds ” assigned to Signature Financial Group, Inc </li></ul>
  6. 6. Software patents and BMPs <ul><li>Similarity in confusion persists due to : </li></ul><ul><li>lack of physical existence; </li></ul><ul><li>no definite location; and </li></ul><ul><li>the capacity to blur idea and expression. </li></ul><ul><li>The relationship : </li></ul><ul><li>Universal Truth + Construction = New Method + New Machine </li></ul><ul><li>Algorithm + Software Design = New Business Method </li></ul>
  7. 7. <ul><li>……… but difference is there </li></ul><ul><li>One Product-Many Patents </li></ul><ul><li>One Patent-Many Products, et al. </li></ul>
  8. 8. Development in the US Legislative and administrative. <ul><li>Removal of the business method exception, Post State Street, results in a huge rush; </li></ul><ul><li>The issuance of ‘bad’ business method patents; </li></ul><ul><li>for example : </li></ul><ul><li>business method “ for quickly choosing and measuring the correct spices for specific cuisines ”; </li></ul><ul><li>a method for swallowing a pill; </li></ul><ul><li>a method for putting a golf ball; </li></ul><ul><li>method for doing exercise by lifting a box. etc. </li></ul>
  9. 9. <ul><li>The First Inventor Defense Act,2000 brings in the “First inventor defence”. </li></ul><ul><li>The Business Method Patent Improvement Act of 2000 introduced in the House of Representatives. </li></ul><ul><li>Similar Bill introduced in 2001. </li></ul>
  10. 10. <ul><li>U.S.P.T.O. action : The Business Methods Patents Initiative,2000. </li></ul><ul><li>It was a two-pronged program : Industry outreach and quality improvement. </li></ul><ul><li>The Quality Improvement Plan and Second Pair of Eyes Review (SPER). </li></ul><ul><li>The Community Patent Review Project : Peer to Peer Patent Review. </li></ul>
  11. 11. Judicial Approach in the US <ul><li>Second Circuit develops this exception in Hotel Security Checking Co. v. Lorraine Co ; but ground of rejection was lack of novelty. </li></ul><ul><li>Court of Appeals for the Federal Circuit , formed in 1982, favours adopting this approach. </li></ul><ul><li>But the US Supreme Court adopts expansive interpretation in Diamond v. Chakraborty </li></ul>
  12. 12. The build-up to State Street…….. <ul><li>USPTO sticks to its original position, citing federal circuit rulings, and holds BMPs as non-patentable subject matter; </li></ul><ul><li>Section 706.03 MPEP, issued by the PTO, classifies BMPs as not being within the statutory classes; </li></ul><ul><li>Dissenting opinion in In Re Schrader( Fed. Cir.1994), deems the ‘exception’ as being obsolete and error prone, worthy of retirement from Section 101. </li></ul>
  13. 13. <ul><li>In 1996, PTO deletes Section 706.03 from the MPEP; </li></ul><ul><li>PTO 1996 guidelines for computer related inventions asks for BM claims to be treated as normal process claims; </li></ul><ul><li>These prepare the ground for the ruling in State Street Bank. </li></ul>
  14. 14. State Street v. Signature Financial. <ul><li>Patent directed at a hub-and-spoke system for implementing an investment structure; </li></ul><ul><li>Unanimous decision favours the BMPs as patentable subject matter; </li></ul><ul><li>Held, “ so long as algorithms are reduced to some type of practical application (that is, a useful, concrete, and tangible result), they become patentable .” </li></ul><ul><li>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” </li></ul>
  15. 15. <ul><li>The Court concludes that “ patentability should not turn on whether the claimed subject matter does ‘business’ instead of something else ”; </li></ul><ul><li>“ any overly broad patent claims should be handled by the traditional patentability requirements of novelty, non-obviousness and definiteness”; </li></ul><ul><li>Decision re-affirmed in AT&T Corp v. Excel Communications : Court upholds the State Street test over the ‘physical transformation test’. </li></ul>
  16. 16. Consequences of the ruling….. <ul><li>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. </li></ul><ul><li>The First Inventor defence was predicted for widespread usage; </li></ul><ul><li>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. </li></ul>
  17. 17. Status of BMPs in the EU <ul><li>In 2000. the European Commission invites consultation on patentability of “ computer-related inventions ”. </li></ul><ul><li>The prime motive was the US position after State Street case, and economic considerations. </li></ul><ul><li>Study Contract and Consultation paper issued for checking feasibility. </li></ul>
  18. 18. <ul><li>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. </li></ul><ul><li>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 ”. </li></ul>
  19. 19. <ul><li>The Consultation Paper divided BMPs into 2 categories : </li></ul><ul><li>Technical BMPs, and </li></ul><ul><li>Non Technical BMPs. </li></ul>
  20. 20. <ul><li>Pension Benefits Systems case - T 0931/95 [2002] </li></ul><ul><li>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 ” </li></ul><ul><li>This has given rise to the “technical contributions requirement” </li></ul>
  21. 21. The EPOs Position <ul><li>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. </li></ul><ul><li>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” </li></ul>
  22. 22. The Problem faced in cases of BMPs. <ul><li>Database limitations in the search of prior art; </li></ul><ul><li>Patent examiners lacking expertise; </li></ul><ul><li>Over-zealous patenting may harm competition; etc. </li></ul>
  23. 23. Remedial Measures. <ul><li>The First Inventor Defense; </li></ul><ul><li>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. </li></ul><ul><li>The USPTO plan involving Industry outreach and Quality Improvement; </li></ul><ul><li>Recommendations of AIPLA. </li></ul><ul><li>………… contd . </li></ul>
  24. 24. <ul><li>Contd….. </li></ul><ul><li>BMPs should be protected under the same framework of laws as governing other patents; </li></ul><ul><li>PTO should build a database adequate for prior art search; </li></ul><ul><li>PTO must hire well trained examiners; </li></ul><ul><li>Third party examination should be allowed; </li></ul><ul><li>The inventor in US should not be unfairly disadvantaged against his competitor as in the EU or any other jurisdiction.et. </li></ul>
  25. 25. The judgment in Bilski <ul><li>It rejected the “useful, concrete and tangible” test of State Street judgment. </li></ul><ul><li>In its place, it reaffirmed the “machine or transformation” test. </li></ul><ul><li>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. </li></ul>
  26. 26. Bilski and other tests : <ul><li>Freeman-Walter-Abele Test: Deemed “inadequate.” </li></ul><ul><li>Alappat’s and State Street’s Useful, Concrete, and Tangible Test: Deemed “insufficient.” </li></ul><ul><li>Technological Arts Test: Deemed “unclear.” </li></ul><ul><li>Categorical Business Method Exclusion: Deemed “unlawful.” </li></ul><ul><li>Physical Steps Test: Deemed nonexistent </li></ul>
  27. 27. Possible Outcome of Bilski’s appeal….. <ul><li>Supreme Court may substantively follow the “machine or transformation” test but make it less restrictive; </li></ul><ul><li>The Supreme Court can adopt a stricter approach, by making the test definitive; </li></ul><ul><li>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. </li></ul><ul><li>the Supreme Court can create a general categorical exclusion for business methods, making both pure business method and hybrid business method processes unpatentable </li></ul>
  28. 28. <ul><li>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 </li></ul><ul><li>There will be judgment on the “machine” part of the test; </li></ul><ul><li>There will be a division among BMPs, on the grounds as in EU; </li></ul><ul><li>Any recent development in the US will have a reaction on EU, possibly bringing the much awaited EU legislation on the subject </li></ul>
  29. 29. <ul><li>Thank You </li></ul>

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