An Overview of the International Law of Business Method Patents

1. An Overview of the International Law of Business Method Patents John M. Conley University of North Carolina School of Law

2. The Catalyst: State Street Bank and Trust Co. v. Signature Financial Group, Inc. • 1998 Federal Circuit decision • “the judicially-created, so-called ‘business method’ exception to statutory subject matter” • “We . . . lay this ill-conceived exception to rest.” • Also patentable: a computerized process that yields a “useful, concrete and tangible result”

3. The Basics ofU.S. Patent Law

4. What Can Be Patented? • New, useful, nonobvious inventions • Patentable subject matter: machines, manufactures, compositions of matter, processes; improvements thereon • Can’t patent: abstract ideas, laws of nature (including pure mathematical algorithms), products of nature—because they’re not “inventions”

5. Enforcement • Suits against infringers—making, using, or selling • Infringer can prove invalidity of patent—court reviews all aspects of patentability • In US, much of review deferred until enforcement stage

6. The History ofUS Business Method Patents

7. They’re Not So New After All • Perkins (1789): System of detecting counterfeit banknotes • Hawkes (1867): “Improvement in Hotel-Registers” • Graves (1907): “A two-part insurance policy consisting of a paper containing an insurance contract . . . combined with a postal card”

8. Business Machines and Business-Related Industrial Processes Always Patentable • Kneas (1815): Improvement in banknote printing • Hollerith (1889): Mechanical punchcard system for processing business information—ancestor of IBM

9. The Critical Case: Hotel Security Checking Co. v. Lorraine Co. • Second Circuit (1908) • Hotel bookkeeping system; cash-registering and account-checking to prevent fraud • Court: “A system of transacting business disconnected from the means for carrying out the system is not . . . an art [now process].” • Subject matter? Novelty/nonobviousness?

10. Reaction to Hotel Checking • In re Patton (CCPA 1942): A method for transacting business, separate from the means, is not patentable subject matter. • USPTO MPEP§ 706.03(a) (through1996): “Though seemingly within the category of process or method, a method of doing business can be rejected as not being within the statutory classes.”

11. Erosion of the Hotel Checking Rule:The Software Influence • Computerization of business methods • Confusion from the Supreme Court on software: 1978 (Parker v. Flook) and 1981 (Diamond v. Diehr) decisions seemed to conflict • Lesson for patent lawyers: Hide the software in a conventional machine or process and you’re OK • The mathematical algorithm morass

12. More Erosion • Paine, Webber v. Merrill Lynch (D. Del. 1983): Hardware and software-based “securities brokerage cash management system” upheld • Ex parte Murray (USPTO Bd. App. & Interfer. 1988): “Whereas an apparatus or system capable of performing a business function may comprise patentable subject matter, a method of doing business generated by the apparatus or system is not.”

13. Setting the Stage forState Street • In re Schrader (Fed. Cir. 1994): Affirms PTO’s holding that a system of auction bidding is not statutory subject matter • BUT Federal Circuit relies on mathematical algorithm software rule, NOT business method exception • Judge Newman attacks business method exception in prophetic dissent

14. Meanwhile, back at the USPTO – • Business method bar deleted from MPEP in 1996 • Added to Examination Guidelines for Computer Related Inventions (also in ’96): “Claims should not be categorized as methods of doing business. Instead, such claims should be treated like any other process claims.”

15. State Street (1998) • Claim 1: “A data processing system for managing a financial services configuration of a portfolio established as a partnership, each partner being one of a plurality of funds, comprising [hardware and software]” • District Court rejected as abstract mathematical calculation and unpatentable business method

16. State Street: Federal Circuit • Not an unpatentable abstract algorithm/ calculation so long as it “produces a ‘useful, concrete, and tangible result’” • “A final share price momentarily fixed for recording and reporting purposes” passes this test • “Whether the claims are directed to [statutory] subject matter should not turn on whether the subject matter does ‘business’ instead of something else.”

17. Amazon.com v. barnesandnoble.com (Fed. Cir. 2001) • “A method and system for placing apurchase order via a communications network”—one-click online shopping, with and without shopping basket • Preliminary injunction dissolved—no probability of success • Novelty and nonobviousness questions, not subject matter

18. Recent USPTO Practice—PoolUS Pat. No. 6,460,020 (10/02) • “Universal Shopping Center for International Operation” • “A pre-transactional calculation of all charges involved in any international transaction,” including customs, freight, and insurance, done electronically in any language • Speculation: $2.4 billion in license fees?

19. Business Method Patents in Europe

20. EPC/EPO • As yet, no true “European” patent • EU patent forthcoming • EPO offers “bundle” of national patents • Basic standards not materially different from those in US

21. EPO Patentability Standards EPC Article 52: 1. European patents shall be granted for any inventions which are susceptible of industrial application, which are new and which involve an inventive step. (compare US utility, novelty, and nonobviousness)

22. EPO Patentability Standards(cont.) 2. The following in particular shall not be regarded as inventions within the meaning of paragraph 1: (a) discoveries, scientific theories, and mathematical methods; (b) aesthetic creations; (c) schemes, rules, and methods for performing mental acts, playing games or doing business, and programs for computers; (d) presentations of information.

23. EPO Patentability Standards(cont.) 3. The provisions of paragraph 2 shall exclude patentability of the subject matter or activities referred to in that provision only to the extent to which a European patent application or European patent relates to such subject matter or activities as such.

24. As Such: EPO Guidelines for Examination Schemes, rules, and methods for performing mental acts, playing games, or doing business In particular, a scheme for learning a language, a method of solving crossword puzzles, a game (as an abstract entity defined by its rules), or a scheme for organizing a commercial operation would not be patentable.

25. EPO Guidelines (cont.) However, if the claimed subject matter specifies an apparatus or technical process for carrying out at least some part of the scheme . . . , [i]n particular, if the claim specifies computers, computer networks or other conventional programmable apparatus, or a program therefor, for carrying out at least some steps of a scheme, it is to be examined as a “computer-implemented invention.”

26. EPO Guidelines on “Programs for Computers” • In the case of a method, specifying technical means for a purely nontechnical purpose and/or for processing purely nontechnical information does not necessarily confer technical character on any such individual step of or use on the method as a whole.

27. On the Other Hand . . . • On the other hand, a computer system suitably programmed for use in a particular field, even if that is, for example, the field of business and economy, has the character of a concrete apparatus, in the sense of a physical entity or product, and thus is an invention.

28. And Furthermore . . . • Insofar as the scheme for examination is concerned, no distinctions are made on the basis of the overall purpose of the invention, i.e., whether it is intended to fill a business niche, to provide some new entertainment, etc.

29. EPO Boards of Appeal Cases: Sohei (1994) • “A computer system for plural types of independent management including at least financial and inventory management” • Could not be excluded under Article 52; adequate technicality because “the file handling needs a knowledge of the capacities of the computer” • Ultimate business purpose irrelevant

30. EPO Cases: Pension Benefits Systems (2000) • (1) “A method of controlling a pension benefits program,” utilizing unspecified data processing and computing means • Rejected: “Does not go beyond a method of doing business as such” • (2) “An apparatus for controlling a pension benefits system”—upheld • Just a claim-drafting problem?

31. The EPO and Inventive Step • Unlike in US, inventive step must be in a technical area • Obvious computer implementation of nonobviousness business method will fail • EU Consultation Paper: “The fact that the technical contribution also has to be non-obvious is an important limitation on the patentability of computer-implemented inventions.”

32. So How Different Arethe US and EPO? • In both systems, business purpose and computer-implemented inventions not barred per se • Abstract algorithms unpatentable in both • EPO may still insist on pre-State Street distinction between system/apparatus for doing business and business method alone • Technical character not a material subject-matter difference, but can be at inventive step level

33. National Law: The Contrasting Example of the UK • Fujitsu Ltd. (Ct. App. 1997): “Patent Office must direct its attention not to the fact that the program is controlling the computer but to what the computer, so controlled, is doing.” • Merrill Lynch (Ct. App. 1989): System unpatentable “if the result itself is a prohibited item” (e.g., a business method)

34. UK Patent Office 2001–Software The Government's conclusion is thus to reaffirm the principle that patents are for technological innovations. Software should not be patentable where there is no technological innovation, and technological innovations should not cease to be patentable merely because the innovation lies in software.

35. UK Patent Office 2001–Business Methods There is no sign, at least to date, of a want of innovation in computer-implemented business methods, nor was there in the US before business methods became patentable in 1998. Intense innovation has characterised this field.

36. UK Patent Office 2001–Business Methods(cont.) The Government's conclusion is that those who favour some form of patentability for business methods have not provided the necessary evidence that it would be likely to increase innovation. Unless and until that evidence is available, ways of doing business should remain unpatentable.

37. Japanese Patent OfficeNew Examination Guidelines • Business methods examined as “Computer Software-Related Inventions” • Subject matter: “a creation of technical ideas using a law of nature,” “concretely realized by using hardware” • Examples: “a storing method of articles distributed via network”; “a computer program for predicting daily sales of commodities”

38. JPO Guidelines (cont.) • Inventive step is biggest hurdle: Whether “a person skilled in the art could easily have arrived at a claimed invention based on cited inventions.” • Examples of noninventive claims from New Examination Guidelines

39. 1. Application of Existing Knowledge to Other Fields • “Where there exists the cited invention of ‘medical information retrieval system,’ to apply the concrete means for retrieving in said ‘medical information retrieval system’ to a ‘commodity information retrieval system’ is deemed to be within the ordinary creative activity of a person skilled in the art.”

40. 2. Systematization of Human Transactions • “Merely to replace a telephone or fax previously used in order to receive orders from customers with a home page on the Internet” • “Merely to change the way of managing a classified section in a magazine into a way of managing such information via the home page on the Internet”

41. JPO v. USPTO/EPO • (1) Compare Sohei (no decision on inventive step) • (2) Compare Amazon.com (USPTO allowed, Federal Circuit dubious) • Trilateral Offices experiment (2000): no material differences between USPTO and JPO outcomes

42. The Effect of GATT TRIPS? • Article 27: Patents must be granted on “products or processes, in all fields of technology.” • “without discrimination as to . . . the field of technology” • Substantive impact on national law? • IBM (EPO Bd. App. 1998): Maybe.

43. The Future • In US, courts will create a more restrictive climate—using novelty/nonobviousness, not subject matter • EPO and JPO: Likely to approach US near the middle, but remain (especially EPO) less patent-friendly • EU patent not likely to alter EPO practice • Coase will prevail (he usually does)