business method patents
TRANSCRIPT
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Business Method Patents :
A Study in the US and the EU
Sudipta De Sarkar.
LL.M. 08-35.
LL.M. 2nd Year (IPR)
NALSAR University of Law, Hyderabad.
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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;
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The Business Method Patent Improvement Act, 2000Section 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).
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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 Amazon.com
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……..examples contd.
• an “online reverse auctioning service” for items such as airline tickets, automobiles, hotel rooms, mortgages, etc., as patented by Priceline.com ;
• 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
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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
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………but difference is there
• One Product-Many Patents
• One Patent-Many Products, et al.
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Development in the USLegislative 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.
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• 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.
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• 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.
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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
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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.
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• 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.
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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 principle”
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• 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’.
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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.
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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.
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• 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”.
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The Consultation Paper divided BMPs into 2 categories :
Technical BMPs, and
Non Technical BMPs.
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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”
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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”
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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.
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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.
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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 jurisdiction.et.
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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.
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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
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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
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• 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
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Thank You