The History and Evolution of Business Method Patents
Business methods is a rapidly evolving topic in patent law. Business methods originally could not be patented at all, but they are now considered on almost the same basis as any other type of invention.
Historically, one could not patent a business method because of a long-standing rule known as the “business method” exception. This rule stated that business methods were not patentable subject matter, and has been cited by cases from more than a century ago.
In addition, the courts did not extend patent protection to computer software, a key component to many business method patents.
- In Gottschalk v. Benson and Parker v. Flook, the Supreme Court ruled that software was like mathematics and laws of nature to be entitled to patent protection.
- The Supreme Court changed its direction in 1981 when it ruled in Diamond v. Diehr that inventions would not be excluded from patent protection simply because they utilized computer software. Since then, courts have broadened the scope of protection available to software-related inventions.
A computer-implemented process for curing rubber was patent eligible, but not because it involved a computer. The claim employed a “well-known” mathematical equation, but it used that equation in a process designed to solve a technological problem in “conventional industry practice.” The invention in Diehr used a “thermocouple” to record constant temperature measurements inside the rubber mold, something “the industry had not been able to obtain.”
The temperature measurements were then fed into a computer, which repeatedly recalculated the remaining cure time by using the mathematical equation. These steps, “transformed the process into an inventive application of the formula. “In other words, the claims in Diehr were patent eligible because they “improved an existing technological process, not because they were implemented on a computer”.
Over the last decade, patents have become the preferred method for legal protection of computer software. In a series of decisions including Computer Associates v. Altai and Lotus v. Borland, federal courts greatly reduced the scope of copyright protection for software to the point where little more is protected than exact copying of software code.
If vendors want broader protection for computer software functionality, they must now seek it under patent laws. This made way for the final step before business methods became patentable subject matter.
In 1998, the Federal Court finally rejected the “business method” exception and extended patent protection to business methods in its decision in State Street Bank v. Signature Financial Group.
That decision upheld a patent on a “hub and spoke” automated data processing system that used a series of calculations to transfer assets among a pool of mutual funds. The court found the exception to be ill-conceived. It stated that it would be inappropriate to prevent an otherwise patentable invention from being issued a patent simply because it is implemented using a computer.
This landmark decision resulted in the court extending patent protection to business methods that used computers.
The rapid evolution of the internet and its recognition as a powerful interactive medium for establishing commercial relations, placing orders, paying invoices, recording transactions and delivery of information services and products, such as audio, video, software, and games online has also led to a flood of business method patent applications in the USPTO.
The hardware and software patents to e-commerce inventions covers virtually all the elements of the internet that act and interact to provide the exchange or delivery of information related to B2B and B2C transactions.
In addition to the generic innovations underlying telecommunication and processing, such as personal computers, servers and telecommunication networks, there are other categories of innovation that may merit protection as patentable inventions, such as:
- Internet and e-commerce specific inventions – e.g. communication protocols and system interfaces;
- Hardware adaptations – made to conventional personal computers, televisions, telephones, servers, and peripherals to provide access more efficiently and effectively and use of the internet;
- User interfaces – such as the single click check-out feature employed by Amazon.com to limit competition from BarnesandNoble.com;
- Product applications – such as games and services (for example, search engines); and
- Operational applications – such as software-based innovations for signal processing, encryption, compression, security, and analysis.
The State Street case made it clear that the focus of the patent inquiry should not be on the subject matter, but rather on the other patent doctrines.
Currently the USPTO is interpreting these doctrines to permit many patents to be issued to applicants claiming internet business methods that seem excessively broad or obvious to people skilled in the relevant art and is construing the scope and non-obviousness requirements more broadly or implying that the current standards are inappropriate in the internet context.
An illustration of an e-commerce invention can be found in the ‘1-Click’ system devised by Amazon.com as a method for expediting online orders.
This method allows a repeat customer to bypass address and credit card data entry forms, because Amazon.com can access that information directly from the customer’s computer. Amazon.com, who was granted a patent on this business method in September 1999,9 promptly filed a lawsuit alleging that BarnesandNoble.com copied the 1-Click process, renaming it ‘Express Lane’ (Amazon.com Inc v BarnesandNoble.com Inc and BarnesandNoble.com LLC).
The Progress Bar
Now, none of us are strangers to the progress bar, right? We download something, and a little bar pops up to let us know how much longer we must wait. Or, in the case of pizza delivery company, that bar tells when my food will arrive.
Hundreds of companies make use of that little bar, with percentages telling us what has been completed and what is left to finish.
The problem is, Apple owns the patent on the progress bar
The Singapore Scenario
The law of patents in Singapore is governed by the Patents Act (Cap 221) (‘Act’) which came into force on 23 February 1995.
The Act (based generally on the UK Patents Act 1977) provided Singapore with an independent patent system. It was amended in 1995 to bring the law into conformity with TRIPS. Singapore has also acceded to several major international conventions dealing with, inter alia, patent protection, including the Paris Convention, PCT and Budapest Treaty, which came into force with respect to Singapore on 23 February 1995.
Singapore, as a member, is required to comply with ‘TRIPS-specific’ provisions on patents.
TRIPS contain specific provisions dealing with patentability and exclusions, rights conferred and exceptions thereto, term of protection, process patents, government use and compulsory licenses. Article 27.1 of TRIPS makes patent protection available for any invention, whether products or processes, in all fields of technology, provided they satisfy the requirement of being new, involving an inventive step (‘non-obvious’) and are capable of industrial application (‘useful’). Such rights are available and enjoyed without discrimination as to the place of invention, the field of technology and whether the products are imported or locally produced.
The earlier discussion in this paper on the approach of TRIPS to computer programs and business method patents is relevant and applicable in the Singapore context with even greater force as Singapore is a member state.
The earlier Singapore Patents Act 1994 contained s 13(2) (which is like art 52(2) and (3) EPC) which expressly excluded, inter alia, the patentability of method for doing business ‘as such’.
Section 13(2) was deleted from the Act with effect from 1 January 1996. One view taken is that, notwithstanding the deletion, patentability of business methods remains open and is dependent on whether they constitute ‘inventions’ under the Act.
Another view is that the deletion was merely declaratory and does not reduce business methods patents.
It is concluded that the deletion is intended to give the Registrar of Patents and the courts the discretion to determine whether business method inventions are patentable in line with current global trends.
Singapore practices a ‘self-assessing’ regime of patents. The Intellectual Property Office of Singapore (‘IPOS’) will grant a patent regardless of the outcome of the search and examination process. Validity of a patent will be put to the test in any subsequent proceedings for revocation and/or infringement. IPOS has no examiners, and specifications are sent either to Australia or Austria.
Singapore is a small island nation-state with no natural resources and no hinterland. To survive in the New Economy, Singapore will harness the information technology and internet revolution and plug into the global economy.
It is therefore likely that, IPOS in line with the current trend, grant a business method patent if the invention satisfies the requirement of novelty, inventive step, and industrial applicability.
Japan and Australia Scenario
In Japan, the Japan Patent Office expressly states that they would allow patenting of computer software, or ‘Business Method Patents’ subject to several restrictions.
However, patent rights are denied for software dealing with application of a technology to another specific field, automation of manual tasks and any change of design based on artificial arrangements.
The Patent Office also published a guideline regarding the patentability of software. The stand of the Japan courts can be best summarized in Justsystem Corporation v Matsushita Electric Industrial Co. Heisei 17 (NE) 10040 (2005), where the newly formed Intellectual Property Court then held that the manufacture and sale of a word processing software constitutes indirect infringement of Article 101, Subparagraph 2 of the Patent Law, thus recognizing software as patentable products.
In Australia, the leading authority is the case of National Research Development Corporation v. Commissioner of Patents (1959) 102 CLR 252, where the High Court said “a process, to fall within the limits of patentability … must be one that offers some advantage which is material, in the sense that the process belongs to a useful art as distinct from a fine art … that its value to the country is in the field of economic endeavor. “
If the methods of doing business are pure or abstract then they are not considered to be patentable, but if the method is implemented using a computer, it avoids the exclusion business methods.
Section 13. Non-patentable inventions of The Malaysian Patent Act 1983
Notwithstanding the fact that they may be inventions within the meaning of section 12, the following shall not be patentable:
(a) discoveries, scientific theories, and mathematical methods;
(b) plant or animal varieties or essentially biological processes for the production of plants or animals, other than man-made living micro-organisms, micro-biological processes and the products of such micro-organism processes;
(c) schemes, rules or methods for doing business, performing purely mental acts or playing games;
(d) methods for the treatment of human or animal body by surgery or therapy, and diagnostic methods practiced on the human or animal body: Provided that this paragraph shall not apply to products used in any such methods.
In view of the development of USPTO/EPO/IPOS and rest of TRIPS members, it would be natural for software developers in South East Asia to expect at least partial patent protection for their software, particularly with the implementation of the Multimedia Super Corridor in Malaysia, as well as the emphasis on information technology in Singapore.
With the advancement of technology, copyright protection no longer provides sufficient protection to inventors of computer software. The developed world has recognized this, and thus, allowed to a certain extent, software patents. In Malaysia and Singapore there is at present no case law that has interpreted these sections to allow software patents in certain circumstances.
However,it is likely that the courts in Malaysia will adopt the position in Symbian, as the English and Commonwealth decisions are highly persuasive here especially in commercial and intellectual property matters.
Therefore, software patents should be upheld in Malaysia to the extent that they are allowed in the UK.
The Importance of Business Method Patents Now and in the Future
Business method patents are extremely important to the companies that use those methods. The patents serve as a form of legal protection for the investments companies make to develop new and original business models.
Patents prevent competitors from copying ideas without permission and compensation. Patents also allow the patent holder to sue infringers for damages and obtain injunctions to stop them. In fact, such infringement occurs frequently.
Amazon prevailed against Barnes & Noble for infringing on its “1-Click shopping” patent, while EBay lost a lawsuit to MercExchange, who claimed that EBay’s “Buy It Now” system infringed on patents held by MercExchange.
These cases serve as an important lesson showing that businesses must be aware of existing business method patents before putting innovations to use in the marketplace.
Because there is strict liability for patent infringement, the infringing party cannot use ignorance as a defense to protect itself.
Therefore, online businesses should be aware of patented business methods patents consult before implementing new methods of conducting business.
The debate over the patentability of business method inventions among academics and public policy makers reflects the growing economic importance of such discoveries.
Just as patenting and IP law adjusted to the Industrial Revolution, so the IP system must adjust to significant developments associated with the emerging Business Revolution.
Business method patents are helpful to entrepreneurs who often transfer their IP to the startups and new firms that they establish. Business method patents not only are useful to innovative entrepreneurs, they also assist in the commercialization of scientific and technological discoveries developed in conjunction with business methods.
Additionally, business method inventions increase the market value of preciously-developed scientific and technological discoveries. Business method inventions are a new class of discoveries because they often involve advances in ICT technologies.
IP protections for business method inventions are important for dynamic, allocative, and transaction efficiencies in the market for discoveries. Problems with patent quality and litigation are by no means intrinsic to business method discoveries. Standard requirements that inventions should be useful, novel, and non-obvious are sufficient to evaluate business method inventions.
Restricting IP protections for business method inventions would weaken the patent system because in practice, it is difficult, if not impossible, to distinguish commercial inventions from manufacturing methods.
Commercial discoveries augment and replace human effort in business transactions, increasing the efficiency of transactions and improving the performance of firms.
My view is that the patent system should provide IP protections to business method inventions just as they do other types of discoveries.