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Views on Business Method Patents Differ Throughout the Worldby Tim L. Brackett, Jr. and Robert L. Pilaud 1/22/2002 Business methods are increasingly important to the global economy, particularly in light of the expansion of e-commerce. The World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) does not specifically address business method patents. In this environment, it is uncertain whether one can obtain an international equivalent of a business method patent granted in the U.S., especially those U.S. patents that are now patentable as a result of the watershed State Street decision.1 The State Street decision has significantly increased the number of issued U.S. computer or software-implemented business method patents. Prior to State Street, business method patents were not formally classified by the U.S. Patent & Trademark Office (USPTO). Since the State Street decision, the USPTO has attempted to classify all business method patents in Manual of Classification (MoC) Class 705, titled "Data Processing, Financial, Business Practice, Management, or Cost/Price Determination." Through the use of the USPTO on-line database, the number of patents issued or cross-referenced in Class 705 was determined for various time periods before and after the State Street decision. From the inception of the patent system in 1790 to the State Street decision in July 1998 (a span of 186 years), 3,516 patents were issued or cross-referenced in Class 705. In the less than three-and-a-half years since State Street, an additional 3,315 patents were granted in Class 705. Since the State Street decision, the USPTO has been issuing patents in Class 705 at a rate of 963 patents per year; a rate that is up 241 percent since 1996 and 464 percent since 1991. The growth rate of Class 705 is exponential and exceeds that of all classes in the USPTO (see chart). It appears that the speculation after the State Street decision, namely that applicants would flood the USPTO with new business method applications, has indeed come true. Class 705 is the focus of the USPTO’s efforts to classify and manage business methods filings. "MoC Class 705 is now composed of more and wider-ranging business fields than any other MoC class."2 In particular, Class 705 has been used by the USPTO to classify patents that claim an "apparatus and corresponding methods for performing data processing operations … uniquely designed for or utilized in the practice, administration, or management of an enterprise, or in the processing of financial data." Specifically, Class 705 includes sub-categories for industries such as health care, insurance, electronic shopping, inventory management, accounting, and finance. The USPTO’s Concordance List identifies 18 different International Patent Classifications (IPC) as equivalent to U.S. Class 705. Based on the European Patent Office (EPO) worldwide database, about 73,800 patents have been issued in more than 40 countries around the world in these classes. IPC Class G06F 17/60, is the largest of the group with over 30,000 patents, and roughly corresponds with U.S. Subclasses 705/1-45 and 50-80. IPC Class G06F 17/60 is defined as "Digital computing or data processing equipment or methods, specially adapted for … administrative, commercial, managerial, supervisory or forecasting purposes." The top 10 non-U.S. issuers of patents classified in IPC Class G06F 17/60 are as follows: Japan (53 percent), World Intellectual Property Organization (14 percent), Australia (11 percent), European Patent Office (7 percent), Germany (4 percent), China (2 percent), Canada (1 percent), France (1 percent), United Kingdom (1 percent), and Brazil (less than 1 percent). Indeed, filings in IPC Class G06F 17/60 have increased so much as to warrant proposal of the further subdivision of the class by the World Intellectual Property Organization.3 The question of whether business methods were patentable has been the subject of U.S. caselaw since at least 1908. The Hotel Security case created a per se exception for business methods.4 This exception was challenged at various points but was largely untouched until the 1990s. State Street eliminated the business method exception and confirmed that computer-implemented business methods are patentable. Subsequent cases further defined the utility standard as whether an invention creates "a useful, concrete, tangible result."5 The perceived breadth of the State Street decision created controversy. The USPTO responded to the controversy by publicly announcing, and at least partially successfully implementing, initiatives to improve the quality of examination of business methods including using increasingly sophisticated means of searching for relevant prior art. The USPTO also amended its Manual of Patent Examining Procedure to clarify that "using a computer to automate a known process" is not patentable.6 At present, it appears politicians, constituents and others alike have accepted the reality that business methods are patentable and recognize that the challenges facing the protection of business methods are very similar to the challenges in other areas of the USPTO. Across the Globe Beyond the U.S., Australia, Israel, Japan and Singapore are considered "safe havens" for business method patents. Canada, Korea and Taiwan are on the fence, and China, Mexico, and most of Europe are considered to be against business method patents.7 On its face, current law in Europe does not appear to favor inclusion of business methods as patentable subject matter. Specifically, Article 52, §2(c), of the European Patent Convention (EPC) prohibits the patenting of "schemes, rules and methods for performing mental acts, playing games or doing business, and programs for computers."8 Furthermore, the EPO appendix on the examination of business method patents specifically directs examiners to reject abstract business methods "as such." However, the EPO has created a patentable exception for those methods which describe some sort of "technical character."9 This appears to be consistent with the U.S. view of business methods with respect to software, e.g., data processing. In fact, in a June 2000 report, the Administrative Council of the EPO expressed a standard that appears to be consistent with State Street. "[Business methods] are thus patentable in Europe if they fulfill the normal requirements for patentability, including novelty, inventive step and industrial applicability."10 Thus, a patent applicant in Europe may successfully obtain patent protection of a business method by couching the invention in tangible technology, such as a computer-implemented system, by describing the technical contribution to existing technology, and by presenting the technical problem solved by the invention. Also, with respect to business methods, European law continues to favor apparatus claims over method claims. In Germany, the EPC technical character standard for business methods has taken root. In a 1999 German Federal Patent Court decision,11 the court held in favor of a two-step examination for business method patentability including technical character and novelty. In the United Kingdom, the situation is similar to that of Europe as a whole. The UK Patents Act specifically excludes "a scheme, rule or method for … doing business."12 The Merrill Lynch decision in the United Kingdom upholds this rule.13 As would be expected, Belgium is in line with the rest of Europe. "The Belgian law only excludes patent protection for business methods as such. … When a business method requires for its implementation or even for its conception a use of technical means (in the majority of cases in the area of information technology) which cannot be executed mentally in real time, the method no longer falls in the domain of the excluded methods and can therefore be patented."14 In Japan, business methods are well recognized and accepted as patentable subject matter. The legal standard used to assess whether a business method is patentable requires that inventions be "a highly advanced creation of technical ideas by which a law of nature is utilized."15 India is not currently in compliance with TRIPS on a number of issues including business methods, but, it is hoped, they will move in that direction. "The Indian law … adds an exclusion that precludes patents on business methods, which have been the basis of significant recent filings in the United States."16 Fortunately, there is a strong indication that India’s emerging technology community will positively affect compliance with TRIPS.17 Ironically, with an emerging software industry and the prevalence of the English language, India could benefit tremendously from an expansion of patentable subject matter to include business methods. Canada also specifically excludes the patentability of business methods. While the Canadian Intellectual Property Office has become increasingly receptive to patenting business methods, recent Canadian Patent Appeal Board and Federal Court decisions have rejected business method patents outright.18 In fact, the Canadian counterpart application of the U.S. patent at issue in State Street has been abandoned. Given NAFTA and the interrelationship of the U.S. and Canadian economies, there is a strong incentive for Canada to join the U.S. in support of business methods, as has been done in other areas of intellectual property law. TRIPS and Harmonization Looking more broadly to the current international treaty that discusses intellectual property, the General Provisions of TRIPS require compliance with TRIPS by member countries with some flexibility for implementing the provisions within the framework of existing national law.19 TRIPS does not permit discrimination as to "field of technology." Although not specifically mentioned by TRIPS, business methods also are not specifically excluded thereby leaving the question open of whether they should be patentable. While TRIPS is a valuable step forward in the effort toward global harmonization of intellectual property law, it is far from the rule in every country. Conformance with TRIPS is particularly slow in developing countries, notably Argentina, Brazil, India and Egypt.20 Indeed, the controversy extends to the highest level of negotiation between the U.S. and world patent law organizations. "With respect to business methods patents, the [World Intellectual Property Organization] does not want to add anything more to TRIPS. The United States, officially, does not want to add anything to TRIPS."21 As currently written, TRIPS may not require amendment to be construed to include business methods as defined in State Street. Unfortunately, other countries interpret TRIPS as excluding business methods. So, even if the U.S. officially opposes amending TRIPS in order to foster compliance in countries such as India, U.S. companies will still be faced with the challenge of enforcing their patents internationally. In June 2000, the heads of several Patent Offices convened. An informal agreement emerged that business methods are important "for progress in electronic networking in present-day society."22 Officially, the USPTO, EPO, and Japanese Patent Office (JPO) agreed on a "technical aspect" or "technical effect" standard23 which is likely the same as the EPO’s "technical character" standard. Even so, the U.S. technical standard is, quite simply, more liberal than in Europe. Stated differently, the fundamental difference is that an invention in Europe must provide a technical contribution. In contrast, in the U.S. and Japan, an invention need only provide a useful, concrete, tangible result. While this difference exists, over time, it will likely decrease as harmonization is pursued. Fortunately, there is a lot of common ground between the USPTO, JPO, and EPO, and many computer-implemented business method inventions patented under U.S. law will also satisfy the technical character requirement. Intellectual property attorneys and organizations around the world appear to be in favor of harmonization in the direction of State Street. The International Federation of Intellectual Property Attorneys has urged the international patent law community "to secure adequate IP protection to commercially highly valuable innovations in information technology as applied in any sector of business, including financial and E-commerce sectors."24 The International Intellectual Property Institute (IIPI) proposes one of three options ranging from the status quo to dropping all requirements based on field of technology. In the end, the IIPI favors alignment with U.S. law with respect to business method patents.25 The International Association for the Protection of Intellectual Property supports patent protection for business methods "provided that the invention as defined in the claims has a technical content."26 Conclusion In U.S. Class 705 and its IPC equivalents, at least 87,000 patents have been issued in more than 40 countries around the world. However, the patentability of business methods is inconsistent between many countries. This situation is not unique to business method patents. It is likely that new attempts to devise a treaty provision specifically addressing business methods is not likely in the current climate, and would likely stifle existing efforts at overall patent harmonization which are bogged down over concerns far afield from whether business methods are patentable. Lacking an immediate solution, the likely short-term result will be a somewhat open-ended definition of patentable business methods. Absent global consensus on patentability, some would-be business method patent applicants will stay out of the process while some groups, particularly those representing large, pro-patent information technology-based businesses, will continue to lobby for protection of their business method patents internationally. Ultimately, patent protection for business methods may be obtained in virtually every major market in the world for business methods that utilize tangible technology, such as a computer-implemented system, and also preferably make a technical contribution to existing technology, and/or describe the technical problem solved by the invention.
Reprinted from the New York Law Journal, January 22, 2002 Tim L. Brackett, Jr., is a partner and Robert L. Pilaud is an associate with the Nixon Peabody LLP Technology and Intellectual Property (TIP) Group. The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require and further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct. |
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