A Comparative Perspective: Why Business Method Patents Cannot Be Too Quickly Dismissed

moses njoroge muchiri advocate

IPKenya has received a commentary from Moses Njoroge Muchiri, Advocate and Researcher at the Max Planck Institute for Intellectual Property and Competition Law in Munich, Germany. Muchiri (pictured left) drew my attention to his paper which is comprehensive review of the current legal developments in the protection of computer implemented Business Method Patents (BMPs) comparing the U.S. and E.U. The paper titled: “Business Method Patents Revisited: Recent Developments in the Protection of Computer Implemented Business Methods in the U.S. – Between the Promotion of Innovation and Protection of Investments?” is available on SSRN here.

Recently Muchiri came across IPKenya’s commentary on the CIPIT conference on Software Patents and thought it useful to add his voice briefly to the discussion, as follows:

1. There is a plausible reason why many of the participants in the CIPIT conference would elaborate more on the pros and cons of patenting software patents (of which BMPs are a subset). And one of the main reasons behind that is purely economic in nature. Patent law is the one area of law where the relationship between law and economics is very visible and highly dynamic. To discuss whether ‘property rights’ should be extended to such ‘new age inventions’ as software and even business method patents (many of which are embodied within software patent claims or in reverse) one has to consider that ultimately, property rights are justified only to the extent to which their existence is economically justified as beneficial to the greatest number of economic concerns and situations. This theory lies at the heart of fundamental both traditional and neo- economics as can be seen in the age old literature of Adam Smith. Infact, to a greater extent, I have come to believe that the issue of patentability of BMPs and Software patents is one that should be discussed and possibly answered more by economic analysts. This view was discussed at my institute and I shared this view with a senior Professor of Law who shared this thought. Perhaps lawyers should be less involved with this issue at a policy level, being a more policy oriented question demanding an understanding of the intricate balance between law and economics required to create the broadest space for innovation possible. Which then at a micro-economic level, would also involve an analysis along Competition law lines to analyse for instance whether the creation of quasi-property rights would foreclose certain markets where those rights have been created and thereby pre-empt any possibility for legitimate inter-brand competition. Only where such market foreclosures exist in sufficient scales, would there be a reason to question the existence of a particular patent.

2. It is not whether patents on BMPs should generally be or not be granted; but rather whether a SPECIFIC or a particular business method patent (or a specific software patent) should or should not be granted. This debate has been on-going in academia, business and even among stakeholder professionals in the relevant fields. I disagree that the only people who like these sorts of patents are lawyers or even patent examiners. This line of thinking was actually made by an opponent of BMPs in 2002 after the U.S. Federal Circuit decision in State Street Bank v. Signature Financial 149 F.3d 1368 (Fed. Cir. 1998). Note: Many opponents of BMPs have cited this decision, inaccurately I might add, as the decision through which the Supreme Court allowed patents to be obtained for business methods. Firstly, the patent in issue in State Street was an already granted patent, it was not allowed by the judiciary. Secondly, BMPs can traced to exist from as early as the 19th Century in the U.S. Thirdly, the patent in State Street was not strictly speaking a business method patent. Opponents also cite that Article 52 (2) (c), EPC (European Patent Convention) expressly provides against BMPs and Software Patents. However, many forget to consider Article 52(3), EPC where such patents will not be granted only to the extent that they relate to such subject matter “as such.” Meaning that pure BMPs and Software patents cannot be granted by the EPO. As a result there are currently in excess of over 40,000 BMPs and Software patents granted by the EPO. Why would such number of patents still be granted by an institution that is renown for having one of the strictest patent examination procedures? This is because patents will be examined INDIVIDUALLY not in general terms.

3. The US Supreme Court in Bilski v. Kappos (2010) had a momentous occasion to do away with BMPs once and for all but they did not do so for several reasons. Although they did deduce that the method patent at issue was not patentable, they arrived at that conclusion by holding chiefly that the machine and transformation test was not the main test for patentability of business method AND software patents. What does this mean then? While it is true that one is more likely to get a patent for hardware than software, this has little to do with the tangibility or intangibility of the invention being claimed. This further also elaborates the point that it is not the business of the judiciary to decide what is or is not patentable technology. The judiciary can only interpret the boundaries of the application of patent protection for a specific claimed invention.

4. Tests of patentability. Invariably the issue now rests not upon whether business methods and software patents should be granted protection, but rather reducing the flow and influx of these sorts of applications. But how should this be achieved? Two ways. (i) rigorous pre- grant examination tests. In the US they have developed quite a number of these tests to supplement the machine or transformation test e.g. the Useful-Concrete-Tangible test; teaching-suggestion-motivation test and other technical tests based on §§101 and 102 of the US Patent Act. (ii) secondly; rigorous post grant tests e.g. secondary post grant review. The Supreme Court has endorsed the use of various tests and not just the machine transformation test to the exclusion of the others. in the wake of the new America Invents Act and recent Supreme Court and Court of Appeal for the Federal Circuit (CAFC) decisions, recently the USPTO has implemented various administrative reforms such as secondary review procedure for all granted BMPs. Again in the EU, the reason why BMPs exist is because of the requirement for technical effect.

5. Most of the criticism leveled against BMPs is almost entirely directed at the quality of such inventions i.e. issues dealing with these claims being obvious in light of the prior art. It is not a question about whether or not BMPs should be patented, It is a question on Patent EXAMINATION procedures and review standards. The right focus should be on improving the quality of examination standards and making these patents difficult to obtain. It should also be possible for the public and 3rd parties (essentially anyone with information on useful prior art) to object to patent applications for business methods and software. Again, the institutional capability of patent granting institutions should be improved by engaging highly qualified staff patent examiners who are familiar with the arts in these industries and fields. This way questionable patents will be avoided in the long run. It is these sorts of reforms that the USPTO has currently began to entrench successfully. In a few years we should expect to see a very streamlined patent granting process not just in the US, but also in Japan and Europe regarding these sorts of inventions. We should expect to see many dubious method patents to be invalidated.

6. A requirement for closer scrutiny: Unfortunately many people cite patents without really taking a closer look at the contents of these patents. I read through hundreds of patent claims for hundreds of business method invention claims. And admittedly some are very obvious. But those are but a small minority compared to the broad range of classes for business method inventions. US Patent Examination Class 705 which is the broad class under which most business methods are granted has over 15 sub-classes and each of them contains tens of thousands of granted method patents.
Example: the Amazon 1-Click patent is often cited for being obvious. But for argument sake; if this BMP is stifling to innovation, then we could legitimately expect other e-commerce business players’ efforts to establish themselves as serious contenders in the same market of e-commerce to be prevented from entering the market or at the least face dwindling customer base. But that is hardly the case. One would need to analyse: (i) whether Amazon gained any additional customers as a result of the 1-Click patent (ii) whether other competitors (eg Barnes and Noble or eBay) would face reduced returns as a direct or indirect result of amazon’s patent. I doubt whether this patent has had any such effect at all. But this emphasizes my earlier note, that this has a lot more to do with economic analysis as it does law. There are some substantial economic and legal scholars who have analyzed the economics of this issue, and their articles crunch heavy numbers to answer it. Please see my SSRN paper and symposium Slides for more details.

7. Every patentable technology has had its own peculiar misgivings at one time or another. What are the marginal boundaries of patentable subject matter? This is where law certainly comes in, LEGAL INTERPRETATION. It is not to be forgotten that even the US Constitution and Patent Act have both been framed very widely to be as accommodative as possible while still retaining some restraints. Now here is where it all depends on schools of legal interpretation. Between literal positivists and purposivisim. What is patentable technology? This is the wrong question to ask and its merits or demerits lead us nowhere really. The right question should be, “Can this invention be patented?”

Lastly, I do understand Dr. Rutenberg’s position. And in some aspects, even I share a sort of hunch that these sorts of patents should not exist. But it is only some of the reasons that are often loudly adduced in attacking BMPs that I do not agree with. Furthermore, I completely agree on the importance of branding over patenting and indeed also seeking out alternative forms of protection for which I strongly advocate.


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