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.

The Case for an Inter-Agency Approach to Intellectual Property Protection and Enforcement

Today marks the opening of an important event by the Anti-Counterfeit Agency (ACA): “Workshop on the Implementation of an Interagency Approach to Intellectual Property Protection and Enforcement: Kenya and the East African Community”

Unlike tangible property, IP is not well understood and thus is highly under-utilised in Kenya. That said, it is no secret that the proper administration and regulation of the intellectual property system in Kenya is faced with two main challenges: enforcement and awareness creation.

The US Department of Justice and the Department of Commerce along with the State Department, Customs & Border Protection and USPTO have been strongly advocating for Kenya and other countries in the East African Community to adopt an interagency approach to protection and enforcement of IP within the countries’ national borders and the EAC as a whole.

While it is often said that enforcement is the best form of awareness creation, one must still ask whether the government, stakeholders and industry players are doing enough to educate, enlighten, inform and advise Kenyans on what intellectual property is all about, why infringement is both morally and legally wrong and most importantly instilling and promoting a culture of respect for intellectual property.

As far as nation-wide IP awareness and IP enforcement, the buck ultimately stops with government and it’s 4 key specialised agencies dealing with IP namely:

a) Kenya Industrial Property Institute – KIPI ( which administers this Act and this Act)
b) Kenya Copyright Board – KeCoBo (which administers this Act)
c) Kenya Plant Health Inspectorate – KEPHIS (which administers this Act)
d) Anti-Counterfeit Agency – ACA (which administers this Act)

Effective and efficient utilisation of IP can be well facilitated by creation of a knowledgeable, skilled and positively-cultured human resource base through public awareness and training programmes in IP. In view of, and in order to facilitate, this, KIPI, KeCoBo, ACA and KEPHIS under the support of their parent ministries: Industrialisation, State Law Office and Agriculture should be mandated with the task of designing and implementing an Inter-Agency Intellectual Property Protection and Enforcement Strategic Plan (IPPESP).

This Inter-Agency IPPESP would aim at inculcating a culture that promotes creativity and innovation, protection and commercialisation of IP in Kenya through enhancement of awareness and utilisation of IP for industrialisation in accordance with the Constitution of Kenya, 2010 and our national development blueprint, Kenya Vision 2030.

The five strategic objectives of the Inter-Agency IPPESP should be:
1. To create general awareness in intellectual property matters. Eg. Electronic, print media
2. To train selected target audience on the various aspects of IP matters and relevance in operations of the targets
3. To promote creativity, innovation and IP enforcement in Kenya
4. To propagate emerging IP issues in Kenya; and
5. To ensure efficient and effective implementation of the IPPESP.

At present, the Government recognises (on paper) that the IP system as an important tool for trade, incentive for investment and thus a catalyst for national growth in this world’s liberalised economy. Consequently, as a commitment to regional/ international co-operation, Kenya is actively involved in formulation and implementation of regional/ international policy on IP system, and is partly to the main regional/ international treaties/agreements on IP. Nationally, the Government is devoting resources towards putting in place machinery for effective and efficient administration and management of the IP system within its territory, and all main aspects of IP are administered and managed in Kenya by four IPOs.

That said, adopting an inter-agency approach to IP enforcement in Kenya would not be without its set of challenges. The following key obstacles have been identified:

1. Challenge of coordination in terms of enforcement and public awareness
2. Conflict management and avoidance: between the various IP agencies, especially due to overlapping mandates and jurisdictions.
3. Capacity building
4. Confidentiality and information sharing
5. Multiplicity of legal provisions and procedures

In response to these challenges, a host of solutions have been proposed in the past:

1. Establishment of a CEOs Forum
The CEO forum would be convened by ACA (because it’s empowering legislation is the broadest IP statute on enforcement and protection) and this Forum would establish a mechanism/task Force to review current IP legislations with a view to harmonizing them and enhancing inter-agency cooperation.

2. A Memorandum of Understanding (MOU) between the four IP agencies
This MoU would be prepared and signed by the CEO/Executive Directors of the the four IP agencies comprising the CEOs Forum.

3. Establishment of Committees as agreed under MOU
An important committee in this regard would be a IPR Enforcement Committee comprising of persons who head the enforcement departments in the respective four IP agencies. Other committees would be be defined in the MOU and/or constituted as and when need arises under the Forum of CEOs.

4. Establishment of formal mechanisms for private-public consultations on enforcement of IPR

5. Establishment of a formal mechanism that brings together various Tribunals that enforce civil IP rights.

With this background in mind, ACA’s three day workshop starting today is aimed at arriving at “the best way to implement an interagency approach to IP protection and enforcement.”

IPKenya looks forward to the Workshop’s outcomes.