Friday, March 17, 2006

Presentation by Jeong Ho: Reconsidering Diamond v. Chakrabarty in the Context of Business Method Patents

My paper will discuss the problems involved in business method patents and propose reform of patent law to address them. Although the term “business method patents” is not precisely defined in any jurisdiction, it may be broadly defined as “a utility patent whose subject matter is a method of doing or conducting business.”

Courts initially recognized that methods of doing business could not be patented, creating the so-called “business method exception.” For example, in Hotel Security Checking Co. v. Lorraine Co., 160 F. 467 (2d Cir. 1908), the Second Circuit held that a patent on a “method of and means for cash-registering and account-checking” was invalid. The court also said that “[a] system of transacting business disconnected from the means for carrying out the system” is not a patentable subject matter.

However, as the Supreme Court held, in Diamond v. Charkrabarty, 447 U.S. 303 (1980), that “anything under the sun that is made by man” should be patentable except for law of nature, natural phenomena, and abstract ideas, the courts began to narrow the business method exception. In State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), the Federal Circuit emphasized that business methods should be “subject to the same legal requirements for patentability as applied to any other process or method.”

State Street has significantly changed the way of doing business. Companies that had practiced novel business methods mainly relying on trade secret protection began to try to protect their business methods under the regime of patent law and have been flooding the PTO with business method applications. This has arguably resulted in some problems: backlog of patent examinations and issuance and enforcement of bad (or weak) business method patents against competitors.

As sued its competitor,, for infringement of its patent directed to “1-Click ordering” system, the Internet community complained that the patent was granted without adequate review of prior art, was too broad, and failed to meet the requirement for novelty and non-obviousness. Further, vehement controversies have arisen as to whether Internet-related business method patents are appropriate.

As to such concerns, the American Inventors Protection Act of 1999 is expected to assist Examiners in finding prior art. The PTO is required to publish patent applications after 18 months from the earliest filing date of the patent application. Upon the publication, any interest persons may interfere with the PTO prior to the issuance of a patent on the ground of anticipation and obviousness. Further, the PTO revised the Examination Guidelines, which includes a mandatory search for all applications in Class 705 (business practice class), second review of all allowed application in Class 705, and expansion of sampling size for quality review. Although these approaches would work to some extent, they would not seem to completely address the concerns.

Under the European Patent Convention, “Schemes, rules and methods for … doing business” are not regarded as being inventions and are not patentable. But if a new method solves a technical, rather than a purely administrative, problem, then it may be patentable. In Japan, business methods are well recognized and accepted as patentable subject matter. Inventions must be “a highly advanced creation of technical ideas by which a law of nature is utilized.” Thus, patents are not grated solely for business methods—they must contain a technical aspect that is both tangible and real. However, this requirement may be satisfied simply by specifying that the method is implemented using a computer or through the Internet.

I would like to propose revising the Patent Act to restrict patentable subject matters to those which involve technical features—e.g., to solve technical problems, to contain technical characteristics, and so on. Examiners are allowed to reject business method applications if they are regarded as lacking technical features. Then, the burden is shifted to the applicants who must show that the invention involves technical features to overcome the rejection.

If necessary, I would also propose establishing sui generis protection for “pure” business methods. Under this scheme, an applicant has to conduct a prior art search, and the subject matter must satisfy a higher standard of non-obviousness. And, the term for protect would be shorter than that of patent law—e.g., 5 years from issuance.

I would appreciate your comments and thoughts on the following:

(1) Should patents be granted only on subject matters that involve technical features?

(2) Should Internet-related business methods be regarded as involving technical features and be protected under patent law?

(3) Should “pure” business methods that do not involve any technical features be entitled to protection at all?


Blogger DSomogy said...

What is it about technical features that is special or desirable, and hence worth protecting?

2:06 PM  
Blogger duffee said...

Here is the question I posted in class:

In Diamond v. Diehr, 450 U.S. 175 (1981), the Supreme Court held that a computer program which was used to control a specific process for curing rubber was patentable simply because the mathematical algorithm in question had an industrial application that set it apart from other types of software patents. Patent protection only extended to that application of the algorithm. Is this the sort of system you are proposing--limit protection only to software that has a tangible industrial application?

2:17 PM  
Blogger Christine said...

I think this is an interesting topic. I think that patents should be restricted to technical features. The issue I have is that I think it would be difficult to come up with a clearcut test for what is a technical feature? That is why the internet question is difficult - I don't think ordering processes should be patentable - just because what the end result (what the user sees is the same). But maybe if one party has unique technology as part of their order process -that piece only should be patentable? I don't think pure business methods should be patentable at all - it seams like these are just ideas?

2:29 PM  

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