PATENTING THE NEW BUSINESS MODEL
BUSINESS METHOD PATENTS: OLD OR NEW,
GOOD OR BAD?
Roberta J. Morris
Copyright © 2000
All Rights Reserved
2
Biographical Information
Program Title: Patenting the New Business Model
Name: Roberta J. Morris
Position or Title: Adjunct Professor
Firm or Place of Business: University of Michigan Law
School
Address: Ann Arbor, MI 48109-1215
Phone: 734-764-1358
Fax: 734-764-8309
E-Mail: rjmorris@mail.com
Primary Areas of Practice: Patent Law
Law School: Harvard
Postgraduate: Columbia University (Ph.D. Physics)
Work History:
Pre-Ph.D.: White & Case; Mt. Sinai Medical Center Legal
Department. Post-Ph.D.: Fish & Neave; Gifford
Krass (Of Counsel); University of Michigan Law
School
3
4
Table of Contents
I.Did State Street Change Anything? .................................. .. 8
II.Patents On Business Methods Have Been "Business As
Usual" For A Long Time ......................................... 17
III.Subject Matter Invalidity and Novelty ........................... 21
IV.Method Patents Have Always Had Problems
V.Business Method Patents: Good, Bad or Indifferent? .... 26
VI.Some Data About Business Method Patents and Relative
Litigation Rates ...................................................... 28
VII.What Isn't Patentable Any More, And Some Additional
Remarks About 101 ................................................ 30
VIII.Selected References
(This section has been included in lieu of footnotes.)
A. Cases ................................................................. 32
B. Patents ............................................................... 34
C. Books and Articles ............................................
35
RISC Architecture (a cartoon) ............................................ 38
5
6
Introduction
Is the patenting of business methods a new phenomenon or
not? In its present guise, is it objectively good, bad or
indifferent?
1. Did State Street change the law on patenting
business methods, or just the lore?
2. Method patents have always been the stepchild, if
not also the Cinderella, of the patent system. What is their
sad history?
3. Every time there has been a new area for inventive
activity, people have expressed discomfort (or worse) with
the patent system. Is the case of business method patents
different from that of, say, the steamboat, software, or the
decoding of the human genome? Is there a better way to cure
the problem than with time?
I wish to thank my students in 1999-2000, especially Marcus
Sprow, Chris Liro and Chris McVety; Roberta Fels, Fish & Neave, and PTO
personnel, for information concerning MPEP history; and University of
Michigan Law School research librarians Barb Vaccaro Garavaglia, Nancy
Vettorello and Kincaid Brown, and their student assistants.
For a copy of the materials presented during the lecture on June 26,
2000, please contact me at the law school (734-764-1358) or
rjmorris@mail.com.
7
Business Method Patents:
Old or New, Good or Bad
NOTES: In lieu of footnotes, the complete citations to the
cases, articles and patents mentioned in this outline are
listed in the Selected References section (see p. 32 et seq).
I occasionally refer to the now-withdrawn paragraph
from the Manual of Patent Examining Procedure ("MPEP")
that concerned the unpatentability of methods of doing
business ("MDB") as "Old MPEP 706.03," although it was but
one paragraph in the introductory part of § 706.03(a).
"Now" and "today" mean 5/10/00, the date of
submission of this manuscript.
I.DID STATE STREET CHANGE ANYTHING?
The State Street decision is dated July 23, 1998. It is
considered by many to have made a major change in the law
concerning the patentability of methods of doing business
("MDB"). But did it?
A.WHAT IT MAY HAVE CHANGED
1.The lore of what is patentable (as opposed to the law),
and the public perception of what can be patented
2.Strategies in patent litigation and licensing negotiations
3.Lip service in the judiciary
B.WHAT IT DID NOT CHANGE: THE PTO'S PRACTICE OF
ISSUING BUSINESS METHOD PATENTS
If business methods were really unpatentable:
- how did Boes get his patent (the patent in State Street)?
- all the prior cases would be In re ____ or Ex Parte
______ (suits against the Patent Office for refusing to
grant a patent) and none would be infringement
8
litigation (suits entitled X v. Y). But there are
business method infringement cases going way, way
back. (My current favorite, Fowler v. City of New
York (1903) is discussed in the references section.)
It seems, then, that the rule that "Methods of doing business
are unpatentable" was just a trap for the u n w a r y
unimaginative? unpersevering? because the Patent Office did
issue such patents before State Street.
1.Proof: Famous MDB Patents Issued Before State
Street
a. Boes
The State Street patent (5,193,056 to Boes and assigned
to declaratory judgment defendant Signature) issued in 1993
on an application filed in 1991, obviously prior to the
decision in State Street. It has no cited references, prior
patents or otherwise, but it was cited on 5 patents that issued
before State Street. So the Boes patent was not the only one
ever to slip through.
b. Other recent high-profile MDB patents
Other high-profile MDB patents were filed well before
State Street and many issued before it, or so soon after it that
the claims must have been allowed before. For example:
- 5,333,184, issued in 1994, the patent in suit in AT&T v.
Excel (inventor Doherty et al.)
- Sun Microsystem's Stateless Shopping Cart for the Web,
5,745,681, filed 1/11/96, issued 4/28/98 (inventor Levine
et al)
- 5,794,207, filed 9/4/96, issued 8/11/98, the patent in suit in
Priceline.com v. Microsoft (inventor Walker et al),
- 5,960,411, filed 9/12/97, issued 9/28/99,the patent in suit in
amazon.com v. barnesandnoble.com (inventor Hartman et
9
al)
- 5,966,440, the Sight/Sound patent, ancestor filed 6/13/88,
last application filed 6/6/95 (which means that its term is
issue-date+17 years, instead of first-filed-application+20
years), issued 10/12/99 (inventor Hair)
2. Proof: The MPEP Had Already Changed
The Patent Office, in its Manual of Patent Examining
Procedure ("MPEP"), gave up its official stand against
business methods in 1995, a few years before the 1998 State
Street decision. This happened without fanfare: a single
paragraph which had been in the MPEP for years was absent
in the September 1995 revision pages.
Details: The PTO publishes the MPEP as a set of looseleaf
volumes, revised from time to time, with substitute
pages sent to subscribers. (Since 1993, commercial
publishers have also sold a paperback version, and since
around 1998 the MPEP has been downloadable from the
web, see http:\\www.uspto.gov\web\offices\pac\mpep\index.html.)
The introductory section to MPEP § 706.03(a), "Rejections
Not Based on Prior Art; Non-Statutory Subject Matter"
identifies several categories of non-statutory subject
matter, classes of invention thought not be patentable
under § 101 of the patent statute. [For non-patent
lawyers, 35 USC § 101, entitled "Inventions Patentable,"
recites that a patent may be obtained on any "process,
machine, manufacture or ... improvement thereof."] For
many years, this part of the MPEP included four
paragraphs describing non-statutory subject matter
headed "PRINTED MATTER," "METHOD OF DOING BUSINESS"
("the MDB prohibition"), "NATURALLY OCCURRING
ARTICLE" and "SCIENTIFIC PRINCIPLE," respectively.
The last time a page with the MDB prohibition was issued
10
was in the 5th edition, Rev. 15, Aug. 1993. That page
was not changed in Rev. 16 (March 1994) nor in the 6th
edition in its initial form (Jan. 1995). However, in 6th
ed., Rev. 1, Sept. 1995, the MDB prohibition had
disappeared, although the other three paragraphs
remained. And remain today, in the most recent
revision, 7th ed., Rev. 1, dated Feb. 2000, and received by
subscribers very recently.
a.The Odd Language of the MPEP's (Deleted)
MDB Prohibition
The now-withdrawn paragraph in MPEP § 706.03 ("Old
MPEP 706.03") was phrased in a tentative manner:
Though seemingly within the category of process or method,
a method of doing business can be rejected as not being
within the statutory classes. See Hotel Security Checking
Co. v. Lorraine Co., 160 F. 467 (2nd Cir. 1908) and In re
Wait, 24 U.S.P.Q. 88, 22 C.C.P.A. 822 (1934). [Emphasis
mine - RJM]
The weasel words reflect the realities of the prior case law:
the cited cases, as well as other MDB decisions, actually
found that the methods in question were not new. The MDB
language was dicta every time. (See section II, p. 17.)
b.State Street Acknowledged the MPEP Change
The State Street opinion, paraphrasing Rinaldo Del
Gallo's article in IDEA in 1998, referred to the MPEP
change:
"In view of this background [the lack of genuine precedent
for the MDB prohibition], it comes as no surprise that in
the most recent edition of the [MPEP] (1996), a
paragraph of § 706.03 was deleted." (149 F.3d at 1377,
emphasis mine).
It was no surprise in the 1996 edition (whatever that means)
because the paragraph was deleted in September 1995. But
what was the reason that the PTO suddenly took notice of the
11
lack of genuine precedent, after all those years?
Sideline 1: The 1996 Edition?
(To determine the correct date, one must be careful of
the perils of what I jokingly call "RISC Architecture" (not to
be confused with "reduced instruction set computer"):
research limited to sources on electronic databases and the
web. RISC is my acronymn for Rear InSide Chair, or
Restricted to Information you can find Sitting at your
Computer. See cartoon on last page. When I showed my
cartoon at the New York version of this conference in
February, a participant suggested that the term was
trademarked. However, using RISC Architecture (my
meaning), it appears that neither "RISC Architecture" nor
"RISC" is trademarked by itself, although the acronym RISC
in its "instruction set" meaning, whether by itself or in
conjunction with the word Architecture, is part of various
companies' trademarks. If RISC Architecture has misled me,
please let me know)
The "1996 edition" of the MPEP is an odd way to date the
MPEP, given its looseleaf/page-based form of revision. The
1996 edition could, of course, refer to the paperback version,
or it could be the result of strict-construction "blue-booking."
Or it could be based on a "RISC" search: When Del Gallo or
the Federal Circuit did their research, (a) LEXIS probably
just gave a copyright year for the MPEP, as it does now; (b)
Westlaw now provides a "current through" date with month
and year, but maybe it did not then; and (c) it appears that
the first PTO website version of the MPEP was the 6th ed.,
Rev. 2, July 1996, so maybe that was the "1996 edition" to
which reference was made.
Whatever "1996 edition" may mean, however, the "most
recent edition" at the time the State Street decision was
drafted was more likely the "1997 edition": Rev. 3, July 1997
probably was in subscribers' hands by early 1998.
In any case, the change happened in 1995, but the
perpetuation of the 1996 date in the literature (and
12
cyberspace) continues.
Sideline 2: The MDB Prohibition in Today's MPEP
The 7th edition of the MPEP (July 1998) continued to
make reference to the method of doing business prohibition,
twice to give a sense of history (§§ 506 and 2106), twice for
current use, in connection with the Patent Cooperation
Treaty (PCT), which affects foreign counterpart patents. The
same is likely to be true for Rev. 1 to the 7th edition, dated
February 2000, which has just been received by subscribers
but is not yet available electronically.
c. What Caused The PTO to Change the MPEP?
The MPEP is generally revised because of legislative or
judicial action, but there was no specific event between
January and September 1995 to explain the deletion of
the MDB prohibition. In the preceding couple of years,
there had certainly been opinions and articles that
attacked it, for example, Judge Newman's 1994 dissent in
In re Schrader, (which is cited in State Street, 149 F.3d at
1375) and a 1993 article by Yoches and Pollack in the
Federal Circuit Bar Journal. Perhaps the main motivation
came from the Federal Circuit's in banc decision in In re
Alappat (7/29/94) (Judge Rich again writing for the
court), which attacked the view that § 101 meant that
"you can't patent `mathematical algorithms'." Alappat
may have been the handwriting-on-the-wall that
motivated the PTO to reconsider the MDB prohibition,
even though Alappat makes only one tangential reference
to "business methods." (In connection with a discussion
of the proper interpretation of inventor Alappat's meansplus-function claims under § 112 ¶ 6, Alappat
distinguished the invalidity holding in In re Maucorps (a
1979 CCPA decision, opinion by Markey, Rich on the
panel) on the grounds that the claims there were
"business methodology" and thus not drawn to
patentable subject matter under § 101. 33 F.3d at 1541.
13
In State Street, Judge Rich revisited Maucorps and
concluded that it was really a "mathematical algorithm"
case. 149 F. 3d at 1376, text accompanying n. 14.)
Another PTO announcement, the Guidelines for
Computer-Related Inventions, was in the works at roughly
the same time as the decision to delete the MDB prohibition.
As Yoches pointed out in a previous PLI Handbook for a
June 1999 conference, the PTO issued these Guidelines on
February 28, 1996 (61 Fed. Reg. 7478), two and a half years
before State Street. These Guidelines are still in force today.
See PTO web site at http://www.uspto.gov/web/offices/com/hearings/software/analysis/computer.html. It seems
likely that the promulgation of the Guidelines and the
deletion of the MDB prohibition were responses to the same
stimulus.
d.Was the real change at the PTO earlier than
1995?
Co-speaker Gerald Greenberg presents the data
concerning patents issued in class 705 for the years 1990-99.
(See page 21 of the Greenberg chapter of this Handbook, or
the Handbook for the New York sister conference.) The
Manual of Classification defines this patent class as "Data
Processing: Financial, Business Practice, Management, or
Cost/Price Determination" and it is where many "method of
doing business" patents can be found (including the State
Street patent).
In 1990-92, patents issued in class 705 numbered 105, 83 and
96, respectively. Then in 1993 there was approximately
a 50% increase from the previous three years' average, to
142. 1994 saw a further rise to 184. 1995 saw a drop to
124, perhaps due to the distraction caused by the huge
number of applications filed immediately prior to June 8
of that year to take advantage of changes in § 154
14
(calculation of term of patent), as amended for GATT.
For the years 1996-99, the numbers are 143, 205, 420 and
583, respectively.
Of course, a better indicator of the date when the PTO
changed course would be the number of § 101 rejections
issued per year as a percentage of applications pending in
class 705. Such data may, however, be unavailable, even
uncollectable, now. It might be easier to determine the
relative number of class 705 applications abandoned after
final rejection, on a year-by-year basis, but nobody has yet
published such statistics.
Nevertheless, even without these data, it appears that
increased examiner willingness to allow patents in class 705
pre-dates the MPEP change, which in turn pre-dates State
Street. Public (patent lawyers') perception of the ease of
obtaining patents in this class could have changed in response
the the change in the the MPEP: data based on filing dates in
class 705 might help demonstrate this. (These could be
obtained via RISC, with a little additional massaging, so stay
tuned.) On the other hand, the contemporaneous -- and
enormous -- expansion of the web and of e-mail use by the
population at large may be the reason for any increase in
filings in the mid 1990s. In addition, practicing patent
lawyers (and examiners, too, as their work was approved or
criticized by their superiors) might have been responding to
the anecdotal evidence of recent experience (fewer 101
rejections received, or maintained after argument, rather than
to specific changes in the MPEP.
The number of issued patents in class 705 certainly has
accelerated since State Street, no doubt for all these reasons.
As of at least last December, patents are issuing at a rate of
100/month.
15
e.A Last Curiousity: The Earliest Class 705
Patent on LEXIS
The earliest patent in class 705 on LEXIS, whose utility
patent database goes back to 1971, is 3,573,747, issued Apr.
6, 1971, to Adams et al., entitled: "Instinet Communication
System For Effectuating The Sale Or Exchange Of Fungible
Properties Between Subscribers" and assigned to Institutional
Networks Corp. The Abstract recites:
"This disclosure is directed to an apparatus and method of
automatically, anonymously and equitably buying and
selling fungible properties between subscribers. The
specific embodiment described in the disclosure relates
to the buying and selling of securities wherein a
communication system pursuant to this invention is
described which permits institutional investors to
communicate anonymously with each other for the
purpose of arranging block trades of listed and over-thecounter securities. Said system comprises a centralized
data storage unit, a digital computer, a plurality of
subscriber terminals and a plurality of communication
links established therebetween. ..."
Back in 1971 the MPEP included the MDB prohibition, so it
is not surprising that this invention is described as a system
including a computer, rather than a method of doing business.
But it does not sound much different from the web patents
highlighted in the press these days. This patent issued in just
over 2 years, and has 8 cited references, all patents from the
years 1965-67. Assuming all the maintenance fees were paid,
it expired ten years before State Street.)
16
II.PATENTS ON BUSINESS METHODS HAVE BEEN
"BUSINESS AS USUAL" FOR A LONG WHILE
In this section, I consider the observation in State Street
to the effect that all the judicial pronouncements concerning
the MDB Prohibition in the case law were dicta (see above,
p. 11). The same observation was made back in 1921 (in an
article I never would have found using RISC architecture).
The two cases cited in Old MPEP 706.03 support the
observation, of course.
A.THE "DOING BUSINESS" PROHIBITION WAS NOT
REAL
1.State Street and Del Gallo
Judge Rich in State Street pointed out that the precedents
relied on for the "doing business" prohibition in fact did not
support it. Instead, their holdings were based on either a lack
of novelty (the older cases and some of the newer ones), or a
different § 101 prohibition: the "mathematical algorithm"
prohibition (some of the more recent ones). (See 149 F.3d at
1375-6, footnotes 11, 12 and 15, and text accompanying
them.) In footnote 15, the court referenced the remark in the
1998 Del Gallo article that neither the Federal Circuit nor the
CCPA had ever deemed an invention unpatentable on the
grounds that it was a "business method."
17
If State Street Were a Patent, and Its Recognition of Lack
of Precedent for the MDB Prohibition Were a Patent
Claim, It Would Be Invalid as Anticipated, Several
Times Over, Based on Some Quite Old "Prior Art"
The observation that the cases cited for the proposition
"you can't patent a method of doing business" were not
actually decided on that basis, is correct, but not new.
Commentators before Del Gallo had made the point
repeatedly, and although the body of case law increased over
the years, and cases continued to be decided in which the
MDB prohibition was invoked, none ever held a patent
invalid on the basis of the bare MDB prohibition alone.
2."Prior [Legal] Art" to State Street
In 1921 Frank W. Dahn anticipated the Del Gallo/State
Street observation in an article in the Journal of the Patent
Office Society:
[The] precept ... to the effect that methods of doing business
are unpatentable ... is generally assumed to be supported
by an imposing line of decisions, and rejections based
thereon are believed to be very generally acquiesced in by
the patent bar. [Dahn then reviews several cases,
including Hotel Security.] *** [T]he decisions ... were
not based on a holding that methods of doing business are
not patentable but in each instance on a holding that the
particular method was unpatentable because it was old or
did not possess sufficient novelty to sustain a patent.
"Methods of Doing Business," 4 JPOS 85, 91 (1921).
Who was Dahn? Probably at the time he was an Examiner.
Later on (per a RISC Aarchitecture search), we know he
was in private practice in Washington. In the late 30s
and early 40s, he appeared as counsel for patent
applicants appealing from decisions of the Patent Office,
and in one reported case - in the Supreme Court - he
18
appeared in an infringement case.
How did I find this article? When I was preparing earlier
this year to give the New York version of this talk, I became
curious about whether the patent community had responded
in "the literature" to the 1908 Hotel Security decision (the
earlier case mentioned in Old MPEP 706.03). Of course,
there was no "literature" then the way there is now. Even the
JPOS did not come into existence until 1918. But since I
knew that the early JPOS's are nicely indexed every 10
volumes, I decided to take a look at them. The earliest
reference to "method of doing business" that I found was in
volume 4 (1921-22). There were two articles, this one by
Dahn and one by John F. MacNab, identified as "Principal
Examiner, Division 5," which is discussed below (see below,
p. 22).
Whether Dahn was the first, he certainly was not the last
to note the deficiency in the caselaw asserted to support the
doing business prohibition. For example:
1934 Tew, 16 JPOS 607, 613
1968 Hansmann, 50 JPOS 503
1992 Knobbe, 343 PLI/Pat 9
do so, too, although each successive commentator has new
cases to criticize. Tew, by the way, was counsel to applicant
Wait, in the case of that name cited in Old MPEP 706.03.
Wait (discussed on p. 21) was decided just a few months after
Tew's article was published.
RISC Note: The 1934 and 1968 JPOS articles are mentioned
in Fuelling, 76 JPTOS 471 (1994), which in turn is cited
by Del Gallo, which in turn is cited by State Street, and
since the last 3 are available electronically, I did
discover the first 2, both non-electronic, using "RISC
architecture," in contrast to my discovery of Dahn.
B.THE CASES CITED IN OLD MPEP 706.03
1.Hotel Security (1908)
19
Hotel Security pitted two issued business method patents
against each other, one as the patent in suit, one as prior art:
the Hicks patent (500,071, issued in 1893) and the prior art
Smith patent (449,973, issued in 1891). Hicks's claim was
for an "improved means for securing hotel or restaurant
proprietors or others from losses by the peculations of
waiters, cashiers or other employees ..." He disclosed a
system of slips of paper, ruled ledger sheets and waiter
badges so that the business owner could keep track of what
food was served, and keep the staff honest (rather reminiscent
of the Markman patent). What the Hotel Security court says
about unpatentable subject matter (160 F. at 469) -- which
helped perpetuate the myth that "ways of doing business"
were unpatentable per se -- in fact introduces a discussion of
invalidity over the prior art.
In fact Hotel Security acknowledges that
"If at the time of Hicks' application, there had been no system
of bookkeeping of any kind in restaurants, we would be
confronted with the question whether a new and useful
system of cash-registering and account-checking is such
an art as is patentable under the statute. This question
seems never to have been decided by a controlling
authority and its decision is not necessary now unless we
find that Hicks has made a contribution to the art which is
new and useful. We are decidedly of the opinion that he
has not ....
160 F.467,472 (2 Cir. 1908) (emphasis mine - RJM).
Digression: Remember Markman?
The Hotel Security patent reminds me of the Markman
patent. Its claims recite an "inventory control and reporting
system" including a data input device and a data processor
(so they include physical objects) but they could be said to
20
cover a"way of doing business." Imagine the parallel
universe where Westview had successfully asserted a 101 or
102/103 defense before arguing non-infringement. (We
would probably still have Markman hearings, but they would
be called something else. This, among many other things,
has led me to suggest an amendment to that favorite saying of
law professors that "Bad cases make bad law;" maybe it
should be "Most cases make bad law"?)
Two interesting facts about this famous patent:
1. Somebody did file for reexamination and all claims
were rejected. Markman then sued the PTO in the DC
District Court and lost, and the Federal Circuit affirmed
in an unpublished decision in 1998 (see Reference list for
cites).
2. The Reissue patent was issued with the inventor's
name printed as "Markham" not Markman.
2.In re Wait (1934)
At the conference on this topic in New York earlier this
year, I placed before the audience the following claim:
The process which comprises:
- posting an offered figure for a commodity
- causing the figure to be visible at a remote point
- contacting the stations of a buyer and a seller through a
central point
- causing such contact to be indicated at the point of posting
and
- consummating a sale through such connection and
- removing such posted figure.
Everyone thought they recognized the Priceline.com
invention. In fact, this is the claim struck down in In re Wait,
73 F.2d 982 (CCPA 1934). In finding the claim not novel,
the court said,
"Surely these are, and have always been essential steps in all
dealings of this nature."
21
III.SUBJECT MATTER INVALIDITY AND NOVELTY
Subject matter (§ 101) invalidity attacks have often run in
pairs. Patents and applications that were the apparent victims
of the MDB prohibition have simultaenously been the targets
of other subject matter prohibitions: the "printed matter"
prohibition in the 19th century, and, as State Street noted, the
"mathematical algorithm" prohibition in the 20th. In the 19th
century, the business methods in question were often related
to bookkeeping. (MacNab's 1922 JPOS article, suggests that
the rush to patent bookkeeping inventions was spurred on by
the famous dicta in the 1879 copyright case of Baker v.
Selden that if the accounting book's author wanted to protect
the "art" he described in the book, he should try to get a
patent.) In the late middle 20th century, the business
methods were often related to computer software.
Both times, there was an explosion of inventive activity,
perhaps related to the advent of new office machines. Both
times, the belief in the prohibition very likely cut down on
patent applications and on aggressive assertions (licensing or
lawsuits) of issued patents.
And perhaps most importantly, both times, these "subject
matter" prohibitions alleviated the need to locate invalidating
prior art, on the part of anyone opposing the patent or
application -- whether the PTO or other enterprises who
might have to take a license or be sued. This occurred for two
reasons: first, because the prohibition created a non-art way
to defeat the patent; second, because courts created an
apparently irrebuttable presumption that the underlying stuff
of the invention -- the paper with ruled lines, the algorithm
(mathematical equation) -- was in the prior art.
This struck me as particularly questionable in the case of my
favorite mathematical algorithm case, In re Gulack.
Gulack
22
had apparently discovered a property of prime numbers (an
"algorithm") and sought a patent on a hat which a
magician could wear and which would make use of this
mathematical property. Happily, the court decided that
Gulack should get his patent, and in fact he got two (see
list of patents following this outline), but along the way
it cited Parker v. Flook for the proposition that algorithms
are "treated as though [they] were a familiar part of the
prior art." When I first looked into the algorithm cases in
the late 80's, I was curious about whether the prime
number property in this patent was in fact in the prior
art. I attempted to call the inventor, and instead reached
his son, who told me that his father, who had recently
passed away, had been a lawyer and amateur
mathematician. The son believed that the mathematics
in the patent was his father's own discovery.
The problem with business method inventions -- for
centuries, not just post-web -- is that people have a queasy
feeling that they are not "new and non-obvious." But it has
always been hard to find invalidating prior art, especially
before a body of issued patents exists. The importance of
prior art in the form of actual activities, rather than published
words or concrete things like machines, has probably alway
been greater for MDB patents than for other kinds of patents.
That kind of prior art is certainly invalidating by statute: §
102(a) establishes as a category of prior art anything "known
or used by others" before the invention date and § 102(b)
establishes as prior art anything "in public use or on sale"
before the US filing date. But such prior art is (1) hard to
find, especially for the PTO, and (2) hard for litigants to
prove.
As to the second, there is a wonderful passage that Fish &
Neave's Al Fey loved to quote that explains judicial
reluctance to rely on only oral testimony without "hard copy"
to prove invalidity:
23
"Witness whose memories are prodded by the eagerness of
interested parties to elicit testimony favorable to
themselves are not usually to be depended upon for
accurate information." The Barbed Wire Patent, 143 US
275, 284 (1892).
Needless to say, the Supreme Court upheld the validity of the
Barbed Wire Patent over oral testimony about prior art
fences.
Thus the MDB prohibition, like the other 101-based
prohibitions, served an unspoken need to overcome proof
problems with the prior art in certain areas of human
endeavor.
IV.METHOD PATENTS HAVE ALWAYS HAD
PROBLEMS
Method patents may be the neglected step-child, if not
also the Cinderella, of the patent system.
A.ARE METHODS PATENTABLE AT ALL?
In the eighteenth century, many people thought the
answer to the question "Can you patent a method [any kind of
method]?" was "No." A "method" was not considered to be a
"manufacture," a term found in the first English language
patent statute, the Statute of Monopolies, as well as in every
US patent statute since 1790.
James Watt's patent on "a new invented method of
lessening the consumption of steam and fuel in steamengines" encountered difficulties for this reason. (See, e.g.,
Willard Phillips, THE LAW OF PATENTS 89 (Boston:
American Stationers' Co. 1837), or Edward C. Walterscheid's
excellent articles on the history of patent law that appeared in
JPTOS in 1994-96. Part III-2 in 77 JPTOS 847 at 853 et seq.,
discusses the Watt cases, Boulton v. Bull, 2 H. Bl. 479 (1795)
24
and Hornblower v. Boulton, 8 T.R. 102.(1799)).
The reason courts balked at patenting methods are like
the reasons they balked at patenting "algorithms" and
"methods of doing business." They felt that the patent
statutes required that the patent claim be related (and limited)
to physical objects. If the objects used in a method were
already known, it would be that much harder to establish
novelty in the method. Hotel Security:
"It cannot be maintained that the physical means described
by Hicks, -- the sheet and the slips, -- apart from the
manner of their use, present any new and useful feature.
A blank sheet of paper ruled vertically and numbered at
the top cannot be the subject of a patent, and, if used in
carrying out a method, it can impart no more novelty
thereto, than the pen and ink which are also used." 160 F.
at 469.
B.WHO INFRINGES A METHOD PATENT?
Methods may be patentable, but are they infringed by
sellers of the products made by the method who do not
themselves practice the method? Until the Process Patent
Amendment Act of 1988 (effective Feb. 23, 1989), the
answer was no. Now, under § 271(g) the answer, though
complicated, can be yes.
Method patents are also not directly infringed by sellers
of equipment to practice the method. Thus, if the equipment
takes so long to construct that the patent will expire before
the construction is finished, then it may not be possible to
enjoin that construction during the life of the patent. Joy v.
Flakt (Fed. Cir. 1993). Similarly, there is no direct
infringement of a method patent when equipment is sold in
the United States to a foreign customer who will practice the
method outside the country. Standard Havens (Fed. Cir.
1991).
25
C.METHODS AND PRIOR SECRET USES
Methods may be patentable, but can you practice them, in
a way that does not disclose them, for more than a year
before filing? Can someone else's practicing them in secret
invalidate them? The answers to both are thought to be "No."
Learned Hand in Metallizing, and the Federal Circuit in
DLAuld, are cited for the first, and WLGore for the second.
This is curious, especially because the phrase "known or used
by others" in § 102(a) (and predecessor statutes) does not say
"publicly." (See, e.g., the historical discussion in Woodland
Trust, and E. C. Walterscheid TO PROMOTE THE PROGRESS
OF USEFUL ARTS.
D.Q. HOW DO YOU ENFORCE A METHOD PATENT?
A.: VERY CAREFULLY.
If the competitor of the patent owner is not the one
practicing the method, the patent owner has to sue corporate
customers or consumers, neither of which is a pleasant
prospect. And if the patent owner forgets to prove direct
infringement, the accused (contributorily) infringing
competitors can have the case dismissed.
To make matters possibly worse for patent owners in this
area: HR 3194, just signed into law in November 1999
provides a "first inventor defense" against business method
patents. (This is one of the topics of co-speaker James R.
Batchelder.)
26
V.BUSINESS METHOD PATENTS: GOOD, BAD OR
INDIFFERENT?
Business method patents, to the extent they are
considered something "new" for the Patent Office, evoke the
same response as have other "new" categories of human
ingenuity. People complain that the patent system is not very
good or very fair, it stifles ingenuity, it harms competition
that would benefit the public, etc. The biotech people said
(say) so, the software people said (say) so, before that, Henry
Ford said so, and so on back.
Much of the problem is cured with time: once the patent
office gathers more prior art (by issuing patents, but in
today's internet age, examiners can find non-patent prior art
without leaving the premises, as long as it is word-searchable
electronically) and the examiners gain more expertise, the
system works better. [And then, at some much later date, the
subject matter becomes a legitimate educational credential
for admission to the patent bar. Recall the years when a
degree in biology was not sufficient. Computer science
degrees still do not necessarily qualify, see
http://www.uspto.gov/web/offices/dcom/olia/oed/grb9904.htm.]
The Patent Office is better at examining patents in "old"
arts than "new" ones. In order to speed up the learning curve
this time, the Patent Office has in fact responded to the
problem with its "Business Methods Patent Initiative" (see
http://www.uspto.cov/web/offices/com/sol/actionplan.html)
announced on March 29, 2000. Co-speaker Gerald Goldberg
will discuss this initiative.
"Progress in science and useful arts" has always had to
contend with the learning curve problem, yet it has managed
to be promoted. Journal articles by Robert Merges, John
Thomas, Rochelle Cooper Dreyfuss, Jared Earl Grusd, among
27
ohters, are considering whether the system needs changing
for business method patents. But there are practical,
definitional, and plain old time problems with any suggested
"fix," as well as the age-old problem of trying for a cure that
is not worse than the disease.
VI.Some Data About Business Method Patents and Relative
Litigation Rates
I did a quick LEXIS search to look at litigation rates for
different classes of patents back in February (in preparation
for my earlier talk at the New York conference) and I have
updated it now. I considered class 705 and three other patent
classifications for comparison. I looked at (1) the number of
patents issued in each class (since 1971); and (2) the number
of such patents involved in infringement litigation. As stated
above, the MDB class is:
705 "Data Processing: Financial, Business Practice" -- the
class of the patent to Boes in State Street
I chose the other three to be in different areas of endeavor.
based on famous recent patent cases. I figured that the class
of the Alappat patent, and that of the Genentech v. Amgen
patent, might well be more litigated than other less cuttingedge classes, and expected that the class of the Kearns patent,
an "older" technology, would be less litigated. The classes
are:
345 "Computer Graphics Processing" -- the class of the
application in In re Alappat
318 "Electricity: Motive Power Systems" -- the class of
the windshield wiper patents in the Kearns cases
435 "Chemistry: molecular biology and microbiology" -the class of the patent on human growth hormone
in Genentech v. Amgen
28
To find out how many patents are involved in litigation, I
simply searched for lit-reex (notice). The resulting numbers
are only as good as the combined efforts of the courts and the
PTO, with regard to complying with 35 USC § 290, and
LEXIS, with regard to inputting the information into the
database, make them. While the data show that many such
notices are known to the LEXIS database, none is recorded
today for either the amazon.com patent or the priceline.com
patent, both of which are known to be in litigation. Thus the
absolute numbers must be taken with a good pinch of salt.
Presumably, however, the rate of failure to record notices of
litigation is the same for all classes. So the rates of litigation
should all be suppressed equally, and the comparison
between rates unaffected. Here are the results:
CLASS # issued patents # litigated
%
2/6/00 5/9/00 2/6 5/9
705
3,186
53
1.7
3,487
63 1.8
345
20,007
159
20,788
318
18,223
166
77
18,466
435
43,624
0.42
78 0.42
288
45,060
0.79
0.80
288
0.66
0.63
It looks like business method patents are litigated at about 3
times the rate of other patents: 1.8% v. an average of 0.6%
for the other three classes. Why might that be?
- small number statistics? The absolute numbers of patents in
class 705 is only about one-sixth that of the next lowest
class.
29
- not enough "unimportant" patents issued in class 705 (PTO
overburdened?) or too many issued in the other classes
(PTO more easygoing about old technology? inventors
more used to filing applications in old technology? )
- too much litigation of method patents (courts
overburdened?) or maybe not too much, and just an
indication of the huge financial successes of e-commerce
merchants? (more money to spend on litigation, more
money at stake?)
VII.WHAT ISN'T PATENTABLE ANY MORE, AND
SOME ADDITIONAL REMARKS ABOUT 101
A.NOT PATENTABLE, THEN AND NOW
Back when I started in patent law (1986), "everyone
knew" you couldn't patent:
- perpetual motion machines
- cures for the cold or cancer
- arrangements of printed matter
- methods of doing business
- "life"
- "algorithms"
Only the first is a clear loser today. (But the printed matter
prohibition may still have some teeth: Last September, the
Federal Circuit affirmed a § 101-printed matter invalidity
defense on a patent for morphing cinematic images to lip
sync dubbed speech. Bloomstein v. Paramount.)
B.DISPOSABLE § 101?
Before State Street, I never spent much time on the
"subject matter" requirements of § 101 in the patent law
course I taught. The case law was not amenable to teaching,
among other reasons. Instead, in line with the Constitutional
mandate to extend protection to "inventors" for their
"discoveries" (the Constitution, Art. I, sec. 8, cl. 8), during
30
the course we would assume that anything anyone wanted to
patent could be patented, if it met the other statutory and
regulatory requirements (§§ 102, 103, 112, and Rule 56).
What would be the consequences of amending § 101 as
follows (using PTO conventions to show deletions and
additions):
Whoever [invents or discovers any new and useful process,
machine, manufacture, or composition of matter, or
any new and useful improvement thereof, may] wants
to obtain a patent [therefor,] on something useful may
do so, subject to the conditions and requirements of
this title.
When I first read Arrhythmia (a 1992 mathematical algorithm
case), the subtext to the accused infringer seemed to be: "If
there is prior art to invalidate this patent, bring it forward; if
not, stop whining." Which is how I had always felt when I
read Parker/Benson/Flook and all the other 101 algorithm
cases. And, to come almost full circle, that is how Hotel
Security worked: because there was a close prior art patent in
the art of overseeing waiters, the patent was held invalid.
Similarly in the 101 case after State Street, AT&T v. Excel,
after the Federal Circuit overturned the 101 invalidity
judgment, the accused infringers prevailed in the District
Court on the basis of invalidating prior art.
But § 101 has provided a kind of safety valve, when
people think that something should not be patented or should
be difficult to patent. Perhaps that is, or may some day prove
to be, a good thing.
31
VIII. SELECTED REFERENCES
A. CASES
In re Alappat, 33 F.3d 1526, 31 U.S.P.Q.2D 1545 (Fed. Cir.
1994)
Arrhythmia Research Tech. v. Corazonix Corp., 958 F.2d
1053, 22 U.S.P.Q.2D 1033 (Fed. Cir. 1992)
AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352,
50 U.S.P.Q.2D 1447
(Fed. Cir. 1999), cert. denied, 120 S. Ct. 368 (1999) (§ 101
decision)
AT&T Corp. v. Excel Communications, Inc., 1999 U.S. Dist.
LEXIS 17871 (D.Del. Oct. 25, 1999) (§§ 102/103 decision)
Bloomstein v. Paramount Pictures Corp., No. 99-1051 and
1203 (Fed. Cir. Sept. 3, 1999) (unpublished); No. C-95-1864
MHP (NDCal. March 10, 1998) (unpublished)
Diamond v. Chakrabarty, 447 U.S. 303, 206 U.S.P.Q. 193
(1980)
Fowler v. City of New York, 121 F. 747 (2 Cir. 1903)
This is my current favorite among the early cases cited
(incorrectly) for the proposition that "you can't patent a
method of doing business." Fowler's patent involved a
method for handling rail passenger traffic. The inventor
described a "bitransit system": a rail system having
express and local trains. The problem he solved comes
about at the "express" stations. His system included
placing the local and express trains in each direction
across an "island" platform, and putting stairways in
appropriate places for passengers wishing to exit or
switch directions. No 4-track prior art was found, but
the "island" configuration for 2-track stations was
known, and the extrapolation to 4-tracks was held to be
32
obvious. Thus the patent was declared invalid. Its
utility can not, however, be questioned: Anyone
familiar with the New York City subway system knows
that changing between the local and the express at W.
34th Street on the IRT (the 1-2-3 and 9) is a nightmare
precisely because Fowler's method is not used, and the
2-track version is.
In re Gulack, 703 F.2d 1381 (Fed. Cir. 1983)
Hotel Security Checking Co. v. Lorraine Co., 160 F. 467 (2
Cir. 1908), affirming 155 F. 298 (SDNY 1907)
Joy v. Flakt, 6 F.3d 770 (Fed. Cir. 1993)
Lindsay v. Wrecked and Abandoned Vessel, 52 USPQ2d 1609
(SDNY 1999), also discussed in 58 PTCJ 847 and 855 (Oct.
28, 1999)
Markman v. Lehman, 987 F. Supp. 25, 45 U.S.P.Q.2D 1385
(D.D.C. 1997), aff'd, 1998 U.S. App. LEXIS 27646 (Fed. Cir.
10/26/98)
Metallizing Engineering Co. v. Kenyon Bearing & Auto Parts
Co., 153 F.2d 516, 520 (2 Cir. 1946).
Parker v. Flook, 437 U.S. 584 (1978)
In re Schrader, 22 F.3d 390 (1994)
Standard Havens Prods. v. Gencor Indus., 953 F.2d 1360, 21
U.S.P.Q.2d 1321 (Fed. Cir. 1991)
State Street Bank & Trust Co. v. Signature Fin. Group, Inc.,
149 F.3d 1368, 47 U.S.P.Q.2D 1596 (Fed. Cir. 1998), cert.
denied, 119 S. Ct. 851 (1999)
W.L. Gore & Assocs., Inc. v. Garlock, Inc., 721 F.2d 1540,
220 USPQ 303 (Fed. Cir. 1983), cert. denied, 469 U.S. 851
(1984)
Watt Steam Engine Cases: Boulton v. Bull, 2 H.Bl. 463
33
(1795) and Hornblower v. Boulton, 8 T.R. 95 (1799)
Woodland Trust v. Flowertree Nursery Inc., 148 F.3d 1368,
47 U.S.P.Q.2D 1363 (Fed. Cir. 1998)
B. PATENTS (BY INVENTOR NAME)
Adams et al., 3,573,747, Instinet Communication System For
Effectuating The Sale Or Exchange Of Fungible Properties
Between Subscribers (Apr. 6, 1971) [earliest patent on
LEXIS database, which goes back to 1971, in class 705]
Alappat, Kuriappan P., et al., 5,440,676, Raster scan
waveform display rasterizer with pixel intensity gradation
(Aug. 8, 1995) [In re Alappat patent]
Boes, R. Todd, 5,193,056, Data processing system for hub
and spoke financial services configuration (Mar. 9, 1993)
[State St. v. Signature patent]
Chakrabarty, Ananda M., 4,259,444, Microorganisms having
multiple compatible degradative energy-generating plasmids
and preparation thereof (Mar. 31, 1981) [Diamond v.
Chakrabarty patent]
Dickens, Bruce, 5,806,063, Date formatting and sorting for
dates spanning the turn of the century (Sept. 8, 1998) [a Y2K
bug patent mentioned in the news in November 1999]
Doherty, Gerard P., et al, 5,333,184, Call Message Recording
for Telephone Systems (Jul. 26, 1994) [AT&T v. Excel
patent]
Gulack, Max A., 4,260,385, Educational and recreational
mathematical kit in the form of a set of square sticks (Apr. 7,
1981); 4,416,633, Educational and recreational mathematical
device in the form of a band, ring or concentric rings (Nov.
22, 1983)[In re Gulack patents]
34
Hair, Arthur R., 5,966,440, System and method for
transmitting desired digital video or digital audio signals [the
Sight/Sound patent]
Hartman, Peri et al., 5,960,411, Method and system for
placing a purchase order via a communications network (Sep.
28, 1998) [amazon.com v. barnesandnoble.com]
Hicks, 500,071 (1893) [Prior art patent in Hotel Security]
Harrington, Juliette, 5,895,454, Integrated interface for
vendor/product oriented internet websites (Apr. 20, 1999)
[suit against Yahoo mentioned in the news in November
1999]
Levine, Fredrick E., et al., 5,745,681, Stateless shopping cart
for the web (Apr. 28, 1998)
Markman, Herbert, RE 33,054 (reissue of 4,550,246)
Inventory control and reporting system for drycleaning stores
(Oct. 29, 1985; reissued Sept. 12, 1989) [Markman v.
Westview patent.]
Smith, G.D. 449,973 (1891) [Hotel Security patent in suit]
Walker, Jay S., et al, 5,794,207, Method and Apparatus for
cryptographically-assisted commercial network system
designed to facilitate buyer-driven conditional purchase
offers (Aug. 11, 1998) [The Priceline.com patent]
C. BOOKS AND ARTICLES
Becker, Stephen A., Drafting Patent Applications on
Computer-Implemented Inventions, 4 HARV. J. LAW & TEC.
237 (1991).
Brown, Christopher A., Recent Developments in Intellectual
Property Law, 32 IND. L. REV. 909 (1999).
Dahn, Frank W., Methods of Doing Business, 4 JPOS 85
(1921).
35
Del Gallo, III, Rinaldo, Are 'Methods of Doing Business'
Finally Out of Business as a Statutory Rejection?, 38 IDEA
403 (1998)
Dreyfuss, Rochelle Cooper, Are Business Method Patents
Bad for Business?, 16 COMPUTER & HIGH TECH. L.J. _____
(1999-2000) [in press]
Durham, Alan L., "Useful Arts" in the Information Age, 1999
B.Y.U. L.Rev. 1419 (1999)
Ebert, Lawrence B, "Pfaff in View of State Street: Would You
Have Known It If You Could Have Seen It?, 5 INTELLECTUAL
PROPERTY TODAY 42 (1998)
Fuelling, Michael L., Manufacturing, Selling and
Accounting: Patenting Business Methods, 76 JPTOS 471
(1994)
Grusd, Jared Earl, Internet Business Methods: What Role
Does and Should Patent Law Play?, 4 Va. J.L. & Tech. 9
(1999)
Hansmann, Arthur J., Method of Doing Business, 50 JPOS
503 (1968)
Knobbe, Louis J., How to Decide Whether to Obtain a
Patent: Legal Framework, 343 PLI/Pat 9 (1992)
MacNab, John F., Invention and Patentability Under the
Patent Statutes as applied to So[-]called Printed Matter and
Methods or Systems of Doing Business, 4 JPOS 480 (1921)
Merges, Robert, As Many as Six Impossible Patents Before
Breakfast: Property Rights for Business Concepts and Patent
System Reform, 14 BERKELEY TECH. L.J. 577 (1999)
Tew, Geo. E., Methods of Doing Business, 16 JPOS 607
(1934)
36
WALTERSCHEID, EDWARD C., TO PROMOTE THE PROGRESS OF
USEFUL ARTS: AMERICAN PATENT LAW AND
ADMINISTRATION (Littleton, Colorado: Fred B. Rothman &
Co. 1998)
Walterscheid, Edward C., The Early Evolution of the United
States Patent Law: Antecedents, J. PAT. & TRADEMARK OFF.
SOC'Y 1994-1996 - 76:697 (Part I), 76:849 (Part II), 77:771
(Part III-1), 77:847 (Part III-2), 78:77 (Part IV), 78:615 (Part
V-1) and 78:665 (Part V-2).
Yoches, E. Robert, Practising Law Institute, Patents,
Copyrights, Trademarks, and Literary Property Course
Handbook Series, Third Annual Internet Law Institute, New
York City, June 14-15, 1999, Patent Protection for
Electronic Commerce and Other Internet Applications, GO0051 PLI COURSE HANDBOOK SERIES 321
Yoches, E. Robert, and Pollack, Howard G., Is the "Method
of Doing Business" Rejection Bankrupt? 3 FED. CIRCUIT BAR
J. 73 (Spring 1993).
37
insert copy of cartoon
RISC* Architecture
*Rear InSide Chair -orRestricted to Information you can find
Sitting at your Computer]
by
Roberta J. Morris
38