State of Innovation

Patents and Innovation Economics

Bilski, Software Patents and Business Method Patents

Will the Supreme Court use the In re Bilski 545 F.3d 943, 88 U.S.P.Q.2d 1385 (Fed. Cir. 2008) case to deny patent protection to information age technology?  Many observes believe that this case will have major implications for software and business method patents.  The Bilski patent application covered a method of hedging risks when trading commodities.  The Court of Appeals for the Federal Circuit (CAFC) ruled that the Bilski patent did not fall within the subject matter of patentable material.  It reached this decision based on the so called machine or transformation test.  Bilski did not recite a machine or transform matter from one state to another state according to the court.

Software Patent

Software patents are inherently directed to a machine.  As any electrical engineer knows, solutions to problems implemented in software can also be realized in hardware, i.e., electronic circuits.  The main reason for choosing a software solution is the ease in implementing changes, the main reason for choosing a hardware solution is speed of processing.  Therefore, a time-critical solution is more likely to be implemented in hardware, while a solution that requires the ability to add features easily will be implemented in software.  As a result, to be intellectually consistent, those people against software patents also have to be against patents for electronic circuits.  Unless the Supreme Court is going to hold that electronic circuits are not statutory material for patents under 35 USC § 101, their decision should not affect software patents.

Some people in the open source community argue that the difference between software and hardware, is software can be reproduced at virtually no cost.  This argument is incorrect.  Software code, which are the instructions, can be cheaply reproduced if the computer hardware already exists for the copying.  The executed code or process cannot be reproduced cheaply, since it inherently requires hardware.  The hardware can only run so many processes at one time and is limited in speed and power.  Patents do not cover the software code, they cover the executed code or process.

The Bilski decision results in an overly formalistic style of claim writing that requires hardware be recited in the claims, when the exact hardware implementing the software is irrelevant to the invention.  For instance, error correction codes used in computers and communications are extremely important to our information society.  Error correction codes transform a set of numbers (data) into another set of numbers (a code).  The data and code are then transmitted to another location where the data is transformed and compared to the received error correction code.  The patent claims and the patent specification do not need to recite the hardware by which the error correction system is implemented for an electrical engineer to understand the system.  In fact, most technical and text books on coding do not refer to the underlying hardware.  However, under Bilski, if the inventor does not recite some hardware then his claims will fail the machine or transformation test.  What is the risk to the patent system if the inventor does not recite the hardware for an error correction code?  An error correction coding scheme divorced from hardware is useless.  No one is going to compute error correction codes by hand.  The requirement to recite the hardware is absurd and the most likely outcome of this rule is to deny a patent to a deserving inventor.

Business Method Patents

One of the first cases stating that methods of doing business are not patentable related to a patent covering outdoor drive-in movie theaters, Loew’s Drive-In Theatres v. Park-In Theatres, 174 F.2d 547, 552 (1st Cir. 1949).  The claims covered the now well-know design for a drive-in movie theater.  Clearly, these claims were directed to real world objects and there relationship.  For instance, how does one setup the parking rows in a partial semi circle around a screen and run the speaker systems to the cars?  The drive-in theater was a major success with over 800 drive-in theaters in 1948.  The drive-in theater did not exist before Richard Hollingshead, the inventor, created it.  Despite this, the court ruled that methods of doing business were not patentable and invalidated Mr. Hollingshead’s patent.  A process for building a car, airplane, or radio are methods of doing business and yet no one would question that it was patentable.  A process for curing rubber is also a method of doing business.  All of these processes are part of how a company conducts its business, i.e., a method of doing business.  There is no support in the statute, 35 USC § 101, for a prohibition against business method patents.

According to many people, one of the best known business method patents is the Amazon one click patent.  Amazon.com applied for the patent in 1997 and it issued in 1999 as patent number 5,960,411.  A number of competitors had copied Amazon’s one click ordering system and shortly after the patent issued, Amazon.com sued Barnes and Noble for infringement.  Industry studies showed that between sixty and sixty-five percent of online shopping baskets abandon before they checked out.  The primary reason for abandoned internet shopping carts seems to be buyer confusion and annoyance with the online purchasing process.  Presumably, many of those abandoned shopping carts represent lost sales.  The goal of the one click method for online shopping was to make the process simpler, faster, and more secure, thereby capturing some of that lost business.  Barnes and Noble’s Express Lane (one click shopping system) was evidently successful, since a large percentage of their customers had chosen to utilize the Express Lane rather than the shopping basket.  Amazon’s one click patent clearly involved software and therefore hardware, in order to have any meaning.  The hardware included the internet, the customer’s computer, and Amazon’s servers.  Amazon.com used real technology to solve a real problem.  This is exactly the sort of invention our patent system is designed to protect.  (For more on the Amazon one click patent click here)

It is my contention that a logically consistent definition of business method patents does not exist.  All patents are related to a method of doing business, since even device patents are related to how the business intends to build the device.  A common category of business method patents the critics decry are ecommerce patents, such as the Amazon.com one click patent.  All these patents use real technology (internet, computers and software) to solve real world problems.  Patents for financial products have also been widely criticized as business method patents.  If the financial product uses computers (software) to implement the product, then it uses a machine.  The fact that the machine merely transforms data, usually relating to money, makes it no different than a patent relating to error correction codes.  In an information society the processing and transformation of data is central to the economy and its technology.  The telegraph and telephone are nothing but devices to transform and transmit information.  The sounds wave created at the receiving end of the telegraph and telephone are just one more step in transferring the information.

Bilski

Since the Bilski patent application has never been published, it is hard to determine from the claims if its commodity hedging scheme requires a computer for any practical use.  If the hedging scheme requires a computer for any practical use of the invention, then denying the patent just because it does not recite the hardware is absurdly formalistic.  If the invention does not require a computer for any practical application of the invention, then it is hard to see how the invention is novel.  In this case, the courts should avoid any overly broad pronouncements about business method patents or software patents and rule the invention is not patentable for lack of novelty.

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June 8, 2009 - Posted by | -Law, -Philosophy, Patents, Uncategorized

18 Comments »

  1. […] Originally posted here: Bilski, Software Patents and Business Method Patents « State of … […]

    Pingback by Bilski, Software Patents and Business Method Patents « State of … « SVHD’s Blog | June 8, 2009 | Reply

  2. By Luis Ramirez The issue of patent, copyright, and trademark theft is a particular sore point in trade relations between the two countries. Do Business

    Comment by Do Business | June 8, 2009 | Reply

  3. Software written on a piece of paper does not shake electrons.

    And shaking electrons in general purpose computer is not something new, is it?

    Comment by orfait | June 9, 2009 | Reply

    • All an electrical generator, the light bulb, radar, laser, teflon, dynamite, microprocessor, transistor, etc do are shake electrons. You have just declared that all electrical and electronic devices are not new. Chemistry is just rearranging electrons – essentially shaking them so all of chemistry is not new. The atomic bomb and nuclear energy just manipulates the electrical force, protons instead of electrons, but the only difference the electrical charge and the mass so that is not new either. The Greeks knew about the six simple machines in the third century BC, so no mechanical devices, such as trains, cars, jets, etc. are new because they are just a combination of the simple machines and shaking electrons (chemistry & electronics).

      You have a very strange definition of “new”. Your definition of new, would exclude every major invention in the last 2000 years.

      You suffer from the problem of believing that “new” means creating something from nothing. This would violate the laws of physics – conservation of matter. First, conservation of matter (matter and energy) means that no one creates something from nothing. In addition, if you applied for a patent suggesting you had a “totally new” item in your invention you would receive a rejection from the Patent Office (USPTO). Assume your “totally” new item was called “XYZYG”. Since the examiner at the USPTO would not know what “XYZYG” is, they would reject your patent application as “indefinite” under 35 USC 112, second paragraph. This part of the statute states:

      The specification shall conclude with one or more claims particularly pointing out and distinctly claim ing the subject matter which the applicant regards as his invention. 35 USC 112, second paragraph

      The examiner at the USPTO would state that your item “XYZYG” fails to particularly point out the subject matter you regard to be your invention.

      Comment by dbhalling | June 9, 2009 | Reply

      • Also:

        “All an electrical generator, the light bulb, radar, laser, teflon, dynamite, microprocessor, transistor, etc do are shake electrons.”

        It’s funny how we don’t see a whole lot of claims issuing here lately on methods of using electrical generators, light bulbs, radars, lasers, teflon, dynamite per se, except when some advancement in the structure of the generator, bulb, radar, laser emitter, teflon or dynamite has been made. Funny indeed! Yet, we see all manner of claims to new methods of using processors and transistors, even when the processor or transistor used are old. Funny funny funny!

        Comment by 6 | June 20, 2009

      • Your statement assumes that people can create something from nothing. Conservation of matter (matter and energy) means that no one creates something from nothing. As a result, all inventions are combinations of old items and this tells you nothing about whether the invention is patentable. In addition, if you applied for a patent suggesting you had a “totally new” item in your invention you would receive a rejection from the Patent Office (USPTO). Assume your “totally” new item was called “XYZYG”. Since the examiner at the USPTO would not know what “XYZYG” is, they would reject your patent application as “indefinite” under 35 USC 112, second paragraph. This part of the statute states:

        The specification shall conclude with one or more claims particularly pointing out and distinctly claim ing the subject matter which the applicant regards as his invention. 35 USC 112, second paragraph

        The examiner at the USPTO would state that your item “XYZYG” fails to particularly point out the subject matter you regard to be your invention.

        So does this mean that an invention which is a combination of know elements is patentable? No. The law requires that an invention be novel and nonobvious. However, for most people that is not very helpful. I ask my clients – have you used technology to solve a real problem? If the answer is yes and no one else solved the same problem in the same way, then you probably have a patentable invention.

        Comment by dbhalling | June 22, 2009

  4. Great post! I’ll subscribe right now wth my feedreader software!

    Comment by Kelly Brown | June 12, 2009 | Reply

  5. Great post! I’ll subscribe right now wth my feedreader software!

    Comment by KattyBlackyard | June 14, 2009 | Reply

  6. I have been looking looking around for this kind of information. Will you post some more in future? I’ll be grateful if you will.

    Comment by GarykPatton | June 15, 2009 | Reply

  7. […] information can be found here: Since the Bilski patent application has never been published, it is hard to determine from the […]

    Pingback by Patents Roundup: Microsoft, Danger in New Zealand, and Rise of Opposition | Boycott Novell | June 23, 2009 | Reply

  8. You know, I don’t read blogs. But yours is really worth beeing read.

    Comment by CrisBetewsky | July 6, 2009 | Reply

  9. Some of us even don’t realize the importance of this information. What a pity.

    Comment by CrisBetewsky | July 6, 2009 | Reply

  10. […] Bilski, Software Patents and Business Method Patents « State of Innovation – "Will the Supreme Court use the In re Bilski 545 F.3d 943, 88 U.S.P.Q.2d 1385 (Fed. Cir. 2008) case to deny patent protection to information age technology? Many observes believe that this case will have major implications for software and business method patents." […]

    Pingback by Eric Waltmire’s Blog | Software Patent News for July 7th | July 7, 2009 | Reply

  11. […] While financial products deal with the intangible concept of money (prices), from an economic point of view money is information about a market.  As our economy transitions from an industrial society to an information economy, information is going to be the most important product for our economy.  Arbitrarily excluding financial products from patent protection because they deal with money makes as much sense as excluding other information processing inventions – for more information see my post “Bilski, Software Patents and Business Method Patents.” […]

    Pingback by Bilski, Financial Patents & the Financial Crisis « State of Innovation | October 8, 2009 | Reply

  12. […] Bilski is a case about whether certain types of technology are patentable subject matter.  The patent in this case was directed to a financial system for hedging commodities risk.  However, the Supreme Court may use this case to undermine patents related to software and business methods.  If the Court does significantly limit the patentability of software based inventions, the value of the intangible assets of many of these companies will be significantly reduced.  (For more information on the Bilski case see, Bilski, Financial Patents, and the Financial Crisis , and Bilski, Software Patents and Business Method Patents .  […]

    Pingback by Why Investor Need to Pay Attention to the Bilski Decision « State of Innovation | January 26, 2010 | Reply

  13. […] business methods patents (for more on the nonsense associated with business method patent see – Bilski, Software Patents and Business Method Patents.  This definition is clearly consistent with section 102 – new equals novel.  Is this […]

    Pingback by Non-Obviousness: A Case Study in Judicial Activism « State of Innovation | June 18, 2010 | Reply

  14. […] The Court acknowledges, (Kennedy), that there is no good definition of a business method patent.  I have made a similar observation in Bilski, Software Patents and Business Method Patents. […]

    Pingback by BILSKI: the Good, the Bad, and the Ugly « State of Innovation | June 29, 2010 | Reply

  15. wonderful

    Comment by Sergio Siefferman | December 1, 2013 | Reply


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