State of Innovation

Patents and Innovation Economics

Is Money an Abstract Concept?

In H&R Block Tax Services v. Jackson Hewitt Tax Services Inc., the court stated that “although tangible in some forms, money is simply a representation of a legal obligation or abstract concept.”  A similar sort of attitude seems to be involved in the Bilski case.  Both cases involve patents where money is used a unit of measure, and this seems to cause all sorts of confusion to the courts.

Is money just a legal obligation as the court states?  The court is incorrect that money is a legal obligation.  Money exists separate from a functioning legal system.  Money is a medium of exchange that measures the total amount of goods and services that can be traded for a certain amount of money.  The court seems to be confused by the legal tender rules, but money existed long before any legal tender laws ever existed. 

Is money just an abstract concept as the court states?  Money is a unit of measure just like voltage, current, power, energy, and force.  Is the measurement of something in money more abstract than the measurement of voltage, current, power, energy, or force?  You cannot hold voltage, current, power, energy, or force in your hand.  You cannot see these units of measurement.  While money may be represented by a physical token such as a coin or piece of paper, it can also just be an entry in computer or even a piece of paper.  It is clear that money is no different than other units of measure.

Isn’t it true that money does not represent something physical like voltage, current, power, energy, or force?  No, this is clearly incorrect.  Money just represents a certain amount of goods or services.  In the H&R Block case, we could substitute money for a certain number of pigs.  Pigs are clearly physical.

But the value of money in terms of the number of pigs or other goods or services varies depending on time or place, while this is not true of voltage, current, power, energy, or force.  When we convert voltage into light or rotation of a wheel, the amount of light varies depending on the device we use to convert the voltage to light or the speed of the wheel depends on the device we use to convert voltage into the rotation of a wheel.  Similar examples can be provided for current, power, energy and force.  So clearly, when we convert a unit of measurement into something else the result varies based on the circumstances.

But money is fuzzy compared to voltage, current, power, energy, or force.  In a given situation, we know how these other units will behave based on precise mathematical equations.  On a microscopic level, we do not know for instance exactly how much light a laser diode will emit at any point in time given a certain voltage.  On a macroscopic level (macroeconomic level) we know that a certain unit of money will convert into a certain amount of goods and services, based on the total amount of money and the total amount of goods and service, when averaged over time.  This is exactly the same as the light output of a laser – namely a given voltage will result in a certain amount of light when averaged over time.  However, in both cases we do not know the exact result at any particular instant in time.  One difference is that we have to average over a longer period of time for the conversion of money to goods and services than the conversion of voltage to light.

Money is unit of measure that provides information about the world, as are voltage, current, power, energy, or force.  Devices for measuring voltage, current, power, energy, or force are clearly patentable and H&R Block’s patents clearly are just devices for measuring money.  Note that money is measured in dollars, pounds, euros or other currencies while power is measured in Watts, horsepower, calories/sec, etc.

But H&R Block’s patents are really just about information, nothing physical is happening.  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.

Perhaps inventions dealing with just transmitting or transforming information or data should not be patentable.  The telegraph and telephone are just systems for transmitting information from one place to anther.  Both of these technologies are clearly patentable.  While a telephone and telegraph create sound waves, the sound waves are just a method of communicating information.  Another area of information technology is compression codes and error correction codes.  Error correction codes are used in computers and communications and 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.  Patents for information processing use real technology (internet, computers and software) to solve real world problems.  If financial products use 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 transmission or transformation of data has real world effects, including the transmission or transformation of money, which is a particular type of data.

The courts and patent office should not exclude information technologies, including those in which the underlying data is money, from patent protection.  Information has real world effects and as long as a patent application relating to information can show that it has utility, then that should end the inquiry of whether the patent application is directed to statutory subject matter (35 USC 101).   When the courts and patent office exclude these technologies from patent protection, they hurt the US economy, reduce the number of high quality jobs, and cause the US to fall behind technologically.

November 19, 2009 - Posted by | -Law, -Philosophy, Patents, Uncategorized | , , , ,

1 Comment »

  1. […] The concurring opinions (Stevens, Ginsburg, Breyer, Sotomayor) (Breyer, Scalia) show that most of the Justices want a categorical rule against business method patents.  However, they fail to provide a definition of a business method patent.  Because the Justices refuse to provide a definition, it is likely that different Justices mean different things by a business method patent.  The only clue as to what they mean by a business method patent is either a way of organizing people or a patent related to finance or money.  I explain why excluding finance and money from patentable subject matter is flawed at Is Money and Abstract Idea. […]

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

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