e-business patents

This page looks at e-business patents, the newest and for some people most contentious area of intellectual property.

It covers -

• protecting methods - can (and should) we have e-business patents?
• responses - industry, consumer, academic and government debate
• resources - pointers to major sites

It supplements discussion in the Intellectual Property Guide elsewhere on this site regarding patents and designs.

     protecting methods

Patent protection for 'inventions' dates from at least the English Statute of Monopolies of 1624, which provided a 14 year statutory protection for new devices and methods of manufacture. (The 14 years reflected contemporary apprenticeship arrangements: the inventor/manufacturer training successive apprentices, each indentured for a seven year terms).

Until the closing years of last century protection was given to original inventions and manufacturing processes. Given a traditional emphasis on originality, technical progress, practicality of identification and enforcement of rights, and a wariness among courts and patent offices (the government agencies that issue patents and maintain registration databases, highlighted below) about the "general inconvenience" of overly broad patents there was a strong reluctance to provide protection for methods of doing business, eg the idea of the reverse auction.

The term 'business method' - embracing activities such as buying/selling items, marketing techniques, financial schemes and gaming strategies - was a shorthand for all non-technical and thus unpatentable inventions.

That changed with the 1998 State Street and Priceline patents in the US, with US courts deciding that internet-related methods such as the online reverse auction and one-click shopping cart should be protected.

Abraham Lincoln, initially better known as a very successful corporate lawyer than a politician, praised the US patent system as "adding the fuel of interest to the fire of genius." In recent years it seems to have been adding petrol to the fiery debate about the basis and extent of intellectual property.

The US courts did not define 'business method' and, say some observers, the US Patent & Trademarks Office (USPTO) has accordingly been trying to fill a conceptual void with a body of comments, hints and guidelines.

Reception ouside the US has been mixed. The European Patent Convention - the collective of EU patent offices - has moved to recognise business method patents but, so far, has disdained to closely identify what they comprise and rejected the Priceline reverse auction and Amazon 'one-click' applications. A perspective is provided by Hartmut Pich's 2003 paper Why Amazon One Click Shopping is patentable under the proposed EU Directive.

A 2000 study by Oxford University and Olswang (PDF) found that although only 28% of all EPO applications were filed by US businesses, 52% of business method applications came from the US. Risto Saevas' masters thesis (PDF) considers software patent decisions by the EPO.

In Australia the landmark ruling was that in the 2001 Welcome Real-Time v Catuity case, with the Federal Court finding that a method of using information technology within a business system could comprise patentable subject matter under the Patents Act 1990. The implications of that decision are being digested by legal theorists, courts and the Australian Industrial Property Office (AIPO), the counterpart of the USPTO and EPO. The Advisory Council on Intellectual Property (ACIP) formed a working group on business method patents in 2002.

In Grant v Commissioner of Patents [2005] FCA 1100 the Federal Court held that Grant's 'pure' business method (the structure of a financial transaction in an attempt to protect an individual's assets in bankruptcy) was not patentable subject matter.That decision was upheld on appeal, albeit on different grounds ([2006] FCAFC 120. The Full Court of the Federal Court ruled that Grant's invention was a "mere scheme", "mere working directions" and "mere intellectual information". As such the invention was not patentable subject matter. The court noted that that principles to determine patentable subject matter should be applied flexibly - patentability must accommodate inventions not yet envisaged - and acknowledged that development is unpredictable.

     responses

Examples of concerns about business method patents - and patenting in general - are

• the American Bar Association's March 2001 review article
• Seth Shulman's article in the MIT Technology Review and James Gleick's 2000 Patently Absurd article
• Shulman's Owning The Future: Inside the Battle To Control the New Assets That Make Up the Lifeblood of the New Economy (Boston: Houghton Mifflin 1999)
• Gary Lea's 2000 paper The Revolution That Never Was: A Cynic's Eye View of the Software, Business and E-Commerce Method Patenting Controversy in the Wake of State Street
• Robert Merges 1999 As Many as Six Impossible Patents Before Breakfast: Property Rights for Business Concepts & Patent System Reform (PDF)

Several papers by Mark Lemley are particularly insightful. We recommend his 2001 Rational Ignorance at the Patent Office (PDF), 2001 Patent Scope & Innovation in the Software Industry (PDF) with Julie Cohen and 2001 The Growing Complexity of the United States Patent System (PDF) with John Allison. Greg Aharonian published two characteristically provocative critiques on his BustPatents site in October 2001. They are his Business Methods paper and a Software Copyright Deconstruction paper.

For an empirical study questioning the value of patents per se see Sequential Innovation, Patents & Imitation (PDF) by James Bessen & Eric Maskin of MIT and The Patent Paradox Revisited, a 1999 paper by Bronwyn Hall & Rose Ham. There is a defence in Thomas Mandeville's Understanding Novelty: Information, Technological Change, And The Patent System (Norwood: Ablex 1996) and Stephen Ladas' Patents, Trademarks & Related Rights: National & International Protection (Cambridge: Harvard Uni Press 1975). An overview is provided in the US National Academies study Patents in the Knowledge-Based Economy.

On 9 March 2000 Jeff Bezos, founder of Amazon.com (widely criticized for abusing the patent system and sponsor of BountyQuest, a site that awarded US$10K prizes to those who demolish high-tech patents) argued that software and business method patents such as the Amazon one-click cart are "fundamentally different" and should be recognized as such. 

He proposed that business patents should be recognized as so fundamentally different that they might only apply for 3 to 5 years, as opposed to the usual 15 to 20. That proposal came under fire from those insisting that all patents must be treated the same: special treatment for certain categories of patent is inappropriate.

The Maastricht University Portal on Information Economy & Intellectual Property (here) points to some EU studies. There's more detail at Bernard Lang's Software Patentability Debate site.

Can an algorithm be patented? In Australia a claim to a mathematical algorithm as such is not patentable, on the basis that an algorithm per se does not produce a "commercially useful effect". That effect can only arise when the algorithm is implemented in a way that produces a result, eg when it is used in a computer to produce a commercially useful effect. Relevant case law includes IBM v Commissioner of Patents (1992) 22 IPR 417 and CCOM Pty Ltd and anor v Jiejing Pty Ltd and ors (1994) 28 IPR 481. Protection for algorithms is discussed in a lucid 1998 Sydney Law Review article by Andrew Christie).

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