Justices Show Supreme Skepticism About Broad Business Model Patents

from the good-for-them dept

You never know how they'll actually rule, but in hearing the oral arguments in the Bilski case over the patentability of business models (and, most likely, software), one thing became quite clear: nearly every Supreme Court Justice was seriously skeptical of outlandish patent claims. We've noted, of course, that the Supreme Court over the past few years has taken a renewed interest in patent law, pushing back time and time again against the Federal Circuit (CAFC), who in the 80s and 90s seemed to take the position that more patents was always a good thing. Sensing that, with Bilski, CAFC even pushed back on its own earlier rules, and it appears that the Supreme Court at least agrees that the era of crazy business model patents should end now. The full transcript is worth reading, but Justin Levine did a nice job summarizing some of the highlights in the questioning by the Justices:

JUSTICE GINSBURG: But you say you would say tax avoidance methods are covered, just as the process here is covered. So an estate plan, tax avoidance, how to resist a corporate takeover, how to choose a jury, all of those are patentable?

MR. JAKES: They are eligible for patenting as processes, assuming they meet the other statutory requirements.

JUSTICE BREYER: So that would mean that every -- every businessman -- perhaps not every, but every successful businessman typically has something. His firm wouldn't be successful if he didn't have anything that others didn't have. He thinks of a new way to organize. He thinks of a new thing to say on the telephone. He thinks of something. That's how he made his money. And your view would be -- and it's new, too, and it's useful, made him a fortune -- anything that helps any businessman succeed is patentable because we reduce it to a number of steps, explain it in general terms, file our application, granted?

MR. JAKES: It is potentially patentable, yes.

---

JUSTICE BREYER: You know, I have a great, wonderful, really original method of teaching antitrust law, and it kept 80 percent of the students awake. They learned things.[Audience laughter.] It was fabulous. And I could probably have reduced it to a set of steps and other teachers could have followed it. That you are going to say is patentable, too?

MR. JAKES: Potentially.

---

JUSTICE SCALIA: You know, you mention that there are all these -- these new areas that didn't exist in the past because of modern business and what-not, but there are also areas that existed in the past that don't exist today. Let's take training horses. Don't you think that -- that some people, horse whisperers or others, had some, you know, some insights into the best way to train horses? And that should have been patentable on your theory.

MR. JAKES: They might have, yes.

JUSTICE SCALIA: Well, why didn't anybody patent those things?

MR. JAKES: I think our economy was based on industrial process.

JUSTICE SCALIA: It was based on horses, for Pete's sake. You -- I would really have thought somebody would have patented that.

Of course, these are the same Justices that have been pushing back on the patent world for quite some time. What about the newer Justices? Turns out they were pretty skeptical as well. There were some questions about new Justice Sotomayor, who had been an IP litigator at one point, but seemed pretty skeptical of these sorts of patents:

JUSTICE SOTOMAYOR: So how do we limit it to something that is reasonable? Meaning, if we don't limit it to inventions or to technology, as some amici have, or to some tie or tether, borrowing the Solicitor General's phraseology, to the sciences, to the useful arts, then why not patent the method of speed dating?

MR. JAKES: Well, first of all, I think, looking at what are useful arts, it does exclude some things. It does exclude the fine arts. Speaking, literature, poems, I think we all agree that those are not included, and there are other things as well. For example, a corporation, a human being, these are things that are not covered by the statutory categories.

JUSTICE SOTOMAYOR: So why are human activities covered by useful arts?

MR. JAKES: Human activities are covered.

Chief Justice Roberts dug into the Bilski patent in question, and noted how ridiculously broad the claims were:

CHIEF JUSTICE ROBERTS: What -- I'm looking at your Claim 1, in Joint Appendix page 19 to 20. How is that not an abstract idea? You initiate a series of transactions between commodity providers and commodity consumers. You set a fixed price at the consumer end, you set a fixed price at the other end, and that's it.

I mean, I could patent a process where I do the same thing. I initiate a series of transactions with sellers. I initiate a series of transactions with buyers. I buy low and sell high. That's my patent for maximizing wealth.

I don't see how that's different than your claim number 1.

He went on to point out that some of what the patent seems to cover has been around since the 17th century (history buff, apparently). Anyway, you never know how the Justices will actually rule -- and there are big questions well beyond just "allow/don't allow" that will be the really important thing to watch for in the decision. Will they set up a new "test" for patentability? Will they exclude certain areas (business models? software?) from patent coverage? Will they come out with a very narrow ruling that just focuses on Bilski's patent and leave the bigger questions for another day? That's where things will get interesting. But, at the very least, it seems likely that the worst case scenario of saying a patent like Bilski's is valid is quite unlikely to be the end result.

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IBM Claims Software Patents Promoted Open Source Software?

from the but-how? dept

The folks over at Slashdot point us to an interesting tidbit buried in IBM's amicus brief for the Bilski case, where the company claims that software patents helped drive open source software development:

Patent protection has promoted the free sharing of source code on a patentee's terms--which has fueled the explosive growth of open source software development.

The original report linked above conveniently drops the "on a patentee's terms" which makes for a better story, but is a bit misleading. It's that clause that explains what IBM means by this claim, though it shows absolutely no substantiation of the claim, whatsoever. And that's because even with that clause added back in, it makes no sense. At all. Yes, software patents may make some developers more willing to share code with others... but that's got nothing to do with open source development or the growth of open source software. The situations where a patent makes a developer more comfortable showing source code are clearly cases of proprietary software, where the developer/patent holder is worried about the software being copied. With open source software, there's no such "worry" because that's actually a feature of the system.

So why does IBM simply get to make stuff up in a filing for the Supreme Court?

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Patent Hawk Files Supreme Court Brief On Behalf Of All Oregon; Oregon Officials Say 'Who?'

from the good-work! dept

You may recall that a guy named Gary Odom, who refers to himself often in the third person as "Patent Hawk," has been known to stop by here every so often to insult us without ever, you know, backing up a point. His day job is helping companies do patent/prior art searches. Last year, he made a bit of news by suing Microsoft for a patent he held on "editable toolbars" (exciting stuff). Microsoft later accused him of violating a contract, in that Odom (whoops) had worked for Microsoft, and had an agreement about not filing for certain types of patents, or asserting them against Microsoft.

Now, with the Supreme Court agreeing to hear the Bilski case, which could have a big impact on the patentability of software and business models, a bunch of folks have been dutifully filing their amici briefs attempting to convince the Supreme Court one way or the other. These latest briefs more or less reflect what was in the original briefs filed prior to the CAFC ruling. Still, there was one interesting one: Odom and a buddy filed their own brief (which Odom, again in the third person praised his own brief as being "cogently potent in its brevity and conservatism" -- nothing like patting oneself on the back).

The brief itself is fine (though I believe a bit misleading in what it leaves out... but that's what these briefs tend to do). However, what stood out, was the odd claim on the brief that it was filed on behalf of the State of Oregon (where Odom resides). That's quite a claim... and it appears the State of Oregon, in the form of its Attorney General, doesn't agree with Odom that this represents the state:

Tony Green, a spokesman for the Oregon Attorney General, said no one in his office had heard of Odom's purported statewide representation before [Joe Mullin at The Prior Art] called. "It is our preference that people accurately convey who they're writing an amicus brief on behalf of," says Green. "We neither authorized this or had any knowledge of it."

Of course, Green also points out that the Supreme Court figured out that Odom's claim to represent the State of Oregon was backed up with about as much weight as his typical insults, and properly filed the brief as just being from Odom and his friend, rather than the state of Oregon.

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Supreme Court To Review Whether Business Models And Software Are Patentable

from the this-should-be-interesting dept

While not a huge surprise, it's worth noting that the Supreme Court has agreed to take the Bilski case, which has received plenty of attention. If you don't recall, last year, the appeals court tried to further define what was patentable when it came to things like business models and software -- which many had considered to be a wide open field for patenting since 1998 and the State Street ruling. Of course, there's been a lot of controversy (and plenty of confusion) over the Bilski ruling, with some insisting that it really wouldn't impact software and business method patents, and others arguing that it will help kill off many such patents. However, pretty much everyone expected that the Supreme Court (with its recent interest in patent law) would weigh in. So, now we get to go through this battle all over again. Expect a lot of different parties to weigh in on how the Supreme Court should rule. Back when all the amici briefs were filed for the Bilski case, I put up a detailed post about the arguments for and against software patents, and I imagine that what we're about to see will be even more heated. Hopefully, the Supreme Court doesn't make things worse.

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Bilski Continues To Cause Software Patents To Get Rejected

from the some-good-news... dept

Right after the Bilski ruling that greatly limited software and business method patents, lawyers who were in favor of such patents held a conference call, where they basically said the ruling wouldn't change anything. They claimed that the only patent that would be impacted would be Bilski's, and that everything else would be just like normal. It seems they forgot to tell the Patent Office, which has continued to reject patents based on this new ruling that, in all likelihood, would have made it through prior to the ruling. That's not to say that all of the problems associated with such patents are now done with -- but it does seem like the lawyers on that conference call were doing a bit more wishful thinking than honest assessment of the situation.

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Getting Into The Supreme Court's Mind On Software Patents...

from the reading-the-tea-leaves dept

With the CAFC's decision on Bilski being appealed to the Supreme Court, it's worth thinking about how the Supreme Court might actually view the question of software and business model patents. While patent system defenders go through all sorts of twists and turns to explain why software should be patentable, Tim Lee has a detailed explanation of why software should not be patentable, based on earlier Supreme Court precedent. It's a great read (though, frankly, Ars Technica's habit of breaking stories like this up into multiple pages, without a single-page option is annoying) that highlights why there's a decent chance that the Supreme Court would uphold the CAFC's ruling on Bilski if it chose to hear it. Of course, you never know until it happens, and while the current court has been good about limiting the more ridiculous aspects of the patent system over the past few years, we shouldn't be surprised by bad rulings anymore. That said, who knows if the Supreme Court will even hear the case -- or if it will prefer to see how things play out based on the Bilski ruling, and wait for an alternate case to come up before addressing the issue of software patents.

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Looks Like Bilski Decision Is Leading To Many Software Patent Claim Rejections

from the a-good-start dept

When the Bilski decision came out, we said that it would greatly limit software patents, but various patent system defenders (mostly lawyers) insisted that I was wrong and most software was still perfectly patentable. Basically, they said it just meant everyone had to write claims differently, and we'd have just as many software patents as before. Listening to them (there was a hilarious conference call of lawyers insisting this was nothing to worry about), it sounded like they were in serious denial, claiming the only patent this ruling would lead to being rejected was the Bilski patent -- all others would be fine. Things aren't actually turning out that way, however, with a much more aggressive rejection of software claims than those lawyers insisted would happen. This is a good sign... though now we get to wait to see if the Bilski ruling is appealed to the Supreme Court. Update: No waiting necessary... should have checked the wires before posting this, because, indeed, Bilski has been appealed. Will have more on this later...

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Halliburton Tries To Patent Form Of Patent Trolling

from the fascinating dept

We see all sorts of ridiculous patent applications and patents, but my favorites tend to be the patents that have to do with patents themselves (such as the patent app on a method for filing a patent). However, the folks over at Patently-O have highlighted a fascinating patent application from an attorney at Halliburton, which appears to be an attempt to patent the process of patent trolling. The application covers, quite explicitly, having a company (we'll say Company A) that does not invent something, find a company (Company B) that did invent something, but chose to use trade secret protection, rather than patents. Then, the Company A files a patent covering Company B's technology, and then use the issued patent to get money out of Company B.

Now, one could hope that Halliburton's intention in patenting such a process was to use it to stop other companies from doing this, but it does make you wonder. Of course, especially after the Bilski ruling, this patent is most likely dead in the water, but these days, you never know.

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Is There Still A Big Loophole For Software And Business Method Patents?

from the just-add- dept

I've been talking to plenty of people (mostly lawyers) about the Bilski ruling on software and business method patents while also having more time to reread the discussion in detail, and I'm going to backtrack on my original assessment. I should have known something was wrong when I wrote that CAFC may have gotten something right. They so rarely get it right, that I should have known better.

Some of the good news, I still stand by. The court clearly limited the scope of software and business method patents. It rejected using the standard set forth in State Street in most cases. Some people are saying that since the court didn't completely reject State Street that this is not the victory I thought it was. On that, I disagree. As I said in my long post about the filings in the case, I thought an outright rejection of State Street that carves out a special exemption for software and business method patents is a bad idea. Instead, I'm in favor of a much more stringent standard for anything to be patentable. So, I don't have a problem with the court keeping State Street, but establishing a more stringent standard -- exactly what it did. I recognize that many folks who are focused on software patents really wanted a carveout exemption, and to them, this is a loss -- but I'd argue that it's better to have a more general standard than trying to carve out exceptions.

The part that I'm a little more concerned about is the loopholes that appear to have been left by CAFC in the decision. I was on a conference call with some of the lawyers who filed briefs (in favor of stronger patent protection), and they were spinning the ruling to be in their favor as much as possible -- but it became clear they were only doing so via loopholes. Specifically, they seem to think that as long as the software works on any device it qualifies for patent protection under the new test. In other words, they seem to be saying that so long as you add the words "on a computer" to a claim, then you're all good. In fact, when one reporter on the call (Joe Mullin) asked what sorts of patents this would impact, and after a moment of silence one of the lawyers blurted out that it invalidated Bilski's patent (the patent at the heart of this case) and that would be about it. Other lawyers basically said that it would only eliminate poorly written patents, which they seemed to define as those that failed to include that sort of "on a computer" language.

I don't think this is the actual intention of the ruling, and it will be interesting to see this tested -- but it's troublesome that already there's this huge loophole that many lawyers see. It means the court didn't do a very good job in actually establishing what the rules are for patents, and that's a problem. It will also be interesting to see if the "and on a computer" claims still get thrown out thanks to the earlier Supreme Court KSR ruling which limited patent claims that simply combined two obvious things.

Still, in the short term, I stand by my assessment that this is a ruling in the right direction. It's not a full rejection of software or business model patents, but I think that's for the best in the long run. It's better to create proper overall rules, rather than trying to carve out exemptions and creating a patchwork of rules. However, I'm still worried about the loopholes, and how quickly lawyers with tons of patents seem ready to leap through those loopholes.

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Court Greatly Limits Software And Business Method Patents

from the huge-victory-for-innovation dept

I don't say this often, but it looks like the Court of Appeals for the Federal Circuit (CAFC) -- or "the patent court" -- got a big one mostly right. In the rehearing of the Bilski case concerning the patentability of software and business method patents, CAFC just came out with its ruling that will significantly limit software and business method patents, bringing the rules way back towards what they were years ago, and effectively rolling back some of the earlier, dreadful, CAFC decisions that opened the barn doors towards tons and tons of software and business method patents.

The summary is that the court has said that there's a two-pronged test to determine whether a software of business method process patent is valid: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. In other words, pure software or business method patents that are neither tied to a specific machine nor change something into a different state are not patentable. That means a significant number of software and business method patents are about to disappear, freeing up many industries to be much more innovative -- at a time when that's desperately needed.

Earlier this year, I laid out the arguments on both sides of the case, surprising some by pointing out that I did not think it was right for the courts to carve out a special "exemption" for software or business model patents, but that a single standard should be applied across all patents. From my first read of the ruling, it looks like CAFC may have gotten this right. It doesn't carve out an exception, but makes it clear what the rules are for patents, based on earlier Supreme Court rulings, and makes sure the same rules are applied across the board. Specifically, CAFC recognizes that without that two-pronged test, the patent system effectively allows the patenting of overall concepts, rather than specific applications. While patent system defenders always claim that "ideas are not patentable," in practice, that was not true over the past decade. This ruling brings things back into line.

The ruling does note that such rules may be changed in the future, as necessitated by changes in technology, but "we see no need for such a departure." This statement strikes me as a bit odd -- as it shouldn't be the court's determination for when there should be such a "departure," but that of the legislative body (and you can bet lobbyists are rushing to Capitol Hill with new legislation to expand the scope of the patent system as we speak).

The ruling specifically addresses the State Street ruling that opened the doors to the widespread patenting of software and business methods and found that the earlier ruling erred, somewhat, in creating an improper standard for determining patentability that did not agree with Supreme Court precedent.

There are some dissenting opinions, with one that freaks out and claims that the court is usurping the legislative role, in changing what is patentable based on their own beliefs rather than what the law says. But, in a separate concurring opinion, two of the judges rightly point out that this is incorrect, show how their ruling is consistent with the law, and suggest that the only ones going beyond what the law says are those who are aggressively trying to expand what is patentable.

However, there's another dissenting opinion, well worth reading, that goes even further and argues that the CAFC ruling doesn't go far enough in repudiating the State Street ruling, and even points out why the courts are wrong to claim that "anything under the sun invented by man" is patentable. This dissent, written by Judge Mayer, is highly worth reading, showing all of the unintended consequences and harm done by the vast expansion of patentable materials -- mainly focusing on the evils of business method patents. "Methods of doing business do not apply 'the law of nature to a new and useful end.' Because the innovative aspect of such methods is an entrepreneurial rather than a technological one, they should be deemed ineligible for patent protection." Mayer points out, as we have noted repeatedly, that the clause in the Constitution that allows patents does "not grant Congress unfettered authority to issue patents," but rather, only to issue patents that effectively promote the progress. The dissent goes on to show how so many patents do exactly the opposite. It's really a fantastic read.

So What Happens Now?

Well, it may take some time to digest, but it's likely this will be appealed to the Supreme Court, so that process may take a while. Given the Supreme Court's recent rulings on patents, however, if I had to take a guess, I think they would support this ruling. But, you never know until it's decided.

This ruling will, however, send serious shockwaves through pretty much every industry -- because software and business method patents are found just about everywhere. Companies that rely on such patents (such as patent hoarding companies) may have just found out their current business model is about to go away. An awful lot of patents are now about to be invalidated, and a lot of patent lawsuits may get thrown out as the patents do not meet the criteria set forth in this decision.

You can bet, however, that the supporters of widespread software and business method patents will not go down without quite a fight. Beyond appealing the decision, it's likely there will be a push for a different type of patent reform in Congress that will expand the patent system to allow software and business method patents. There will be ridiculous announcements from companies that have chosen to litigate rather than innovate, claiming that they cannot innovate (even though they weren't) without much broader patents that they were actually using to hinder innovation.

So, while this is a huge victory for freeing up the ability to innovate, those who have used bogus patents to profit for years cannot be expected to go along quietly.

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CAFC Judge Regrets Decisions That Resulted In Software Patents

from the so-many-regrets dept

As the Court of Appeals for the Federal Circuit (CAFC) is considering the Bilski case, where it may finally push back on software and business model patents, it's interesting to hear one of CAFC's judges admit that he was "troubled by the unintended consequences" of the lawsuits (State Street and AT&T) that resulted in software and business model patents being effectively allowed. While it's nice to see Judge Plager worried about this now (just as the CAFC may finally change it), it's a bit of a stretch to claim that the consequences were somehow unintended. There was plenty of discussion around the time of the State Street case concerning what the end result would be if these types of patents were allowed. It's just that too many people seem to think that a change that increases patent coverage couldn't possibly have a negative impact -- despite tons of evidence to the contrary. Hopefully the next time an effort is underway to widen or strengthen patent law, people will look at what a disaster the past four years have been and recognize that expanding patentability is not something that should be done lightly.

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Software Patent Supporter Tries To Pretend Google Harmed Without Software Patents

from the nice-try,-but...-no. dept

There's a somewhat bizarre and ethically questionable post up on the usually excellent Patently-O blog, hyping up the fact that Google may lose its patent on PageRank (which Google only holds a license to, since Stanford actually owns it). First off, this isn't new or particularly surprising. It's talking about the upcoming decision on the Bilski case, which we've discussed at length. The decision could impact all software patents, and the author is merely using the Google name to get extra attention.

Even worse, it's misguided attention. Google is hardly a massive patent shop. It does get patents, but has rarely (if ever?) enforced them. And the idea that Google's success is somehow predicated on its patents is pretty ludicrous. Independent studies have shown, repeatedly, that Yahoo and Microsoft's search technology is just as good, if not better than Google's. But people use Google because they trust Google and are comfortable using it. Google has built up a reputation -- and that has nothing to do with its patents. If Google lost all of its patents today, it would have little to no impact on Google's position in the market. If anything, it might help Google, as it would also probably end a bunch of the silly patent lawsuits that have been filed against Google.

Finally, the post is ethically questionable, as its author, John Duffy, was hired by a software company, RDC, to write an amicus brief in the Bilski case pushing for the position that software should remain patentable. This is not disclosed in the post. In other words, he's clearly biased in favor of making sure that the end result of Bilski is that software patents remain in tact, and a little publicity campaign, stirred up by misleading claims that everyone's beloved Google will somehow be harmed could help push public sentiment towards allowing software patents.

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The Case For And Against Software And Business Model Patents

from the and-the-battle-begins dept

Things have been busy, so I haven't been able to add to my ongoing series of posts on intellectual property until now. I've also been working on a post for the series that is a bit involved, which has taken extra time. However, just as I'm working on finishing that up, the various friend of the court briefs on the Bilski case were due, which is a perfect opportunity to discuss the question of business model and software patents. Back in February, we mentioned that the Bilski case was a big deal, as it gave the appeals court that handles patent issues (CAFC) a chance to admit it made a mistake in allowing patents on software and business models. Some of the various individuals and groups who filed briefs have written about them, but Dennis Crouch over at Patently-O has an excellent summary and many of the amici briefs available for download.

As you might imagine, with 30 different amici briefs filed, they represent a wide variety of opinions, with some companies like Accenture and American Express in favor of allowing these patents, and others like IBM and SAP explaining why these patents don't make much sense. Red Hat (expectedly) explained how software patents harm open source development (and how open source shows that patents aren't necessary for software innovation). The group End Software Patents highlighted some ridiculous lawsuits resulting from software patents (and even noted that CAFC's own website violates some software patents). The EFF focused in a bit more on the very specifics of the argument at hand and suggested a three-step litmus test to determine whether an invention is actually technological.

So How Come Software And Business Models Are Patentable In The First Place?

For many years people simply assumed that software and business models weren't patentable. It was pretty well established that patents needed to be tied to a real, tangible technology -- even if there didn't need to be a working model. The courts had recognized for many years that a "process" could be patentable, and that was codified in the law in 1952 by the patent act written by Giles Rich. Rich later went on to serve on CAFC interpreting the very law he had a major hand in writing, almost always in favor of extending what could be patented.

In 1981 the Supreme Court ruled in the Diamond v. Diehr case, saying that the patent office shouldn't dismiss a patent application just because it's software, noting that if it was tied to a technology, then the entire combination of technology and software could be patentable. It made it clear, however, that algorithms, by themselves, were not patentable. That's somewhat problematic, as it assumes a concrete world where the technology and the algorithms aren't mixed together. Following this, most decisions on patents were left to CAFC, who went through a series of cases trying to refine and hone in on what was and was not patentable when it came to software. This went on until 1998 when CAFC decided the State Street case, which basically said both software and business models are patentable -- and that they've always been patentable, quoting a phrase first used in a Congressional report in 1952 that "anything under the sun made by man" is patentable. This statement has all sorts of problems, of course, because when you get into intangible goods and algorithms and business models, it's not always clear if that's something "made by man" or merely an explanation of something that was already there. Either way, the State Street decision opened the floodgates.

Suddenly there was a massive rush to the patent office to apply for both business model and software patents. Researchers, for example noted that from 1995 (before the lower court ruled on State Street) to 2001 (two years after the Supreme Court refused to hear State Street) the number of business method patents grew by nearly 3,000% (yes, 3,000%). Things became even worse because there were so many fewer software and business method patents prior to this case, patent examiners had much less "prior art" to go on. Typically, examiners use things like earlier patents as well as journal articles to determine prior art. But, there weren't patents on earlier software and business models and not many journal articles either. So plenty of bad patents got through. The patent system itself became overwhelmed, and the incentive structure started encouraging examiners to approve patents when it doubt. And that's how we got to some of the mess we're in today.

The Case For Software and Business Model Patents

Let's start with the case being made in favor of such patents. Again, with so many amici, there are a ton of different opinions offered here (and they certainly don't all agree with each other). But the simplest argument being made is reflected in the BSA's opening argument which is the same core defense of the patent system overall. It goes like this: patents are supposed to promote the progress, and we want progress promoted, so of course software and business models should be patentable. This argument, obviously, ignores the question (and all of the evidence) suggesting that patents don't actually promote the progress, but we'll leave that aside for now. Related to this, companies like American Express and Accenture trot out the claim that patents have tremendous beneficial impacts on the economy (again, without proof).

From there, a few of the briefs jump off into claims about how our modern economy is different than in the past. Rather than tangible goods and manufacturing, we're now a society of services and intangible goods, leading to the claim that if patents were helpful in those old days, they should also be extended to this new economy. Regulatory Data Corp. takes this point a step further by claiming in its second argument that "applied economics" is a part of "the useful arts" that are supposed to be protected under patent law. RDC, by the way, also has a bit of fun at the beginning of its brief talking about how its software stops terrorists, hinting at the idea that without patents, the terrorists would win. Many of these briefs also argue on the precedent of prior cases and the idea that creating a specific "exemption" from patentability is a bad thing and would do more harm than good.

Effectively, the arguments are:

• Innovation is good, patents encourage innovation, therefore, of course patents should apply to software and business models.
• The world we live in is different than it was in the past. When patents were first conceived of, everything was mechanical and tangible, but the world is different now. This argument, effectively suggests that intangible things (software, business models) don't have any different characteristics than tangible things (which is absolutely incorrect, but it sounds good).
• Courts have held (and the law has been changed to reflect) that processes can be patented, even if ideas cannot be. Software and business models are processes, not ideas.
• Anything under the sun made by man can be patented, and software and business models are made by man.
• Drawing dotted lines about what is and what is not patentable decreases the flexibility of the system and makes it ineffective (which I believe is the strongest argument made in these briefs).

The Case Against Software and Business Model Patents

For folks who read Techdirt and work in the software industry, I'm sure the basics won't come as much of a surprise. The arguments revolve around the fact that you're not supposed to be able to patent an idea -- and then making it clear that software and business models by themselves are really just ideas. They need to be tied to some sort of tangible technology to actually be considered patentable. Microsoft, Dell, Symantec, IBM, SAP and others all make that point. The EFF takes things a bit further to suggest its test for whether or not something is "technological." The EFF also highlights how much harm patents on purely non-technological material may cause -- noting that it limits the normal delivery of important information. The ACLU picks up on this as well, suggesting in its brief that software and business model patents fundamentally run the risk of violating one's First Amendment rights and argues that First Amendment rights should trump patent rights.

Effectively, the arguments are:

• You cannot patent an idea, and business models and software are really ideas, not technology or processes.
• There needs to be some actual technology for it to be patentable
• There is real economic harm being caused by these types of patents
• Software and business models, due to being intangible, work differently than tangible goods, and therefore do not need patent protection for innovation -- and, in fact, such protection can harm them.
• The fact that these patents can get in the way of the Freedom of Speech should be a concern

There are many more arguments made within the briefs, and you can dig into them if you'd like -- but I believe that's a decent summary of both sides.

So Should The Court Get Rid Of Software And Business Model Patents?

To be honest, this question is a lot trickier than it sounds at first, and my answer may surprise some people. Part of the issue is how you look at the question being discussed -- and on this I agree with some (though definitely not all) of what Stanford professor Mark Lemley wrote in his brief. While I disagree with the claims in his brief that a loss of these patents would decrease innovation, he does make an important point: the real problem isn't in what's being patented, it's in patents that shouldn't be granted getting approved in the first place. Furthermore, if the court cuts out all software and business models, people will just rewrite their patents in a manner to make it appear as though their business models and software really have a "technology" component. In other words, the real net effect may be meaningless.

He then argues that it doesn't make sense to create a special "exemption" for software and business models. This is the same sort of thing that many others arguing in favor of software and business method patents claim. It's effectively a "why should we carve out a special exemption for these things?" And they're right. We shouldn't carve out a special exemption -- but not for the reasons they think. Carving out an exemption implies that these types of things really do deserve patent protection, except for the fact that they're software or business models. It's granting the premise that they're patentable. That's a problem.

The real issues is that most software and business model patents shouldn't be granted at all in the first place, but not because they're software or business models, but because they don't meet the criteria of what deserves a patent. They are often neither new nor non-obvious to those skilled in the art -- and patents on them most certainly do not promote progress. So there doesn't need to be a special exemption because they already shouldn't qualify for patents.

As anyone who has worked in business or in software knows, both business models and software evolve constantly over time. They are not static at all, but highly dynamic -- often driven by changes in the market. It is that market that forces the innovation to occur, and doing anything to limit the ability for anyone to change or modify their model or software only hinders that innovation. So, there shouldn't be a special "exemption" for these goods -- it should just be recognized that they are unlikely to qualify for patent protection in the first place.

So while I agree that software and business models should not be patentable, the Bilski case worries me somewhat. If the court does effectively create an "exemption" for software and business models, it's setting a dangerous precedent that could be revoked (or gamed). It also could make things worse for all other kinds of patents. Instead, there should be straightforward rules that apply to all patents that determine whether or not an invention meets the basic criteria of being new and non-obvious and whether or not a patent is necessary to promote the progress of that space. With that sort of recognition in place, you don't need a special exemption at all. It would just make it clear that software and business methods would almost never qualify for patent protection in the first place, while also raising questions about the patentability of many other things as well.

So, in the end, I don't think that software and business models deserve patent coverage -- but I worry that the results of the Bilski case could lead to many more problems for the entire patent system by suggesting that software and business methods get "special treatment." In the end, it seems unlikely that the courts are going to see it this way at all, so a decision in Bilski severely limiting software and business method patents may be a short-term solution, but it would really just be a band-aid on a much bigger problem.

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Links to other posts in the series:

• On The Constitutional Reasons Behind Copyright And Patents
• Patents, Copyrights And Trademarks, Oh My!
• If Intellectual Property Is Neither Intellectual, Nor Property, What Is It?
• What Kind Of Progress Are We Promoting?
• Why Do Patents Tend To Cause More Harm Than Good?
• The Case For And Against Software And Business Model Patents

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Can You Patent Scamming Energy Customers?

from the we-may-find-out dept

Back in February, we pointed out that the US Court of Appeals for the Federal Circuit (CAFC) is gearing up to hear a very important case, In re Bilski, that could change the patentability of software and patents. There's likely to be a flurry of news about this case in the near future, as lots of folks are expected to file their own briefs in the case. However, Joe Mullin has turned up a separate, but somewhat related story that shows how the "business model" in question may have been about bilking customers. The patent application that's being discussed has to do with a method for trading weather risk, which the company put into practice by offering billing solutions for various energy companies. Unfortunately for the company, the state of Minnesota discovered that those billing solutions seriously overcharged customers who were convinced to sign up. In the case of one energy company, customers who signed up for this "service" ended up paying almost $700 extra.

The link above has the whole convoluted story, but basically, Bilski's company, Weatherwise, would set up call centers for energy companies and then promote special "fixed price" plans, though the methodology for setting those prices is kept a secret (even from the energy companies). Weatherwise itself isn't actually being investigated, as it's not regulated by the state, but the Attorney General of Minnesota is exploring whether or not energy companies basically outsourced to Weatherwise in order to boost rates outside of the state's regulations. Either way, the two separate issues probably won't overlap much, other than that Weatherwise's CEO is complaining about how both cases represent attempts to stifle the firms' "creativity."

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