Patenting Software and Business Methods

Patenting Software and Business Methods

Roberta J. Morris, Esq., Ph.D.

Lecturer, StanfordLawSchool

(Note: Terms of artare often in boldface italicswhen first used. CAPITALS or boldface indicate emphasis. Full citations to articles, cases, statutes, patents (whether litigated, issued after litigation with the Patent Office, or used as examples), etc. are included in the References section at the end.)

I.Can you? Should anyone be allowed to?

The title “Patenting Software and Business Methods” might invite two questions: 1. Can you,and 2. Should anyone be allowed to, patent software and business methods?

Can you? This question really breaks down into “Can you now? Could you in the past? Will you be able to in the future?” My answer to the first two is Yes, and to the third, Probably. Not that it is easy, nor has it been, but the notion that you cannot or could not patent inventions in these areas was, if not a trap for the unwary, then a trap for the unpersevering and unimaginative. (See Morris 2000 at 103). There never really have been absolute prohibitions against patenting software or business methods; there were just extrahoops to jump through.

Should anyone be allowed to?My view is Yes. The Patent Officecan keep the public safe from bad patents by making sure that what is CLAIMED in a patent is NEW and that the inventors have met the quid pro quo requirements of adequate public disclosure. (The latter are why we as civilized people tolerate, and even encourage, the temporary monopolies called patents.) Similarly, when courts decide infringement cases, they, too, should focus on the substance of what was invented, rather than attempting to place it in some abstract category.

Deciding which inventions to discriminate against on the basis of “subject matter” is a philosophical question, and a hard one at that. Obviousness and other substantive patent validity questions are hard, too, but at least those issues directly relate to the fundamental reason we have a patent system: to promote progress.

Finally, if in the US you can obtain patents to software or business method inventions, can you obtain counterparts in the rest of the world? That question is largely outside the scope of this talk, which focuses on US law, but the answer is “It’s harder." Article 52 of the European Patent Convention, for example, has explicit prohibitions on what is patentable, although as in the US, good patent attorneys manage to draft claims that are allowed.

Why is this subject timely? October 30, 2009, the day after this seminar, is the first anniversary of the decision of In re Bilski, the Court of Appeals for the Federal Circuit (Federal Circuit) opinion finding lack of patentable subject matter in a software/business method patent application.Ten days after that, on November 9, 2009, the Supreme Court will hear oral argument in the applicant’s appeal from that decision, Bilski v. Kappos (Sup. Ct. Docket No. 2008-964). The question of what is “patentable subject matter” (PSM) is about to become headline news.

II.Background: Patent Law and the Patent Office

A.Truths about Patent Law

You may know all this. But maybe not, in which case you may find it surprising.

Truth 1. A patent is a right to exclude, not a right to do.

Truth 2. Just because the Patent Office grants you a patent over your competitor's older patent does not mean you donotinfringe. (Note the double negative.)

Truth 3. To decide if patent X is valid, look at patent X's claims. To decide if patent Y is infringed, look at patent Y's claims.

Applying the logic of item 3 should help you understand item 2. The Patent Office grants you a patent if your claims are valid over the prior art. To make that determination, the patent examiner compares the language of your claims to the disclosure of your competitor's patent, which we assume here is the closest prior art. (In patent-speak, the question is whether your claimsread on the competitor's disclosure.) What your competitor said in the claims of its patent is IRRELEVANT. When your competitor wants to prove you infringe, it compares its own claims to what you do. What you do may be described in your (newer) patent. Or not. But what you said in the claims of your patent is IRRELEVANT.

Don't worry if this seems hard to grasp. Judges don't always grasp it, either. But if it seems hard because you don't know what a patent CLAIM is, let's look at a patent.

B.The Parts of a Patent

(At the seminar, I will ask you some questions about your patent law knowledge. If most of you have seen a patent before, we can skip this example. Anyone who has never looked at patents can find them easily on the web. Two useful sites are the Patent Office’s: and Google’s:

Exhibit 1 is US Patent No. 6,820,060. I chose this patent more or less at random from the several thousand issued through September 2009 that included the words “information technology” in the specification. (6,820,060 at column 10, line 17.) This issued patent also seems to claim a business method, an algorithm and a process to be performed by software. Based on publicly available information, it is not assigned by the inventor and it has never been asserted in court, but it has been cited as prior art in two other issued patents and is mentioned in one published patent application.

A patent:

• starts with a cover sheet,
• ends with claims and
• in between has something called a specification (singular, no final "S"), which has figures and text. (Sometimes the word specification refers to the text alone: you will know from the context.)

The cover sheet has information about the patent, including the number and the issue date in the upper right, and the inventor's name at the top left after the title of the invention. Patents are usually referred to by their last 3 digits. Exhibit 1 istherefore called the 060 patent.

An important part of the cover sheet is the section headed References Cited (left column, about a third of the way down.) This is the prior art submitted by the applicant and/or cited by the examiner during prosecution. The 060 patent lists several US patents, one foreign patent and some non-patent prior art. The earliest US patent cited here, 5,168,445, which issued in 1992, turns out to have been applied for in 1989, with priority from a 1988 Japanese patent application; the assignee is Hitachi; and the title of the patent is “Automatic ordering system and method for allowing a shop to tailor ordering need.” It is a business method implemented in software.

Following the patent’s cover sheet are the figures on numbered sheets and then the text of the specification in numbered columns with numbered lines. The cover sheet does not state the number of columns in the specification, but does revealthe number of claims and sheets of drawings. The 060 has 5 claims and 7 sheets (right side, just above figure).

Only the claims have legal effect. They are the focus of challenges to validity. They are what can be infringed.

"Both the Supreme Court and this court have adhered to the fundamental principle that claims define the scope of patent protection. See, e.g., Aro Mfg. v. Convertible Top Replacement Co., 365 U.S. 336, 339 (1961) ... Atl. Thermoplastics Co. v. Faytex Corp., 974 F.2d 1299, 1300 (Fed. Cir. 1992) ("The claims alone define the patent right.") ... After all, the claims, not the specification, provide the measure of the patentee's right to exclude. Milcor Steel Co. v. George A. Fuller Co., 316 U.S. 143." Johnson & Johnston Assocs. v. R.E. Serv. Co., 285 F.3d 1046, 1052 (Fed. Cir. 2002) (en banc)

If other people do what is described in a patent but none of the patent’s claims READ ON those people's activities, there is no infringement. A patent can't be infringed unless at least one of its claims is. If a claim READS ON the prior art, it is not valid.

Each claim is numbered. Locate where the claims start by working backwards from the end of the patent. The first claim, numbered 1, follows a phrase like "What is claimed is." In the 060 patent, that phraseis at column 14, line 38.

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If someone asks “What does the patent (or inventor) claim?” the answer is not some vague hand-waving amalgam of information gleaned from the specification. The question has a precise answer, or rather a group of answers: one for each numbered CLAIM. In the 060 patent, the inventor’s first claim is:

1. An apparatus for predicting a sales probability for a sales account at a stage within a sales cycle, comprising:

means for determining a current stage of the sales cyclefor the sales account;

means for calculating an account control level for thesales account; and

means for correlating a sales probability based upon saidcurrent stage of the sales cycle and said calculatedaccount control level.

It is not surprising that people reading that claim would respond, “Hey, you can’t patent THAT. You shouldn’t be able to patent THAT.” When they hear the term “patentable subject matter,” they embrace it. “Yes,” they say, “That’s not patentable subject matter.” Someone who knows some patent law would probably respond differently, although the result would still be invalidity of the claim The patent person would say, “That claim is invalid as either obvious or anticipated. A good searcher could find invalidating prior art.”

Prior artincludes anything in the “art” (the field of the invention) that is “prior” and therefore shows that the invention is not new. “Prior” roughly means anything in existence more than a year before the filing date. (This is an oversimplification, but a useful one.) For the 060 patent, anything before June 1995 would qualify.

If a claim seemed to cover all outdoors, again a lay person might be inclined to bludgeon it with “patentable subject matter.” A more knowledgable person would say, “That claim is invalid for lack of enablement. The specification only explains how to make and use the claimed invention in one particular way. The inventors are not entitled to exclude anyone from doing what they do not teach how to do.”

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Why is the more knowledgable response better? First, newness – novelty and nonobviousness – is the essence of what a patent system is designed to encourage. Framing a definition of "patentable subject matter" does not help the patent system. Assuming we agree with the Constitution that having a patent system encourages progress, then a narrow definition of “patentable subject matter” could prevent progress in fields that seem to be outside of the definition. Second, newness and nonobviousness evolve as technology does. Attempts to define those areas of human endeavor that - in the abstract - should be denied patent protectionwill be limited by the state of knowledge at the time, consciously or not.Third, arguing over abstract principles like “patentable subject matter” wastes time and energy, and creates incentives to reargue the definition in the future,further wasting time and energy that would be better spent looking for prior art and assuring that inventors of truly new things get the reward the Constitution intended for them.

Meanwhile, the 060 patent is on the books. If that is a crime, is it victimless? Very likely. The Patent Office issues more than 150,000 patents every year, but only about 1 out of 100 is ever asserted in court (see the Table included in the Exhibits at the end of these materials). A large fraction of patents are not even practiced by their owners. In any case, are bad patents without any redeeming social importance? Absolutely not. Even the worst patents are good prior art. As mentioned, the 060 patent was cited on two patents. Those inventors probably narrowed THEIR claims because of the breadth of the disclosure of the 060.

2009.10.10 15:201-1Institute of Continuing Legal Education

2009.10.10 15:201-1Institute of Continuing Legal Education

C.The Work of the Patent Office

The Patent Office has more than6000examiners who examine patent applications (PTO FY 2008 Report at 13 (15 of 152 pdf pages)).

The examinerdecides in what class to search for prior art. The patent office has a classification scheme that dates back to the era before computers, when searches for patent prior art had to be done by hand. Class 705, currently entitled “Data Processing: Financial, Business Practice, Management, or Cost/Price Determination,” has been associated with business methods and software for a long time. (Cf. Morris 2001) Examiners decide whether to allow or reject the claimsin the application based on whether the claims are valid in light of specific provisions of the law: primarily 35 USC 102, 103 and 112.

Evaluating claims for novelty and nonobviousness under 102 and 103 involves searching for prior art. Applicants disclose prior art to the Patent Office, but of course if they know about a reference they will have drafted their claims so they do not read on it. The examiners are trained in searching for prior art; it is their primary responsibility; and they are hired because their education gives them expertise in that technological area. (See Morris 2008 (Bilski Brief) at *6-7 and *25-27.)

Section 112 concerns whether the specification supports both the claims and the grant ofexclusive rights to the inventor. The inventor justifies that grant - provides the quid pro quo for the monopoly, as people often say - by describing the invention in such a way as to enable a person of ordinary skill in the art to make and use it, and by stating the best mode for carrying out the invention. (The Federal Circuit is currently reviewing en banc whether there is a requirement, separate from enablement, to describe the invention [period]. Ariad.) In return for the disclosures required by 112, the inventor, for a limited time, has the right to excludeothers from "making, using, selling, offering for sale, or importing" the inventions as defined by the claims. Those rights are listed 35 USC 154(a)(1)and35 USC 271(a).

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Over the last 40 or so years, however, the Patent Office has spent an increasing amount of time on compliance with 35 USC 101 (quoted below). This provision, in addition to requiring that the invention be new (also addressed in 102 and 103), requires it to be useful (a concern more for biotech inventions than for software and business methods) and, according to currently prevailing wisdom, that it be directed to "patentable subject matter."

D.The Law, capital L, behind the Patentable Subject Matter Question

The Constitution. Congress's power to make laws about patents is explicitly conferred in the Constitution:

ARTICLE I. Section 8.

The Congress shall have Power *** [clause 8]To promote the Progress of

Science and useful Arts,

by securing for limited Times to

Authors and Inventors

the exclusive Right to their respective

Writings andDiscoveries.

I format the provision to highlight the two sets of nouns. Science-Authors-Writings relate to copyright. Useful Arts-Inventors-Discoveries relate to patents.

The Statute Against Monopolies. The English experience with patents, as with other aspects of law, influenced what happened in the United States. The Statute of Monopolies, enacted in Britain in1623, responded to abuses in monopoly powers conferred by the sovereign OTHER THAN those having to do with inventions. Therewas an exception for inventions in paragraph 6:

"[The prohibition against] Monopolies ... 6. ... shall not extend to any Letters Patents ... of the sole Working or Making of any Manner of new Manufacture within this Realm, to the first true Inventor or Inventors of such Manufactures ...."

Thus in England, patents could be conferred for "manufactures." The word meant articles of manufacture, including machines that would manufacture other articles of manufacture. As is the way of the world, when a patent on something that might not qualify exactly as a "manufacture" was the basis of an infringement suit, the accused infringer's lawyers mounted a defense based on that ambiguity. The law of “patentable subject matter” was born.

An Australian LLM student, Ben Roxborough, tells me that to this day the Statute of Monopolies is explicitly incorporated in Section 18 of Australia's Patent Act of 1990.

35 USC 101. 35 USC 101, entitled "Inventions patentable." reads in its entirety:

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, orany new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

The four boldfaced terms are argued to be the only kind of "patentable subject matter" permitted. While "process" would seem to cover anything, including a "business method," other requirements havebeen read into this word by the courts. This judicial activism in patent law is a time-honored tradition, dating back to the earliest patent statutes. Both the Patent Act of 1790 and the Patent Act of 1793 had a group of nouns, employing the words"useful art", and "art," respectively where 35 USC 101 has "process."