The Disaster of Patenting Software and Business Methods

Over the last 50 years, the US Congress, the US Courts and the USPTO have greatly expanded the scope of patent protection, especially for software and business methods. We regard this expansion to be unconstitutional on its face and disastrous as a matter of its practical consequences on the economic and legal world.

Ailbe Flynn with an introduction by Heather Watts (of Deeth Williams Wall LLP) have a short history of how the current disastrous state of affairs in US patent law came to be at “Patentability of Software Inventions and Business Methods: The Canadian Perspective on the State Street Decision“.

As written by Richard H. Stern:

“The problem of determining whether a method of doing business should be patent-eligible or copyright-protection-eligible has become of increasing concern after the Federal Circuit’s remarkable decision in State Street Bank & Trust Co. v. Signature Financial Group, Inc., and the Supreme Court’s denial of further review [149 F.3d 1368 (Fed. Cir. 1998), reversing 927 F. Supp. 502 (D. Mass. 1995), cert. denied, U.S. Law Week (Jan. 11, 1999)]. The decision introduces substantial tension into patent law by opening up a whole new region of potentially patentable innovations of a kind previously considered unpatentable in principle or patentable only by substantial indirection and elaborate apparatus-seeking gymnastics.”

Professor Julia Alpert Gladstone, Esq. of Bryant College discusses briefly the legal and practical issues involved in “Why Business Method Patents are the Epitome of Misdirection: Strong Intellectual Property Rights do not Encourage Innovation in Information Technology“, La Revue: The Edhec journal of law, New Technology and Best Legal Practices.

Prior to the modern legal absurdities propagated by the US Congress, the US courts, and the USPTO, business methods were not patentable (see the dicta in Hotel Security Checking v. Lorraine, 167 F.460 (2nd Cir. 1908).

Patentability depended more or less on the brilliant standard expressed by US Supreme Court Justice Joseph P. Bradley in Atlantic Works. v. Brady, 107 U.S. 192 (1883):

The process of development in manufactures creates a constant demand for new appliances, which the skill of ordinary head-workmen and engineers is generally adequate to devise, and which, indeed, are the natural and proper outgrowth of such development. Each step forward prepares the way for the next, and each is usually taken by spontaneous trials and attempts in a hundred different places. To grant a single party a monopoly of every slight advance made, except where the exercise of invention somewhat above ordinary mechanical or engineering skill is distinctly shown, is unjust in principle and injurious in its consequences.

The design of the patent laws is to reward those who make some substantial discovery or invention, which adds to our knowledge and makes a step in advance in the useful arts. Such inventors are worthy of all favor. It was never the object of those laws to grant a monopoly for every trifling device, every shadow of a shade of an idea, which would naturally and spontaneously occur to any skilled mechanic or operator in the ordinary progress of manufactures. Such an indiscriminate creation of exclusive privileges tends rather to obstruct than to stimulate invention. It creates a class of speculative schemers who make it their business to watch the advancing wave of improvement, and gather its foam in the form of patented monopolies, which enable them to lay a heavy tax upon the industry of the country, without contributing anything to the real advancement of the art. It embarrasses the honest pursuit of business with fears and apprehensions of concealed liens and unknown liabilities to lawsuits and vexatious accountings for profits made in good faith.”

That superb wisdom has fallen on deaf ears at the US Supreme Court in our modern era, greatly assisted by equally incompetent lawmaking by the US Congress, relying upon incompetent advisors. As Gladstone writes:

The current legislation is the result of amendments made in 1952 which extends patentable “useful arts” to include “any new and useful process, machine, manufacture or composition of matter”. The statute is somewhat redundant in clarifying the term “process” by stating that it means “process art or method.” The Supreme Court has elaborated the definition of process broadly over the years. It is noteworthy that the patent law amendments of 1952, which moved the standard away from a scientific or industrial orientation to expand the scope of patent protection to “anything under the sun”, was drafted by a congressional” commission lead by Giles S. Rich; he is the same man that served as the judge on the CAFC in the State Street case.”

It was in fact this same incompetent and by then judicially activist Judge Rich that made the incomparably stupid holding in the State Street case, overturning 90 years of successful patent law application and turning US patent law into a legal mockery. Jared Earl Grusd in Internet Business Methods: What Role Does and Should Patent Law Play?, Virginia Journal of Law and Technology, has commented the developments from the Hotel Security case to the State Street case as follows:

In issuing its standard for patentability, the USPTO chose to interpret Hotel Security in an excessively broad manner. Though the case was not decided on subject matter grounds, the USPTO began to bar all claims directed at business methods without deciding the merits of the individual claims. This practice was eventually codified in the USPTO’s Manual of Patent Examining Procedure (MPEP) §706.03…. As a result of this provision, few business method patent applications were filed during the years between Hotel Security (decided in 1908) and 1996….

[I]nventors, patent lawyers, the USPTO, and the courts operated for almost 90 years under the assumption that the subject matter question concerning business methods had been resolved in Hotel Security….

although for almost 90 years there was a presumption that business methods were not proper patent subject matter unless embodied in some tangible form, courts have not formally endorsed such a presumption.

State Street marked the most recent and important effort to clarify the proper status of business methods under the Patent Act. In that case, the Federal Circuit overturned the district court’s holding that business methods are abstract ideas barred from statutory subject matter. The Federal Circuit held that business methods are proper subject matter under 35 U.S.C. §101. In doing so, the court did not indicate a desire to lower the standard for the patentability of business methods, but rather a desire to clarify the current confused state of the law. As such, the court saw its task as descriptive, not as normative or policy-oriented.”

And now, we have the fruits of that ignorant lawmaking and flawed judicial decisionmaking: absurd money judgments for method patents, skyrocketing numbers of patent applications, swiftly increasing patent trolling and the economy-sapping establishment of patent conglomerates … i.e. all of the foreseeable evils referred to more than 100 years ago by US Supreme Court Justice Joseph P. Bradley.

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