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Patent
Law: Part IV
NEW USPTO GUIDELINES FOR SOFTWARE
PATENTS
A business method patent can be defined as a U.S. utility patent whose
subject matter, or the nature of the invention for which a patent has
been granted, is "a method of doing or conducting business"
-- subject matter that heretofore was generally considered to be non-patentable,
and only recently has been broadly held to be patentable by the U.S. Court
of Appeals for the Federal Circuit (CAFC).
The USPTO initially took the position that computer software primarily
involved merely abstract mathematical processes and the computerization
of mental processes. In 1968, the USPTO published guidelines essentially
rejecting the notion that computer software was patentable. See 33 Fed.
Reg. 15581, 15609-10 (1968).
However, beginning in 1994, the Court of Appeals for the Federal Circuit
(CAFC) decided several cases that generally tend to broaden the scope
of patent protection for computer software inventions, see In re Alappat,
33 F.3d 1526 (1994, en banc); In re Warmerdam, 33 F.3d 1354 (1994); In
re Lowry, 32 F.3d 1579 (1994); In re Trovato, 60 F.3d 805 (1995, en banc),
and In re Beauregard, 53 F.3d 1583 (1995).
In response to this trend, the USPTO issued on March 29, 1996 new guidelines
for the patentability examination of computer-related inventions. These
guidelines indicate that there are three general ways whereby software
can be used in an invention to satisfy the statutory subject matter requirement
of 35 U.S.C. § 101. Additionally, these new guidelines require that
such software inventions claim a technological utility -- a sufficient
"tangible benefit" so that it cannot be viewed as merely an
abstract idea.
Legal Challenges To "Method of Doing Business" Rejections Because
so many novel "business methods" are implemented with computer
software, it was probably inevitable that the courts would eventually
be asked to decide a computer software case that also involved a "business
method" statutory subject matter issue.
On July 23, 1998, the CAFC decided such a case. It held in State Street
Bank & Trust Co. v. Signature Financial Group Inc., 149 F.3d 1368
(Fed. Cir. 1998), that a financial service provider's "business method"
software that does nothing more than transform numbers to produce a useful,
concrete and tangible result is eligible for patent protection, and that
the "business method" and "mathematical algorithm"
statutory subject-matter exception categories have little, if any applicability
-- the inquiry should focus not on exclusionary categories, but on the
invention's claimed practical utility.
This decision was quickly followed on April 14, 1999 by another CAFC holding
that a telecommunication service provider's method for modifying the message
records, used by local and long-distance telephone service providers to
monitor and eventually bill for long-distance calls, to allow for them
to easily identify a caller's long-distance service provider is statutory
subject matter and therefore eligible for patent protection; the District
Court's contrary holding on the grounds that the invention could be categorized
as reciting a "mathematical algorithm" was improper, the court's
analysis should have addressed whether the algorithm-containing invention,
as a whole, produces a tangible, useful result. See AT&T v. Excel,
172 F.3d 1352 (Fed. Cir. 1999).
Up until 1987, only approximately 2,000 computer software patents were
issued -- by 1997 this number had increased to over 13,000. By the end
of this year, the total number of U.S. software patents issued is expected
to exceed 80,000. The top software companies generally have aggressively
pursued patent protection for their software.
It is estimated that the top one-hundred software companies
now control sixty percent of all issued software patents. Meanwhile, it
has been estimated that the number of "business method" patent
applications filed with the USPTO increased by over forty percent in the
year following the State Street decision. During fiscal year 1999, the
USPTO is expected to issue over 1,000 "business method" patents.
Furthermore, it should be noted that these results are being achieved
in spite of the often heard criticism that the USPTO lacks adequate manpower
and databases of prior art in order to provide for an effective, expeditious
examination of software and business method patent applications to ensure
that their disclosed inventions meet the statutory requirement that they
be novel and nonobvious with respect to the prior art, See 35 U.S.C. §
102 and § 103. This situation has led some to the opinion that many
invalid software and business method patents will be issued.
"First Inventor Defense" To Infringement
Of A 'Business Method' Patent
The consequences of the State Street case have even been felt in Congress.
On November 29, 1999 the President signed the Omnibus Appropriations Bill,
H.R. 3194. One of the bills included in H.R. 3194 was the Patent Reform
Bill of 1999. Among other things, this bill creates a "First Inventor
Defense" to infringement of a "business method" patent
on an infringement action initiated on or after November 29, 1999. It
adds a new section, 35 U.S.C. § 273, to the patent code which reads
in part:
"...It shall be a defense to an action for infringement under section
271 of this title with respect to any subject matter that would otherwise
infringe one or more claims of a method in the patent being asserted against
a person, if such person had, acting in good faith, actually reduced the
subject matter to practice at least one year before the effective filing
date of such patent, and commercially used the subject matter before the
effective filing date of such patent." 35 U.S.C. § 273(b)(1).
The justification generally provided for Congress' enactment of this legislation
is as follows: Before the State Street case, it was universally thought
that methods of doing or conducting business were not the statutory subject
matter that could be patented. Before that case, everybody would keep
their methods of doing or conducting business as secret as they could
and never tried to patent them. In recognition of this pioneer clarification
in the law, Congress felt that those who kept their business practices
secret had an equitable cause not to be stopped by someone who subsequently
reinvented the method of doing or conducting business and obtained a patent.
Therefore, Congress limited the "first inventor" defense"
solely to that class of rights dealing with "methods of doing or
conducting business."
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