A Court Case for US Patent Reform
May 2008
Some patents have proved to be an embarrassment. Most notorious are “business methods” patents, such as a patent for the Dutch-auction method of selling tickets. Thousands of such patents have been issued since they were first recognised in 1998. But the US federal court has now hinted that it may use a case to reduce “business methods” patents. The case claims exclusive rights to the process of using transactions to hedge the risk that demand for a commodity will change. The United States Patent and Trademark Office (USPTO) rejected the application because it did not describe the use of a particular machine and did not describe a method for working out such transactions. As a result, the USPTO said the application amounted to an attempt to patent an abstract idea—the idea of hedging consumption risk using contracts. To hear the rejection appeal, the court has taken the unusual step of calling for the parties to address whether the court should overturn the 1998 case in which it first held that business methods patents could be awarded. The American Civil Liberties Union has argued that patents on mental processes would be against the constitutional protection for freedom of thought. The outcome of the case could affect the validity of billions of dollars worth of business methods, software, and financial patents. Companies such as IBM and Microsoft that own many practical business methods patents are urging the court to cut back on “pure” methods patents and allow only patents on inventions that use machines or produce tangible, physical results. Firms such as Accenture and American Express warn that the court will distort inventors' incentives if it rejects patents on methods for minimizing risk or managing information. An investment bank says business methods patents are important to safeguard the invention of innovative financial techniques and reformers should urge policymakers to improve the quality of issued patents of all kinds. Patents protect intellectual property, but they also breed lawsuits. Research has found that patents on financial innovations were 27 times more likely than average to go to litigation. Most plaintiffs in such cases are patent-holding companies whose only line of business is the litigation of patent suits. Whichever side ultimately loses will probably appeal to the Supreme Court. Congress seems content to do nothing at all about patent reform and the Senate has removed the Patent Reform Act from its calendar. Among other proposals this Act would have switched the United States from a “first to invent” to a “first to file” patent system, which the rest of the world uses. But it is now on the shelf. Canadian organizations with US intellectual property could probably intervene in the US case. In the meantime, organizations should continue to adhere to the “business methods” and “first to invent” patent systems in the US until any actual change occurs there.
Slater Grimley, NRC-IRAP Emeritus