Business and Financial Method Patents, Innovation, and Policy

Abstract

Two court decisions in the 1990s are widely viewed as having opened the door to a flood of business method and financial patents at the US Patent and Trademark Office, and to have also impacted other patent offices around the world. A number of scholars, both legal and economic, have critiqued both the quality of these patents and the decisions themselves. This paper reviews the history of business method and financial patents briefly and then explores what economists know about the relationship between the patent system and innovation, in order to draw some tentative conclusions about their likely impact. It concludes by finding some consensus in the literature about the problems associated with this particular expansion of patentable subject matter, highlighting the remaining areas of disagreement, and reviewing the various policy recommendations. Keywords ABSTRACTTwo court decisions in the 1990s are widely viewed as having opened the door to a flood of business method and financial patents at the US Patent and Trademark Office, and to have also impacted other patent offices around the world. A number of scholars, both legal and economic, have critiqued both the quality of these patents and the decisions themselves. This paper reviews the history of business method and financial patents briefly and then explores what economists know about the relationship between the patent system and innovation, in order to draw some tentative conclusions about their likely impact. It concludes by finding some consensus in the literature about the problems associated with this particular expansion of patentable subject matter, highlighting the remaining areas of disagreement, and reviewing the various policy recommendations.

Identifying Emerging Trends of Financial Business Method Patents

“…Classification 705 addresses data processing: finance, business practices, management, and cost/price determination, while classification 902 encompasses electronic fund transfers. Subclasses such as 4, 14, 16-18, 21, 33, 35-45, 53-56, and 64-79 in the 705 classification have been typically used to represent financial BM patents [65][66][67]. The International Patent Classification (IPC) G06Q is related to the field of business methods and it is divided into several sub-categories.…”

Does State Street Lead to Europe? The Case of Financial Exchange Innovations

“…As Figure 1 shows, the effect on the granted patents shows up only over the last couple of recent years, which is understandable, given the lag between the filing of an application and the granting of a patent. Many academics and commentators promptly raised concerns that the flood of applications and lack of experience at the USPTO on how to examine business method patent applications would result in questionable patents, which could hamper the smooth operation of US financial markets (see Hall (2009) andHunt (2010) for summaries of the debate). The USPTO and US legislators tried to counteract these concerns: The American Inventors Protection Act of 1999 introduced limited prior-user rights into US patent law, protecting infringers of business method patents from legal charges if they use a patented method commercially in the USA before the filing date of the patent application.…”

“…Broadly speaking, that seems to have been the case in practice. The results mean, for example, that if raising the patentability standards for business and financial methods is desirable in the USA, as is widely proposed (see Hall (2009) and Hunt (2010) for surveys of policy proposals), emphasising technical contribution with respect to prior art could be a more practical tool to that end than subject matter restrictions. Our results indicate that a similar effect could also derive from the introduction of a European-style opposition procedure in the US patent system, again supporting a view advanced by many scholars (Hall, 2009;Hunt, 2010).…”

“…The results mean, for example, that if raising the patentability standards for business and financial methods is desirable in the USA, as is widely proposed (see Hall (2009) and Hunt (2010) for surveys of policy proposals), emphasising technical contribution with respect to prior art could be a more practical tool to that end than subject matter restrictions. Our results indicate that a similar effect could also derive from the introduction of a European-style opposition procedure in the US patent system, again supporting a view advanced by many scholars (Hall, 2009;Hunt, 2010). In contrast, since information dissemination is a major goal of the patent system (see, e.g., Kultti et al, 2006), reassessing restrictions on finance patents in Europe may be necessary, for example, if the current financial market crisis warrants the greater transparency of new financial instruments.…”

Patent office in innovation policy: Nobody's perfect

“…Atal and Bar (forthcoming) focus on innovators' incentives to search for prior art, before undertaking R&D and before applying for a patent. By contrast, we do not consider incentives to search for prior art (for the examiner); we elaborate on an idea outlined in Caillaud (2003) and Hall (2009), focusing on the impact of the Office on firms' incentives to innovate and to apply for patent protection. Our paper is close to Chiou (2008), who investigates the substitutability between the Patent Office examination effort and the effort made by other actors in the industry, to assess the quality and novelty of a patent application.…”