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.

How business methods accompany technological innovations – a case study using semantic patent analysis and a novel informetric measure

“…There are several limitations that have to be considered: We assume that a patent is a business method patent if classified in USPC 705, as this patent class is intended for business methods (Hall and MacGarvie, 2010;Niemann et al, 2011). However, some business method patents may as well be classified in other patent classes (Hall, 2009). Apart from that, the patents classified in USPC 705 are not necessarily all business method patents.…”

“…In this case, a patent on a software program for valuing mutual funds was validated, and thus paved the way for business method patents. In another proceeding between AT&T and Excel, the Federal Circuit confirmed the State Street case decision that a physical transformation is no precondition for a statutory method claim (Meurer, 2002;Hall, 2009;Niemann et al, 2011). In 2010, the US Supreme Court decided in the Bilski case that 'methods for hedging risks for commodities trading' were not patentable, and ruling became more restrictive (Lemley et al, 2011;Niemann et al, 2011).…”

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) and Hunt (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 © 2011 John Wiley & Sons Ltd market crisis warrants the greater transparency of new financial instruments.…”