Patent Lawyers And Business Model Patents: Perfect Together

from the think-they-have-a-bias? dept

Wed, Apr 5th 2006 12:18pm — Mike Masnick

With all the discussion concerning problems with the patent system, it's no surprise that we often get patent lawyers contacting us, claiming that we misunderstand patent law. We have spent plenty of time discussing things with them, and the summary always seems to boil down to a tautology: "the patent system works fine, because it works." However, as we see case after case where the patent system is clearly stifling innovation and rewarding those who either failed in the marketplace or chose not to compete at all, what's become even clearer is that the patent system works for patent attorneys. They make a killing off of the system, and have every incentive in the world to keep it as is -- even to the point of rationalizing all sorts of reasons why the system "works" in the face of increasing evidence that there are real problems with the system. There's a concise article over at News.com that points out that making business model patents legal (such as the one Netflix is now threatening Blockbuster with) was almost entirely the work of one specific patent attorney. Almost no one had been pushing for business model patents, but the judge who wrote the decision allowing such patents had been one of the patent attorneys who helped draft the patent law it relied on (the article doesn't mention him by name, but it's Giles Rich). In his decision, he claimed that it was "Congressional intent" to allow business model patents -- which he should know if he helped draft the law, which is why he's sometimes referred to as "the father of the patent system (though, it makes you wonder why he was presiding over this case). Unfortunately, that very same judge had written elsewhere that there was no real Congressional intent in the redraft of the patent law. They had been too busy to think about it, and simply turned it over to the patent attorneys (such as himself) to draft the new law as they saw fit. So, we have a patent attorney, who stands to greatly benefit from getting more patents out there writing the law -- and then later being the very judge who said business model patents were perfectly legal.

Meanwhile, if you think this is only a US-based issue, that may not be true for long. Simon Hart, who was involved in the case, alerts us to a new patent ruling in the UK, that also touches on the issue of business model patents. While the decision in the US noted there was no such thing as a "business method exception" to patents (claiming such a concept was obsolete), such an exception does still work in the UK -- and is apparently used quite frequently to reject questionable patents. However, in this latest rulling, the judge appears to have made something of... well... an exception to the business model exception. He recognized that it could be possible to allow a patent for business models if the business model is simply a component to the overall business, rather than an entire description of the business. If this sounds both confusing and potentially problematic, there are probably plenty of patent attorneys out there who are willing to start using this new loophole in the UK to push through some fun new patents there as well. In other words, it doesn't look like things are going to get better any time soon.

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13 Comments

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Anonymous, 5 Apr 2006 @ 1:10pm

Appeal it
That's what higher courts are for.
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Jeff, 5 Apr 2006 @ 1:20pm

More Lawyer Bashing?
It's becoming a past-time here, isn't it?

I think you're being a little generous by saying that "case after case shows that the patent system is stifling innovation." And that the only ones benefitting from the system are patent attorneys. Not true, at all.

Remember that one of the benefits of the patent system is that the applicant must disclose the invention. So, even if the final result is a patentable invention, the public has been apprised of the invention. The resulting benefits are that competitors don't have to waste time 'reverse engineering' - the exact invention is in front of them. They can work around it as they see fit (or take their chances and infringe!).

The vast majority of patents are NOT for business methods or even software. It seems a little disingenous to say that the whole system is broke because PART of it is less than ideal. To be fair we've only been dealing with business method patents since about 1982 (when the Rich decision came out) and only since the 1990s have they been in serious use and subject to any amount of critical review. Any system takes time to iron out. And that's doubly true of legal systems.

But, I still don't see how, in any FUNDAMENTAL sense (at least not based on the arguments you've presented), business methods should be unpatentable. If someone has a unique way of doing business, and they want to disclose it and it's unique and non-obvious, the reward for that disclosure is a 20 year monopoly.

If the patent office issues patents that are obvious or non-unique, that isn't a failure of the SYSTEM. That's a failure of the patent office. What the patent office needs to do is eliminate the requirement of a technical (engineering) degree to obtain a patent license - it's keeping people with real management and business system sense from analyzing the business method patents and keeping the non-obvious ones out.
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- Mike (profile), 5 Apr 2006 @ 1:35pm
  
  Re: More Lawyer Bashing?
  I think you're being a little generous by saying that "case after case shows that the patent system is stifling innovation." And that the only ones benefitting from the system are patent attorneys. Not true, at all.
  
  You want to go back through the archives or should I? :)
  
  Remember that one of the benefits of the patent system is that the applicant must disclose the invention. So, even if the final result is a patentable invention, the public has been apprised of the invention. The resulting benefits are that competitors don't have to waste time 'reverse engineering' - the exact invention is in front of them. They can work around it as they see fit (or take their chances and infringe!).
  
  No one is arguing this point, though I find it hard to see much benefit from a company like Netflix "revealing" their business model in patent form as opposed to... um... just creating the business.
  
  The vast majority of patents are NOT for business methods or even software. It seems a little disingenous to say that the whole system is broke because PART of it is less than ideal. To be fair we've only been dealing with business method patents since about 1982 (when the Rich decision came out) and only since the 1990s have they been in serious use and subject to any amount of critical review. Any system takes time to iron out. And that's doubly true of legal systems.
  
  We never said the problem was only related to business models and software patents. But they are representative of the larger problem. We're not claiming that there's NOTHING good in the patent system, but there is an awful lot of bad. It seems like a pretty weak defense to say we can't criticize parts of the patent system because it's not all bad. As for "takes time to iron out," that's fine... but it's had an awful lot of time, and yet we still have people (usually patent attorneys) insisting the system is damn close to perfect.
  
  But, I still don't see how, in any FUNDAMENTAL sense (at least not based on the arguments you've presented), business methods should be unpatentable. If someone has a unique way of doing business, and they want to disclose it and it's unique and non-obvious, the reward for that disclosure is a 20 year monopoly.
  
  A business model is not an "invention" and there's almost no benefit to "disclosing" it via patent. Since it's a business model, it's disclosed by actually being in business. And, the *reward* should be not in the form of 20 year monopoly protection, but in having the business actually work.
  
  If the patent office issues patents that are obvious or non-unique, that isn't a failure of the SYSTEM. That's a failure of the patent office. What the patent office needs to do is eliminate the requirement of a technical (engineering) degree to obtain a patent license - it's keeping people with real management and business system sense from analyzing the business method patents and keeping the non-obvious ones out.
  
  The system is set up in a way that encourages the patent office to reward bad patents at an increasing clip.
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Dave, 5 Apr 2006 @ 2:23pm

Where in the Constitution is it written...
that Congress should offer protection to business models:

"To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries."

It should be no surprise that the loudest voices in support of the status quo are patent lawyers. This isn't meant as lawyer-bashing, but just a pragmatic recognition that humans are inclined to slant things in a way that serves their own self-interest. For example, look at the Congress and its recent attempts at lobby and campaign finance reform.

I am serving as an expert witness in a patent case. The benefits of the current system to the law firm are pretty obvious when I meet with a room full of associates - probably billing at $300/hour each - and try to explain why this particular patent should have never issue due to the enormous amount of prior art that was never disclosed in the patent application or discovered by the examiner.

Perhaps 30 years ago, individuals could keep pace with the progress of "science and useful arts" within broader fields. I think we need to recognize the fact that the capacity of the human race to invent far exceeds the capacity of individuals to keep up with it. The patent office cannot hope to keep pace with innovation within the constraints of the current system.

On the litigation side, the economics are such that defendants often settle out of court no matter the merits of the case because it is far cheaper than fighting when you figure in the cost of litigation, the distraction to the business, the negative effects on the market, and the risks of losing the case.

As long as a costs/benefits analysis shows that it is lucrative to litigate meritless cases, we will continue to see them used by companies to stifle competion, and by "patent trolls" as a means to extort money from hapless defendants.
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Colin Brayton, 5 Apr 2006 @ 2:57pm

Your Muckracking(TM)
I represent the literary estate of author Upton Sinclair, and as such am very concerned about your use of a method of deriving fact-patterns using information-gathering methods that involve reading, talking and other modes of human intercommunication as well as the critical deployment of inductive logic based on a desire to test a hypothesis about the existence of conflicts of interest, the resuts of which are set forth in a published piece of writing using the laws of English grammar and spelling, suggesting that public policy may be influenced unduly by private commercial interests.

I congratulate you on your competent use of this business method, but must point out that my client and his heirs and assignees may well have an enforceable interest in your unattributed use of this trademark procedure, for which my client was justly famed.

Hyram Bombast, Esq.

Just kidding. Thanks, nice one.
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- Sean, 5 Apr 2006 @ 4:00pm
  
  Re: Your Muckracking(TM)
  That was great, and a good example of how ridiculous it is to be able to patent a business model.
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Susheel Daswani, 5 Apr 2006 @ 3:38pm

Subject Matter is only 1/4 of the issue....
I am a patent-lawyer-to-be, and I'll be the first to admit the patent system is over-protective of 'inventors'. That said, the *real* problem with patents today is the low standard of non-obviousness. Patents should be new, useful, and non-obviousness, and the last criteria has always been considered the gatekeeper of the system (it has been called "the ultimate condition of patentability"). The test for non-obviousness is commonly referred to as:

"[T]he scope and content of the prior art are to be determined; differences between the prior art and the claims at issue are to be ascertained; and the level of ordinary skill in the pertinent art resolved. Against this background, the obviousness or nonobviousness of the subject matter is determined."

Unfortunately, as is pointed out by this post, the PTO has an incentive to give the benefit of the doubt to inventors when it comes to obviousness. The NetFlix patent should not have been granted. Implementing the NetFlix system is the hard part, not architecting the system (as BlockBuster's troubles reproducing it demonstrate). The Web has opened up a lot of new business methods, but they all shouldn't be patentable simply because they are now possible.
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nonuser, 5 Apr 2006 @ 7:58pm

Netflix patent is absurd
Let's separate this discussion from the more difficult topics of ferreting out "obvious" inventions and patents with prior art. Patenting business models is a radical step. Suppose Wal-mart had patented the use of computerized supply chain management to support a nationwide chain of discount stores. Maybe some individual gas station owner could've patented the idea of a mini-mart. Home Depot could've locked up the idea of a home improvement warehouse. Maybe only one mall in America should have the right to showcase a new car with the factory sticker attached. How about drug stores that are open 24 hours a day, 365 days a year? I haven't seen that concept applied to electronics stores that sell HDTV sets, maybe that patent is up for grabs. Yahoo! wouldn't have to worry about Google, had their founders had the foresight to apply for the web portal and search site patents. Dell could've patented building PCs to order, etc.

What these have in common is that they are all merchandising and operations ideas, they're not inventions. Many do involve imagination and creativity, even guts, but they are far from what the Patent Office was designed to protect. You can review Adam Smith's "The Wealth of Nations" and gather that these are exactly the sorts of things that should NOT be given legal protection, since they throw a big fat wrench into the workings of the "invisible hand".
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Anonymous Coward, 6 Apr 2006 @ 2:29am

That UK decision this article refers to...
That UK decision isn't confusing at all, it's actually one of the clearest cases to come out of the UK courts in a long time.

The point was that the invention this guy was trying to patent was "useful" in business but wasn't a business method. The argument the applicant used was that a telephone is useful in business, but no-one would say that a telephone was a method of doing business. The judge accepted this and highlighted other cases refused by the UK courts (eg a method of trading stocks) or refused by the European Patent Office (a method of running an auction) which were correctly refused as being methods of doing business. Things which really are methods of doing business are still, thankfully, routinely refused by the UKPO and the EPO.

However, even though this guy managed to persuade the courts that his idea wasn't a business method, it was still rejected. It was a computer questionnaire which worked out what forms you needed to fill in to incorporate a company based on answers you gave it. This was considered to be a purely mental process and the fact that it was done on a computer didn't make it patentable (the US would take the completely opposite view). The application was therefore refused for being nothing more than computer implementation of a mental act.

By the way, I am a patent lawyer, but I'm a patent lawyer in the UK and think that TechDirt is right to criticise current US practice: the inventive step barrier is set way too low for one thing and the USPTO has to find documentary evidence to make any objection. BUT, TechDirt do get their facts wrong sometimes. Even when you're right, it's important to know why you're right or the people who disagree with you will walk all over you.
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Ed Pool, 6 Apr 2006 @ 4:57am

Patent Lawyers And Business Model Patents: Perfect
I do not often write to blogs or share information about my present situation as a patent holder who has seen his patented ideas on computer integration of myriad of components involved in the international commercial transaction infringed. Meaning the years of development and millions of dollars invested (hard cash and unpaid payroll – known as sweat equity) exploited firstly by the largest of the large and now via trickle down effect by many smaller entities, glad I could help all of you out and get reduced to poverty at the same time.

The debate that you engage in is warranted, warranted in that indeed there are deficits in the patent system. But it is not the patent prosecution system as much as it is the mechanism of redress of grievance. This is where the real exploitation occurs. Let us be perfectly clear over 90% of the American population cannot afford to take any grievance to the federal court system on their own patent or otherwise. Since I am living the process I can testify that in a serious patent infringement case (meaning against a corporate giant you will need a minimum of 5 million dollars) you are barred from enforcement just by the cost. Thus the incentive for the major to steal – why not only a small fraction of the inventors will be able to hold them accountable. I will take a hard position against anyone who states that these firms practice any moral code other than greed and theft by market dominance.

Now before you start screaming that the lawyers are more than willing to go fee contingent you need to understand the ROI for the law firm. Firstly, most major corporations spread the work around to many law firms especially those with a history of helping out the small inventor. By doing this conflict of interest will bar that firm from helping you if the infringer is the share the wealth corporate giant. This is a major problem in the system! I would submit you would not have heard about Ebay and Mercexchange nor NTP had we had strong injunctive relief in the offing which is frankly why the corporate giants exploit the way they do. For a fee contingent case to be handled two factors must be present:

1.) A strong patent prosecution history
2.) A valuable licensing revenue stream. While not documented my experience says the patent must have a royalty stream around 100M or greater per annum to secure assistance. 5 million is the minimum but these cases through appeal can easily run north of 15 million. This is CRAZY!

Frankly, I do not have to read the back and forth of what you think is going on I am living it so I do deal with the facts as they exist and do not have to guess or get my information from third party sources. This is the most brutal thing I have been through to date lasting now over 12 years and costing me my family, my home and my professional career as a seasoned trade specialist and broker. I am in my fifty’s now so not much chance at a restart. I agree wholly with No. 7 “I’ve stopped innovating.” Portions of my technology are incorporated in the back bone of the material tracking systems now exploited by DHS to control ports and I have many other significant improvements that need to be put in place. But do not worry you will never see them from me (no pay no ideas), in fact if I had the curer for cancer which killed both of my parents and grand parents and will probably get me as well – I will take it to the grave before I would ever utter a word. I really know what will happen if I open my mouth and I am not going through that again for anyone or any nation.

You should carefully read Nathan Myhrvold’s article here http://www.intven.com/docs/Myhrvold_WSJ_OpEd_3_30_06.pdf to see just how Redmond Washington’s piracy incorporated really approaches the situation (they are not the only ones they learned it from the best). After all he was the CTO for 14 years. They know the economics and they believe in the “possession is nine tenths of the law” philosophy. I refuse to be treated as a serf any longer with my hard fought efforts to plant and grow the crops only to hand them over to royalty and then beg for a ration to feed my family. My advice do not be innovative, tell the kids to RUN, run away from science and useful arts or you are headed for a life of extreme misery. The inventive landscape is awash with these horror stories.

Mike I am willing to discuss many of these issues and I am not beating up on you for engaging in this dialogue frankly that is a good thing to discuss the issues. But I do get reasonably offended when all the people doing the talking have never gone through the full process. It is much more than one thinks it is and if your opinion gets based on the host of press spun articles both positive and negative then your basis of information includes propaganda from both sides, which is not grounded in fact. That is what scares me. Remember we have the best government money can rent and the revolving door is well spun on this issue.

Queue me back about specific issues (seriously) and I can bring real facts to the table and then you and your readers can make your judgments. I think it is of critical importance for those of you who will never leave the paycheck milk bottle to strive and strike out to listen earnestly to your fellow citizens who have been and are continuing to be intellectual raped by multinational corporations and the Wall Street usury bandits that fund them and deny funding to innovators. I really think it would benefit all of use to listen to those who are on the front lines living this issue in lieu of just accepting the propaganda of the press (corporate owned and controlled).

Who am I? http://www.vawd.uscourts.gov/OPINIONS/CONRAD/DEDELLMARKMANOPOR.WPD.PDF

Sincerely,
Ed Pool
Former innovator
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- dude, 6 Apr 2006 @ 7:24am
  
  Hear, hear, Ed...
  "Jealousy and Envy deny the merit or the novelty of your invention; but Vanity, when the novelty and merit are established, claims it for its own... One would not therefore, of all faculties, or qualities of the mind, wish for a friend, or a child, that he should have that of invention. For his attempts to benefit mankind in that way, however well imagined, if they do not succeed, expose him, though very unjustly, to general ridicule and contempt; and if they do succeed, to envy, robbery, and abuse."
  
  -Ben Franklin, 1755
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  - Ed Pool, 6 Apr 2006 @ 10:46am
    
    Re: Hear, hear, Ed...
    Thanks dude I needed to hear that. A voice from the past harkens my heart and shows that while the tools of man may change the motives of mankind do not.
    Ed
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    - fish, 1 Apr 2007 @ 8:21pm
      
      Re: Re: Hear, hear, Ed...
      sob... sob...
      
      Ed, I swear I was crying by the end of your message. You, the poor little guy, against all those big guys out there... can it get any more cliche - your idea, however novel you may think it was, should not be a patent. Society, not you, is the victim of patents such as yours, which are a simple means of extortion and create costs for everyone at many different levels. Your tone exudes arrogance and entitlement, and why not, are you not in fact looking for a big jackpot, a thousand free lunches, and would you not have us all root for you just because you are the tiny little inventor against those with the deep pockets? Even if you do win your case, and the U.S. legal system is actually skewed enough to give you a colour of right, you will know when you look in the mirror that you got away with extortion, and maybe you deserve it, since system is flawed enough to allow it, and if you get away with it, it must be ok, is that not the ultimate judgment concerning right and wrong in your land of the free? No sympathies here Ed, why not go and actually contribute something new. Selling stuff to people has been around a while...
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