2. Software and Business Methods Prof. Robert Merges 1.22.2008

3. Subject Matter: Overview § 101 Categories Process Machine Manufacture Composition of Matter Improvements

4. Computer Software 1972 Gottschalk v. Benson S Ct rejects patent that would wholly preempt an algorithm Diamond v. Diehr Calculation + post- solution activity patentable Gradual Liberalization of patent standards PTO Guidelines 198119961997 Beauregard case BCLT/FJC - 1999 © 1999 Menell/Merges 1960s PTO rejects software patents: mental steps doctrine

5. State Street Bank Two parts: –Software patents –Business method patents

6. Complex regulatory/technological system Partner fund financial services structure Pooling assets while maintaining detailed records about the source and performance of each dollar invested in central fund

7. History of software patents Tracked by prosecution history of the ‘056 patent

8. Claims, p. 158 Element b? D-G: “means... For processing data...”

9. Conclusion, p. 159 “[C]laim 1... claims a machine, namely a data processing system....”

10. “Exceptions” Software Business methods

11. Which might apply? “Abstract ideas”... = “disembodied concepts”

12. Disembodied concepts vs. “practical application” NEW TEST: “correspond[] to a useful, concrete or tangible thing”

13. Categorical prohibition vs. patent-by-patent analysis “Business methods” Versus: “does this claim cover a useful/concrete/tangible result?

14. What’s not patentable under State Street? System for implementing dependency recovery process 5,980,447 An interactive multi-media computer system for providing support and guide to an individual undergoing recovery from a substance or emotional dependency. 5,905,975 Computer implemented system & method of executing an auction Assignee: onsale.com 5,897,620Method & Apparatus for the sale of airline- specified flight tickets Assignee: priceline.com 5,982,303Method for entering alpha- numerical data

15. More! 6,029,141: Amazon Affiliate Program 6,681,985: System for Providing Enhanced Systems Management, Such as in Branch Banking –Washington Mutual

16. Two Primary Types of Controversial Patents E-commerce Financial services

17. Walker Digital (of Priceline Fame) Allegedly has over 200 Patent Applications Filed for E-Commerce Business Methods

18. Case Study II: Financial Services U.S. Patent 6,681,985 to Curtin et al Assigned to Washington Mutual Criticized in Wall Street Journal, 8/23/04 p. B1

19. United States Patent 6,681,985 Curtin, et al. January 27, 2004 System for providing enhanced systems management, such as in branch banking Abstract... One embodiment includes an entrance, a concierge desk, two or more teller towers, and a teller cash dispenser. The teller towers may contain a teller computer, a top surface, one or more cash slots, and a cash box. A bank employee at the teller tower performs transactions for a customer, such as depositing cash, performing account inquiries, etc. In one embodiment, the teller cash dispenser receives information regarding a withdrawal transaction and dispenses cash to a customer or the customer receives a printed receipt to receive cash from the cash dispenser. In another embodiment, the teller towers are arranged in a circle, semicircle, elongated circle, or oval. Inventors: Curtin; Karen (Bellevue, WA) [et al] Assignee: Washington Mutual, Inc. (Seattle, WA) Appl. No.: 972754Filed: October 5, 2001

20. The Uninvited Guest: Patents on Wall Street by Robert P. Merges Federal Reserve Bank of Atlanta Economic Review Fourth Quarter 2003, Volume 88, Number 4

21. Before the advent of patents, several “appropriability” mechanisms protected financial services innovation: “first mover” advantages, complementary or “cospecific” assets, and trade secrecy. Evidence suggests that, in the immediate post-patent era, financial firms’ first order of business was to protect these traditional appropriability practices. This explains the early push to secure a “prior use rights” defense to protect established firms against patent claims by upstart outsiders.

22. Although patents may increase the costs of interchanging innovative ideas, they may bring some unintended benefits as well – by fostering spin-offs and facilitating entry by startups, for example.

23. New Frontiers Appl. Number Patent Title US 2005/282140 Process of relaying a story having a unique plot US 2005/270013 WO 200502287 Business Method: Protecting Jokes ISSUED PATENTS Patn. Number Patent Title 6,273,979 Mosaic collage (a patent on the art form itself)

26. Prior User Rights P. 172 Requirements and Limitations

27. In re Comiskey, 499 F.3d 1365 (Fed. Cir. 2007) Comiskey’s patent application No. 09/461,742 claims a method and system for mandatory arbitration involving legal documents, such as wills or contracts.

28. A method for mandatory arbitration resolution regarding one or more unilateral documents comprising the steps of: enabling a person to enroll or register himself or herself and his or her one or more unilateral documents in a mandatory arbitration system;

29. providing arbitration language for insertion in the unilateral document wherein the arbitration language provides that any challenge to the unilateral document is to be presented to the mandatory arbitration system for binding arbitration;

30. enabling a complaintant to submit a request for arbitration resolution; conducting arbitration resolution; providing support to the arbitration; and determining an award or a decision that is final and binding.

31. [W]e conclude that Comiskey's independent claims 1 and 32 and most of their dependent claims are unpatentable subject matter under 35 U.S.C. § 101.

32. We conclude that independent claims 17 and 46 (and their dependent claims) and dependent claims 15, 30, 44, and 58 recite statutory subject matter but remand to the PTO to determine whether the addition of a general purpose computer or modern communication devices to Comiskey's otherwise unpatentable mental process would have been obvious.

33. A system for mandatory arbitration resolution regarding one or more unilateral documents, including (1) a registration module to register the unilateral document and its executor; (2) an arbitration module for incorporating to store and provide arbitration language that requires any contested issue related to the unilateral document be presented to the system;

34. (3) “an arbitration resolution module” that enables “a complainant to submit a request for arbitration resolution”; and (4) “a means for selecting an arbitrator from an arbitrator database” and “providing support to the arbitrator... where the arbitrator determines an award or a decision...[that] is final and binding.” FN3 FN3

35. Independent claim 46 is practically identical to claim 17, except that it refers to contractual documents rather than unilateral documents.

36. Comiskey decision Although it has been suggested that State Street Bank supports the patentability of business methods generally, State Street Bank explicitly held that business methods are “subject to the same legal requirements for patentability as applied to any other process or method.” Id. at 1375;Id. at 1375;

37. The very constitutional provision that authorized Congress to create a patent system, Article I, § 8, also limited the subject matter eligible for patent protection to the “useful arts.” According to the Supreme Court, this constitutional limitation on patentability “was written against the backdrop of the [English] practices-eventually curtailed by the Statute of Monopolies-of the Crown in granting monopolies to court favorites in goods or businesses which had long before been enjoyed by the public.” -- 499 F.3d 1365, 1374

38. 499 F.3d at 1375 The prohibition against the patenting of abstract ideas has two distinct (though related) aspects. [1] First, when an abstract concept has no claimed practical application, it is not patentable. The Supreme Court has held that “[a]n idea of itself is not patentable.”

39. Comiskey (cont’d) Second, the abstract concept may have a practical application.... As the PTO notes, “[t]he Supreme Court has recognized only two instances in which such a method may qualify as a section 101 process: when the process ‘either [1] was tied to a particular apparatus' or [2] operated to change materials to a ‘different state or thing.’ ” See PTO Supp. Br. 4

40. Comiskey, 499 F.3d at 1377 [M]ental processes - or processes of human thinking - standing alone are not patentable even if they have practical application.

41. It is thus clear that the present statute does not allow patents to be issued on particular business systems-such as a particular type of arbitration-that depend entirely on the use of mental processes. In other words, the patent statute does not allow patents on particular systems that depend for their operation on human intelligence alone, a field of endeavor that both the framers and Congress intended to be beyond the reach of patentable subject matter.

42. 499 F.3d 1365, 1379 Thus, it is established that the application of human intelligence to the solution of practical problems is not in and of itself patentable.

43. Comiskey's independent claims 1 and 32 claim the mental process of resolving a legal dispute between two parties by the decision of a human arbitrator. They describe in essence “conducting arbitration resolution for [a] contested issue” and “determining an award or a decision for the contested issue” through a predetermined “mandatory” arbitration system, and thus claim the use of mental processes to resolve a legal dispute.

44. Thus, like the claims that the Supreme Court found unpatentable in Benson and Flook and the claims found unpatentable in our own cases, Comiskey's independent claims 1 and 32 seek to patent the use of human intelligence in and of itself. - - 499 F3d at 1379

45. Other current cases In re Bilski, Fed. Cir. App. No. 2007-1130 (Bryson, Clevenger, Moore, JJ.) –Claims: method for hedging risk by buying positions in offsetting commodity futures In re Ferguson, Appeal No. 2007-1232 –Claims: method of marketing a product

46. Other current cases Ex parte Gosby, 2007 WL 2843739 (PTO Bd. App. & Int. 2007) 1. A method for document analysis and retrieval, comprising the steps of: receiving a document having text therein from a host of a first computing system; generating document keys associated with said text from analysis of said text, each said document....

47. "In performing the method steps of claim 1, there is no requirement that a computer be used. The only recitation of ‘computer’ or ‘host’ relates to the source or destination of data transmission. For example, a document is received from a host and a subset of said categories is returned to the host. The claim is merely drawn to ‘disembodied abstract ideas,’ which do not have any ‘real world effect’ until they are implemented. The absence of any transformation of physical subject matter according to the definition of a process under 35 U.S.C. § 101, places this claim on the other side of the line defining statutory subject matter.