Who Should Be In Charge Of Patent Reform?

from the everyone-wants-their-cut dept

Every year for the past few years, Congress has put forth a patent reform bill. Every year that bill has had serious problems in that it might fix some of the problems of the patent system, but would exacerbate others. And then, of course, there's a big lobbying fight, and the pharmaceutical companies (who don't want any sort of patent reform whatsoever) win -- and the bill gets killed. It's an annual tradition. However, plenty of people still realize that patent reform is necessary, and now they're debating just how it's going to happen.

Apparently, everyone seems to think they should be the ones to determine how it works. At an FTC hearing on the matter last week, FTC Chairman William Kovacic suggested that the FTC should guide the process of patent reform. Meanwhile, Chief Judge Paul R Michel of CAFC (the appeals court that handles all patent cases) disagreed, suggesting (not surprisingly) that CAFC was perfectly capable of handling modifications to patent law, claiming that CAFC had a much better handle on the situation than Congress. Of course, that ignores the long series of problematic CAFC decisions over the past few decades that only slowed once the Supreme Court got involved and started overturning CAFC time and time again.

Of course, what this probably means is that despite plenty of hand-wringing and tons upon tons of evidence of harm done by the current patent system, nothing is going to change any time soon.

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CAFC Judge Regrets Decisions That Resulted In Software Patents

from the so-many-regrets dept

As the Court of Appeals for the Federal Circuit (CAFC) is considering the Bilski case, where it may finally push back on software and business model patents, it's interesting to hear one of CAFC's judges admit that he was "troubled by the unintended consequences" of the lawsuits (State Street and AT&T) that resulted in software and business model patents being effectively allowed. While it's nice to see Judge Plager worried about this now (just as the CAFC may finally change it), it's a bit of a stretch to claim that the consequences were somehow unintended. There was plenty of discussion around the time of the State Street case concerning what the end result would be if these types of patents were allowed. It's just that too many people seem to think that a change that increases patent coverage couldn't possibly have a negative impact -- despite tons of evidence to the contrary. Hopefully the next time an effort is underway to widen or strengthen patent law, people will look at what a disaster the past four years have been and recognize that expanding patentability is not something that should be done lightly.

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Quanta Decision Illustrates Case Against Specialized Patent Court

from the no-more-federal-circuit dept

I agree with Mike that the Quanta v. LG decision was a big victory for common sense in patent law. I think it's worth taking a step back to note that this is a continuation of the trend that Mike identified last year. This is at least the fourth time in as many years that the Supreme Court has taken a patent law case, and in every case they've overruled a bad decision by the US Court of Appeals for the Federal Circuit, which has jurisdiction over patent appeals. The Federal Circuit has spent the last 15 years making a mess of patent law, and the Supreme Court has finally started to notice and is working to clean up the Federal Circuit's messes. But it's hard because patents are one of a handful of major issues on its docket, whereas the Supreme Court has lots of other subjects it needs to deal with. Even if the Supreme Court continues taking patent cases and smacking down the Federal Circuit every time, it will still take years to undo all the damage the Federal Circuit has done.

The lesson here is that the creation of the Federal Circuit in the early 1980s was a mistake. Before Congress created the court to handle patent cases, patent appeals were handled by the same courts that handled other kinds of appeals. There tends to be a lot more diversity on the normal circuit courts, which helps the judges on the courts to have a better sense of perspective and not see every case as an opportunity to expand patenting. Perhaps more importantly, the competition among circuits made the Supreme Court's job a lot easier. If one circuit wandered off the reservation, other circuits would typically hand down decisions more consistent with Supreme Court precedent, producing what the lawyers call a "circuit split." That would serve as a signal that the Supreme Court needed to step in, and it allowed the high court to simply give its blessing to the circuit whose rulings were closer to the Supreme Court's own thinking. In contrast, the current setup forces the Supreme Court to do a lot of the heavy lifting itself, repeatedly reviewing and overruling Federal Circuit decisions in an effort to establish a better set of precedents. Congress should give the Supreme Court a hand by eliminating the Federal Circuit and restoring jurisdiction over patent appeals to the other circuits. The judges currently on the Federal Circuit should probably be re-assigned to the other circuits, where they can provide helpful advice on the nuances of patent law to their colleagues but won't have enough votes to continue indiscriminately expanding patent law.

Timothy Lee is an expert at the Insight Community. To get insight and analysis from Timothy Lee and other experts on challenges your company faces, click here.

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The Case For And Against Software And Business Model Patents

from the and-the-battle-begins dept

Things have been busy, so I haven't been able to add to my ongoing series of posts on intellectual property until now. I've also been working on a post for the series that is a bit involved, which has taken extra time. However, just as I'm working on finishing that up, the various friend of the court briefs on the Bilski case were due, which is a perfect opportunity to discuss the question of business model and software patents. Back in February, we mentioned that the Bilski case was a big deal, as it gave the appeals court that handles patent issues (CAFC) a chance to admit it made a mistake in allowing patents on software and business models. Some of the various individuals and groups who filed briefs have written about them, but Dennis Crouch over at Patently-O has an excellent summary and many of the amici briefs available for download.

As you might imagine, with 30 different amici briefs filed, they represent a wide variety of opinions, with some companies like Accenture and American Express in favor of allowing these patents, and others like IBM and SAP explaining why these patents don't make much sense. Red Hat (expectedly) explained how software patents harm open source development (and how open source shows that patents aren't necessary for software innovation). The group End Software Patents highlighted some ridiculous lawsuits resulting from software patents (and even noted that CAFC's own website violates some software patents). The EFF focused in a bit more on the very specifics of the argument at hand and suggested a three-step litmus test to determine whether an invention is actually technological.

So How Come Software And Business Models Are Patentable In The First Place?

For many years people simply assumed that software and business models weren't patentable. It was pretty well established that patents needed to be tied to a real, tangible technology -- even if there didn't need to be a working model. The courts had recognized for many years that a "process" could be patentable, and that was codified in the law in 1952 by the patent act written by Giles Rich. Rich later went on to serve on CAFC interpreting the very law he had a major hand in writing, almost always in favor of extending what could be patented.

In 1981 the Supreme Court ruled in the Diamond v. Diehr case, saying that the patent office shouldn't dismiss a patent application just because it's software, noting that if it was tied to a technology, then the entire combination of technology and software could be patentable. It made it clear, however, that algorithms, by themselves, were not patentable. That's somewhat problematic, as it assumes a concrete world where the technology and the algorithms aren't mixed together. Following this, most decisions on patents were left to CAFC, who went through a series of cases trying to refine and hone in on what was and was not patentable when it came to software. This went on until 1998 when CAFC decided the State Street case, which basically said both software and business models are patentable -- and that they've always been patentable, quoting a phrase first used in a Congressional report in 1952 that "anything under the sun made by man" is patentable. This statement has all sorts of problems, of course, because when you get into intangible goods and algorithms and business models, it's not always clear if that's something "made by man" or merely an explanation of something that was already there. Either way, the State Street decision opened the floodgates.

Suddenly there was a massive rush to the patent office to apply for both business model and software patents. Researchers, for example noted that from 1995 (before the lower court ruled on State Street) to 2001 (two years after the Supreme Court refused to hear State Street) the number of business method patents grew by nearly 3,000% (yes, 3,000%). Things became even worse because there were so many fewer software and business method patents prior to this case, patent examiners had much less "prior art" to go on. Typically, examiners use things like earlier patents as well as journal articles to determine prior art. But, there weren't patents on earlier software and business models and not many journal articles either. So plenty of bad patents got through. The patent system itself became overwhelmed, and the incentive structure started encouraging examiners to approve patents when it doubt. And that's how we got to some of the mess we're in today.

The Case For Software and Business Model Patents

Let's start with the case being made in favor of such patents. Again, with so many amici, there are a ton of different opinions offered here (and they certainly don't all agree with each other). But the simplest argument being made is reflected in the BSA's opening argument which is the same core defense of the patent system overall. It goes like this: patents are supposed to promote the progress, and we want progress promoted, so of course software and business models should be patentable. This argument, obviously, ignores the question (and all of the evidence) suggesting that patents don't actually promote the progress, but we'll leave that aside for now. Related to this, companies like American Express and Accenture trot out the claim that patents have tremendous beneficial impacts on the economy (again, without proof).

From there, a few of the briefs jump off into claims about how our modern economy is different than in the past. Rather than tangible goods and manufacturing, we're now a society of services and intangible goods, leading to the claim that if patents were helpful in those old days, they should also be extended to this new economy. Regulatory Data Corp. takes this point a step further by claiming in its second argument that "applied economics" is a part of "the useful arts" that are supposed to be protected under patent law. RDC, by the way, also has a bit of fun at the beginning of its brief talking about how its software stops terrorists, hinting at the idea that without patents, the terrorists would win. Many of these briefs also argue on the precedent of prior cases and the idea that creating a specific "exemption" from patentability is a bad thing and would do more harm than good.

Effectively, the arguments are:

• Innovation is good, patents encourage innovation, therefore, of course patents should apply to software and business models.
• The world we live in is different than it was in the past. When patents were first conceived of, everything was mechanical and tangible, but the world is different now. This argument, effectively suggests that intangible things (software, business models) don't have any different characteristics than tangible things (which is absolutely incorrect, but it sounds good).
• Courts have held (and the law has been changed to reflect) that processes can be patented, even if ideas cannot be. Software and business models are processes, not ideas.
• Anything under the sun made by man can be patented, and software and business models are made by man.
• Drawing dotted lines about what is and what is not patentable decreases the flexibility of the system and makes it ineffective (which I believe is the strongest argument made in these briefs).

The Case Against Software and Business Model Patents

For folks who read Techdirt and work in the software industry, I'm sure the basics won't come as much of a surprise. The arguments revolve around the fact that you're not supposed to be able to patent an idea -- and then making it clear that software and business models by themselves are really just ideas. They need to be tied to some sort of tangible technology to actually be considered patentable. Microsoft, Dell, Symantec, IBM, SAP and others all make that point. The EFF takes things a bit further to suggest its test for whether or not something is "technological." The EFF also highlights how much harm patents on purely non-technological material may cause -- noting that it limits the normal delivery of important information. The ACLU picks up on this as well, suggesting in its brief that software and business model patents fundamentally run the risk of violating one's First Amendment rights and argues that First Amendment rights should trump patent rights.

Effectively, the arguments are:

• You cannot patent an idea, and business models and software are really ideas, not technology or processes.
• There needs to be some actual technology for it to be patentable
• There is real economic harm being caused by these types of patents
• Software and business models, due to being intangible, work differently than tangible goods, and therefore do not need patent protection for innovation -- and, in fact, such protection can harm them.
• The fact that these patents can get in the way of the Freedom of Speech should be a concern

There are many more arguments made within the briefs, and you can dig into them if you'd like -- but I believe that's a decent summary of both sides.

So Should The Court Get Rid Of Software And Business Model Patents?

To be honest, this question is a lot trickier than it sounds at first, and my answer may surprise some people. Part of the issue is how you look at the question being discussed -- and on this I agree with some (though definitely not all) of what Stanford professor Mark Lemley wrote in his brief. While I disagree with the claims in his brief that a loss of these patents would decrease innovation, he does make an important point: the real problem isn't in what's being patented, it's in patents that shouldn't be granted getting approved in the first place. Furthermore, if the court cuts out all software and business models, people will just rewrite their patents in a manner to make it appear as though their business models and software really have a "technology" component. In other words, the real net effect may be meaningless.

He then argues that it doesn't make sense to create a special "exemption" for software and business models. This is the same sort of thing that many others arguing in favor of software and business method patents claim. It's effectively a "why should we carve out a special exemption for these things?" And they're right. We shouldn't carve out a special exemption -- but not for the reasons they think. Carving out an exemption implies that these types of things really do deserve patent protection, except for the fact that they're software or business models. It's granting the premise that they're patentable. That's a problem.

The real issues is that most software and business model patents shouldn't be granted at all in the first place, but not because they're software or business models, but because they don't meet the criteria of what deserves a patent. They are often neither new nor non-obvious to those skilled in the art -- and patents on them most certainly do not promote progress. So there doesn't need to be a special exemption because they already shouldn't qualify for patents.

As anyone who has worked in business or in software knows, both business models and software evolve constantly over time. They are not static at all, but highly dynamic -- often driven by changes in the market. It is that market that forces the innovation to occur, and doing anything to limit the ability for anyone to change or modify their model or software only hinders that innovation. So, there shouldn't be a special "exemption" for these goods -- it should just be recognized that they are unlikely to qualify for patent protection in the first place.

So while I agree that software and business models should not be patentable, the Bilski case worries me somewhat. If the court does effectively create an "exemption" for software and business models, it's setting a dangerous precedent that could be revoked (or gamed). It also could make things worse for all other kinds of patents. Instead, there should be straightforward rules that apply to all patents that determine whether or not an invention meets the basic criteria of being new and non-obvious and whether or not a patent is necessary to promote the progress of that space. With that sort of recognition in place, you don't need a special exemption at all. It would just make it clear that software and business methods would almost never qualify for patent protection in the first place, while also raising questions about the patentability of many other things as well.

So, in the end, I don't think that software and business models deserve patent coverage -- but I worry that the results of the Bilski case could lead to many more problems for the entire patent system by suggesting that software and business methods get "special treatment." In the end, it seems unlikely that the courts are going to see it this way at all, so a decision in Bilski severely limiting software and business method patents may be a short-term solution, but it would really just be a band-aid on a much bigger problem.

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Links to other posts in the series:

• On The Constitutional Reasons Behind Copyright And Patents
• Patents, Copyrights And Trademarks, Oh My!
• If Intellectual Property Is Neither Intellectual, Nor Property, What Is It?
• What Kind Of Progress Are We Promoting?
• Why Do Patents Tend To Cause More Harm Than Good?
• The Case For And Against Software And Business Model Patents

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Microsoft Asks Supreme Court To Look Into Patent Validity

from the watch-for-fireworks-on-this-one dept

Looks like the Supreme Court will have yet another chance to weigh in on patent issues, as it's taken an active interest in the space for a few years now. Microsoft has appealed an appeals court ruling in a patent lawsuit to the Supreme Court. At issue is the standard courts need to use in assessing the validity of a patent. Patent system fans love to insist that the "assumption of validity" is a key component of patents, and any weakening of that assumption (even if it's to get rid of bad patents) is a problem. In this case, Microsoft presented new prior art that it says shows an original patent (which it was being sued over) was invalid. The Patent Office hadn't considered that prior art in originally awarding the patent, so Microsoft believes (reasonably so) that courts should take that into account and review whether or not the patent itself is valid. The courts, however (led by CAFC), have put in place a policy of saying that defendants need to show "clear and convincing evidence" in order to get them to reconsider the validity of the patent -- which is a much higher barrier.

Microsoft, in its argument, cites the recent KSR v. Teleflex decision on patent obviousness, where the Supreme Court had noted that the entire presumption of validity is based on the idea that the USPTO has, "in its expertise" reviewed and approved the claims in the patent. From Microsoft's perspective this would mean that if you present evidence that the USPTO did not consider it should call the presumption of validity into question, because it knocks out the very rationale for that presumption in the first place. You would think that, with the recent reports noting how often the Patent Office eventually rejects claims on review, the so-called "expertise" of the patent examiners should already be in question.

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Courts May Now Have More Leeway In Moving Patent Lawsuits Away From East Texas

from the slowly,-but-surely dept

Slowly, but surely, the courts are fixing many (though, not nearly all) of the most egregious problems with the patent system. The Supreme Court has been a big part of this with a series of decisions in the last few years that are pushing to re-establish at least some of the patent system's original purpose from what it has turned into. The Court of Appeals for the Federal Circuit (CAFC), which is the appeals court that handles patent suit appeals (and is often considered one of the reasons why the patent system has gone so astray) appears to finally be getting the message. Earlier this year, we noted that CAFC was finally going to re-evaluate the patentability of software and business models. And, now, it looks like CAFC is looking to alleviate all the jurisdiction shopping that happens in the lower courts, leading to so many patent lawsuits being filed in Marshall, Texas.

What's slightly ironic, of course, is that one of the main reasons CAFC was created in the first place was to put an end to jurisdiction shopping in the past. What used to happen, prior to CAFC, was that patent attorneys knew which districts and which appeals courts tended to favor patent holders, and would rush to file in those districts. In forming CAFC, the idea was that all appeals would go to a central court. What they didn't expect was that CAFC would become dominated by former patent attorneys who were always in favor of more patents -- and that the jurisdiction shopping would just shift down to the district court level.

However, last week, CAFC came out with a ruling that appears to say that district courts should pay more attention to making sure patent lawsuits are held in districts that are convenient. Right now, in order to file in East Texas, all you need to do is claim that the companies "do business" in the district and to have a local lawyer (of which there are plenty willing to help). So you get absolutely ridiculous situations where two California companies right down the street from one another, find themselves in court in Texas for no reason other than the fact that the Texas district court is known to be both quick and likely to favor patent holders. This latest ruling certainly won't fix things entirely, but it does suggest that CAFC is at least sympathetic to the problem of patent holders picking a favorable jurisdiction, often at odds with the most reasonable location -- and suggesting that perhaps that doesn't make sense any more.

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Patentability Of Business Model And Software Patents Comes Under Court Scrutiny

from the about-time dept

Nearly ten years ago, the US Court of Appeals for the Federal Circuit (CAFC) made its ruling in the State Street Bank case, effectively allowing patents on business models and greatly expanding the scope of software patents in one single move. While there are many problems with the patent system, this one decision made for a lot more bad patents very quickly -- and many of the ridiculous lawsuits you see today wouldn't even exist if this decision had gone the other way. While we've seen the Supreme Court suddenly get religion on fixing the patent system in the past few years, it hasn't really touched on the question of software or business model patents.

On one case that could have addressed the issue, the court dismissed the case on a technicality, rather than digging into the actual issue, though in the dissent, some Justices made it clear they weren't comfortable with the State Street ruling. Last year, some folks tried to sneak the issue of software patents into another Supreme Court patent case, but that seemed like a stretch, since the case really had little to do with software patents directly. The decision in that case did set things up, though, so that the Supreme Court later could reject software patents.

Now we have another important case to watch. As pointed out by the Troll Tracker, CAFC has agreed to a full court hearing to examine the scope of what can be patented. It may sound like a technicality, but it could be a very big deal. Going back on the earlier State Street ruling could effectively knock out many business model patents and software patents, restoring at least some (though, certainly not all) sanity to the patent system, especially in the technology world.

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Court Slaps Down Software And Business Model Patents

from the a-sense-of-sanity-returning-to-patents? dept

It seems like barely a week goes by without another good story of the courts reigning in the worst abuses of the patent system. While patent reform issues languish in Congress, the courts are doing an excellent job correcting a lot of patent abuses. Just as the Supreme Court is looking at yet another patent case, the Court of Appeals for the Federal Circuit (CAFC) seems to be putting some limits on business model and software patents. This is somewhat amusing, as it was a CAFC decision about a decade ago in the State Street case that opened the floodgates to business model patents. Prior to that, it was widely believed that you couldn't patent "business methods," but the ruling at CAFC said that wasn't true at all. The real travesty of the situation was that the guy who wrote the decision had been a former patent attorney who had written the last major update to patent law -- with almost no Congressional oversight. In other words, one patent attorney almost singlehandedly changed a large part of patent law without Congress even realizing it. However, with the Supreme Court smacking down CAFC patent decisions left and right, it appears that the folks at CAFC are now recognizing that perhaps it needs to bring a little sanity back to the patent system. A little over a month ago, that meant raising the bar for "willful infringement," and now it means raising the bar for business model and software patents.

This case involved a guy who was trying to patent the concept of "mandatory arbitration involving legal documents." The USPTO denied the patent. After a failed appeal, the guy went to court, and CAFC is also saying that his concept does not deserve patent protection, with this being the key quote: "The routine addition of modern electronics to an otherwise unpatentable invention typically creates a prima facie case of obviousness." In other words, simply taking a common process and automating it on a computer should be considered obvious -- and thus, not patentable. This doesn't rule out business model or software patents by any means -- but it at least suggests that the courts are beginning to recognize that the patent system has gone out of control. The court also specifically addresses its own earlier State Street decision, suggesting that people had been misinterpreting it to mean any business model was patentable -- when the USPTO and the courts should still be applying the same tests to see if the business models are patentable. It then notes that a business model on its own shouldn't be patentable unless it's tied to some sort of product, and then states: "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."

All in all, this is a very good decision that could take us even closer to stomping out innovation-destroying software or business model patents completely.

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And The Hits Keep On Coming For Vonage: Loses Another Patent Decision

from the ouch dept

Vonage is not having a very good week. Just after a jury sided with Sprint over Vonage in a patent dispute, the appeals court has affirmed the injunction against Vonage from the similar Verizon patent case that was decided earlier this year. The only small victory for Vonage is that the appeals court sent back the ruling on one of the three patents in question. Vonage is claiming that the ruling barely matters, since it's already developed a workaround for the other two patents. Of course, that's what they say -- not what Verizon or the courts have said. And, it still seems likely that Vonage is going to need to pay out quite a bit in terms of damages for the patents the court affirmed. Again, the point still stands from yesterday. Despite the court's rulings, these patents are highly questionable, with a tremendous amount of prior art. Even if you take as a given that the patents are valid, they had nothing to do with Vonage's success -- which was based on figuring out the right marketing and business models to attract users, not on the same technology that was obvious to everyone in the space. The telcos who are now suing Vonage couldn't (or didn't want to) figure out this model in order to protect their legacy voice business. To now force Vonage to pay those companies when it was the one who actually innovated shows the travesty of the current patent system.

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