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There has never been a case which could do more
damage to the patent system than this one.”

Circuit Judge Moore, dissenting.

 

QUESTION: Can I patent my old business method just because I can now do it with a computer?

ASKED: U.S. Federal Circuit, Court of Appeals.

 

THEIR ANSWER:
Darne
d if we know!


On December 6, 2013 the Supreme Court agreed to review the case. Maybe, just maybe, this persistent issue will be decided once and for all.

Oddly, many of the principal claims of one patent in question didn't even use the word “computer” (though others did). In essence, the patents define a business method for sidestepping the risk that once booked, derivatives credit transaction, might not “settle” because one party or the other might not have the required assets. The patents in question claim a way of shifting that risk to a “shadow”, a third party having irrevocable control over certain assets of both contracting parties. In other words, and escrow. The third party then settles the trade, thereby eliminating the risk.

Doesn't this sound a lot like what you did when you bought your last home? That's how it must have seemed to five of the nine judges (a bare majority), though they were loath to admit it in their separate opinions.

Still, the heart of Judge Lourie's “majority” opinion seems clear, even though he himself only “concurred” in it, with just four of his fellow judges joining in:

The concept of reducing settlement risk by facilitating a trade through third-party intermediation is an abstract idea because it is a “disembodied” concept, a basic building block of human ingenuity, untethered from any real-world application. Standing alone, that abstract idea is not patent-eligible subject matter.

With the term “shadow record,” the [patent] claim uses extravagant language to recite a basic function required of any financial intermediary in an escrow arrangement—tracking each party’s obligations and performance.

The system claims are instead akin to stating the abstract idea of third-party intermediation and adding the words: “apply it” on a computer. That is not sufficient for patent eligibility...

That doesn't seem all that hard, does it? But although Judge Lourie managed to pull in four of his brethren to agree on the result, they shattered in all directions as to their reasons. While deciding the narrow issue of validity of the patent, they left virtually nothing of any use to guide inventors (or their patent attorney) in the future.

Now let's turn to the dissents, which in most judicial opinions lead more quickly to the heart of the issues. For dissenting Judge Moore plus three others, the majority's result spells the end of the [patent] world as we know it.

I am concerned that the current interpretation of §101 [of the Patent Act], and in particular the abstract idea exception, is causing a free fall in the patent system.... And let’s be clear: if all of these claims, including the system claims, a not patent-eligible, this case is the death of hundreds of thousands of patents, including all business method, financial system, and software patents as well as many computer implemented and telecommunications patents.

Every patent in this technology category covers inventions directed to computer software or to hardware that implements software. …. In 2011 alone, 42,235 patents were granted in this area. This would render ineligible nearly 20% of all the patents that actually issued in 2011.... There has never been a case which could do more damage to the patent system than this one.

And here is what Judge Newman had to say about the Court's irreparably fractured decision:

The ascendance of section 101 [defining what kinds of ideas are patent-eligible] as an independent source of litigation, separate from the merits of patentability, is a new uncertainty for inventors. ... Instead we have propounded at least three incompatible standards, devoid of consensus, serving simply to add to the unreliability and cost of the system of patents as an incentive for innovation.

Each of the judges' separate opinions invokes one or more of the many Supreme Court precedents, which (like the Bible) can be interpreted in a variety of ways which inevitably lead to inconsistent results. Perhaps inspired by the bizarre gridlock in Congress just a few blocks down Pennsylvania Avenue, the Federal Circuit seems to be begging the Supreme Court to put it out of its misery. And that appears about to happen.

For further discussion: Can the nine Supreme Court justices harmonize the Court's maze of arguably inconsistent precedents, many of which date back to the time when computers consisted of stacks of punch cards, shuttled endlessly back and forth at the whim of rooms full of glowing vacuum tubes?

Stay tuned ….


1 Some scholars even advocate that the entire patent system has outlived its usefulness. See: Boldrin and Levine, The Case Against Patents (27 Journal of Economic Perspectives, 2013)

 


 

Last Updated (Thursday, 19 December 2013 10:58)