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Business methods are increasingly important to the globaleconomy, particularly in light of the expansion of e-commerce. The World TradeOrganization’s Agreement on Trade-Related Aspects of Intellectual PropertyRights (TRIPS) does not specifically address business method patents. In thisenvironment, it is uncertain whether one can obtain an international equivalentof a business method patent granted in the U.S., especially those U.S. patentsthat are now patentable as a result of the watershed State Streetdecision. [FOOTNOTE 1] The State Streetdecision has significantly increasedthe number of issued U.S. computer or software-implemented business methodpatents. Prior to State Street, business method patents were notformally classified by the U.S. Patent & Trademark Office (USPTO). Sincethe State Streetdecision, the USPTO has attempted to classify allbusiness method patents in Manual of Classification (MoC) Class 705, titled”Data Processing, Financial, Business Practice, Management, or Cost/PriceDetermination.” Through the use of the USPTO online database, the number ofpatents issued or cross-referenced in Class 705 was determined for various timeperiods before and after the State Streetdecision. From the inceptionof the patent system in 1790 to the State Streetdecision in July 1998(a span of 186 years), 3,516 patents were issued or cross-referenced in Class705. In the less than three-and-a-half years since State Street, anadditional 3,315 patents were granted in Class 705. Since the State Streetdecision, the USPTO has beenissuing patents in Class 705 at a rate of 963 patents per year; a rate that isup 241 percent since 1996 and 464 percent since 1991. The growth rate of Class705 is exponential and exceeds that of all classes in the USPTO (see chart). Itappears that the speculation after the State Streetdecision, namelythat applicants would flood the USPTO with new business method applications,has indeed come true. Class 705 is the focus of the USPTO’s efforts to classifyand manage business methods filings. “MoC Class 705 is now composed of more andwider-ranging business fields than any other MoC class.” [FOOTNOTE 2]In particular, Class705 has been used by the USPTO to classify patents that claim an “apparatus andcorresponding methods for performing data processing operations … uniquelydesigned for or utilized in the practice, administration, or management of anenterprise, or in the processing of financial data.” Specifically, Class 705includes sub-categories for industries such as health care, insurance,electronic shopping, inventory management, accounting and finance. The USPTO’s Concordance List identifies 18 differentInternational Patent Classifications (IPC) as equivalent to U.S. Class 705.Based on the European Patent Office (EPO) worldwide database, about 73,800patents have been issued in more than 40 countries around the world in theseclasses. IPC Class G06F 17/60, is the largest of the group with over 30,000patents, and roughly corresponds with U.S. Subclasses 705/1-45 and 50-80. IPCClass G06F 17/60 is defined as “Digital computing or data processing equipmentor methods, specially adapted for … administrative, commercial, managerial,supervisory or forecasting purposes.” The top 10 non-U.S. issuers of patents classified in IPCClass G06F 17/60 are as follows: Japan (53 percent), World IntellectualProperty Organization (14 percent), Australia (11 percent), European PatentOffice (7 percent), Germany (4 percent), China (2 percent), Canada (1 percent),France (1 percent), United Kingdom (1 percent), and Brazil (less than 1percent). Indeed, filings in IPC Class G06F 17/60 have increased so much as towarrant proposal of the further subdivision of the class by the WorldIntellectual Property Organization. [FOOTNOTE 3] The question of whether business methods were patentable hasbeen the subject of U.S. case law since at least 1908. The Hotel Securitycase created a per se exception for business methods. [FOOTNOTE 4]This exception waschallenged at various points but was largely untouched until the 1990s. StateStreeteliminated the business method exception and confirmed thatcomputer-implemented business methods are patentable. Subsequent cases furtherdefined the utility standard as whether an invention creates “a useful,concrete, tangible result.” [FOOTNOTE 5] The perceived breadth of the State Streetdecisioncreated controversy. The USPTO responded to the controversy by publicly announcing,and at least partially successfully implementing, initiatives to improve thequality of examination of business methods including using increasinglysophisticated means of searching for relevant prior art. The USPTO also amendedits Manual of Patent Examining Procedure to clarify that “using a computer toautomate a known process” is not patentable. [FOOTNOTE 6]At present, it appearspoliticians, constituents and others alike have accepted the reality thatbusiness methods are patentable and recognize that the challenges facing theprotection of business methods are very similar to the challenges in otherareas of the USPTO. ACROSS THE GLOBE Beyond the U.S., Australia, Israel, Japan and Singapore areconsidered “safe havens” for business method patents. Canada, Korea and Taiwanare on the fence, and China, Mexico, and most of Europe are considered to beagainst business method patents. [FOOTNOTE 7] On its face, current law in Europe does not appear to favorinclusion of business methods as patentable subject matter. Specifically,Article 52, � 2(c), of the European Patent Convention (EPC) prohibits thepatenting of “schemes, rules and methods for performing mental acts, playinggames or doing business, and programs for computers.” [FOOTNOTE 8]Furthermore, the EPOappendix on the examination of business method patents specifically directsexaminers to reject abstract business methods “as such.” However, the EPO has created a patentable exception forthose methods, which describe some sort of “technical character.” [FOOTNOTE 9]This appearsto be consistent with the U.S. view of business methods with respect tosoftware, e.g., data processing. In fact, in a June 2000 report, theAdministrative Council of the EPO expressed a standard that appears to beconsistent with State Street. “[Business methods] are thus patentable in Europeif they fulfill the normal requirements for patentability, including novelty,inventive step and industrial applicability.” [FOOTNOTE 10]Thus, a patent applicant inEurope may successfully obtain patent protection of a business method bycouching the invention in tangible technology, such as a computer-implementedsystem, by describing the technical contribution to existing technology, and bypresenting the technical problem solved by the invention. Also, with respect tobusiness methods, European law continues to favor apparatus claims over methodclaims. In Germany, the EPC technical character standard forbusiness methods has taken root. In a 1999 German Federal Patent Courtdecision, [FOOTNOTE 11]the court held in favor of a two-step examination for businessmethod patentability including technical character and novelty. In the United Kingdom, the situation is similar to that ofEurope as a whole. The UK Patents Act specifically excludes “a scheme, rule ormethod for … doing business.” [FOOTNOTE 12]The Merrill Lynch decision in the UnitedKingdom upholds this rule. [FOOTNOTE 13] As would be expected, Belgium is in line with the rest ofEurope. “The Belgian law only excludes patent protection for business methodsas such. … When a business method requires for its implementation or even forits conception a use of technical means (in the majority of cases in the areaof information technology) which cannot be executed mentally in real time, themethod no longer falls in the domain of the excluded methods and can thereforebe patented.” [FOOTNOTE 14] In Japan, business methods are well recognized and acceptedas patentable subject matter. The legal standard used to assess whether abusiness method is patentable requires that inventions be “a highly advancedcreation of technical ideas by which a law of nature is utilized.” [FOOTNOTE 15] India is not currently in compliance with TRIPS on a numberof issues including business methods, but, it is hoped, they will move in thatdirection. “The Indian law … adds an exclusion that precludes patents on businessmethods, which have been the basis of significant recent filings in the UnitedStates.” [FOOTNOTE 16]Fortunately, there is a strong indication that India’s emergingtechnology community will positively affect compliance with TRIPS. [FOOTNOTE 17]Ironically, with an emerging software industry and the prevalence of theEnglish language, India could benefit tremendously from an expansion ofpatentable subject matter to include business methods. Canada also specifically excludes the patentability ofbusiness methods. While the Canadian Intellectual Property Office has becomeincreasingly receptive to patenting business methods, recent Canadian PatentAppeal Board and Federal Court decisions have rejected business method patentsoutright. [FOOTNOTE 18]In fact, the Canadian counterpart application of the U.S. patent atissue in State Streethas been abandoned. Given NAFTA and the interrelationship of the U.S. andCanadian economies, there is a strong incentive for Canada to join the U.S. insupport of business methods, as has been done in other areas of intellectualproperty law. TRIPS AND HARMONIZATION Looking more broadly to the current international treatythat discusses intellectual property, the General Provisions of TRIPS requirecompliance with TRIPS by member countries with some flexibility forimplementing the provisions within the framework of existing national law. [FOOTNOTE 19]TRIPS does not permit discrimination as to “field of technology.” Although notspecifically mentioned by TRIPS, business methods also are not specificallyexcluded thereby leaving the question open of whether they should bepatentable. While TRIPS is a valuable step forward in the effort towardglobal harmonization of intellectual property law, it is far from the rule inevery country. Conformance with TRIPS is particularly slow in developingcountries, notably Argentina, Brazil, India and Egypt. [FOOTNOTE 20] Indeed, the controversy extends to the highest level ofnegotiation between the U.S. and world patent law organizations. “With respectto business methods patents, the [World Intellectual Property Organization]does not want to add anything more to TRIPS. The United States, officially,does not want to add anything to TRIPS.” [FOOTNOTE 21]As currently written, TRIPS may notrequire amendments to be construed to include business methods as defined inState Street. Unfortunately, other countries interpret TRIPS as excludingbusiness methods. So, even if the U.S. officially opposes amending TRIPS inorder to foster compliance in countries such as India, U.S. companies willstill be faced with the challenge of enforcing their patents internationally. In June 2000, the heads of several Patent Offices convened.An informal agreement emerged that business methods are important “for progressin electronic networking in present-day society.” [FOOTNOTE 22]Officially, the USPTO, EPOand Japanese Patent Office (JPO) agreed on a “technical aspect” or “technicaleffect” standard [FOOTNOTE 23]which is likely the same as the EPO’s “technical character”standard. Even so, the U.S. technical standard is, quite simply, moreliberal than in Europe. Stated differently, the fundamental difference is thatan invention in Europe must provide a technical contribution. In contrast, inthe U.S. and Japan, an invention need only provide a useful, concrete, tangibleresult. While this difference exists, over time, it will likely decrease asharmonization is pursued. Fortunately, there is a lot of common ground betweenthe USPTO, JPO and EPO, and many computer-implemented business methodinventions patented under U.S. law will also satisfy the technical characterrequirement. Intellectual property attorneys and organizations around theworld appear to be in favor of harmonization in the direction of StateStreet. The International Federation of Intellectual Property Attorneys hasurged the international patent law community “to secure adequate IP protectionto commercially highly valuable innovations in information technology asapplied in any sector of business, including financial and E-commercesectors.” [FOOTNOTE 24]The International Intellectual Property Institute (IIPI) proposesone of three options ranging from the status quo to dropping all requirementsbased on field of technology. In the end, the IIPI favors alignment with U.S.law with respect to business method patents. [FOOTNOTE 25]The International Associationfor the Protection of Intellectual Property supports patent protection forbusiness methods “provided that the invention as defined in the claims has atechnical content.” [FOOTNOTE 26] CONCLUSION In U.S. Class 705 and its IPC equivalents, about 80,700patents have been issued in the U.S. and more than 40 countries around theworld. However, the patentability of business methods and the enforcement ofbusiness method patents is inconsistent between many countries. This situationis not unique to business method patents. It is likely that new attempts todevise a treaty provision specifically addressing business methods is notlikely in the current climate, and would likely stifle existing efforts atoverall patent harmonization which are bogged down over concerns far afieldfrom whether business methods are patentable. Lacking an immediate solution, the likely short-term resultwill be a somewhat open-ended definition of patentable business methods. Absentglobal consensus on patentability, some would-be business method patentapplicants will stay out of the process while some groups, particularly thoserepresenting large, pro-patent information technology-based businesses, willcontinue to lobby for protection of their business method patents internationally. Ultimately, patent protection for business methods may beobtained in virtually every major market in the world for business methods thatutilize tangible technology, such as a computer-implemented system, and alsopreferably make a technical contribution to existing technology, and/ordescribe the technical problem solved by the invention. Tim L. Brackett Jr. is a partner and Robert L. Pilaud isan associate in the Northern Virginia office of Nixon Peabody ::::FOOTNOTES:::: FN1 State Street Bank & Trust Co. v. SignatureFinancial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), cert. denied 525U.S. 1093 (1999). FN2J. Bagby, “Business Method Patent Proliferation:Convergence of Transactional Analytics and Technical Scientifics,” The BusinessLawyer, vol. 56, number 1, p. 441 (November 2000). FN3A. Okelmann, World Intellectual Property Organization,Requests for Revision, Special Union for the International PatentClassification, Committee of Experts, 30th Ed., p. 2-3 (February 2001)http://www.wipo.org/ classifications/en/ipc/ipc_ce/30/3.pdf FN4 Hotel Security Checking Co. v. Lorraine Co., 160F. 467 (2d Cir. 1908). FN5 AT&T Corp. v. Excel Communications, Inc., 172F.3d 1352 (Fed. Cir. 1999), cert. denied 120 S.Ct. 368 (1999). FN6USPTO Manual of Patent Examining Procedure, �2106, PartVI, p. 2100-21 (2001). FN7A. Wininger, “Business Method Patents Appear to GainGround Overseas,” Intellectual Property Today, p. 30 (December 2001). FN8European Patent Convention (EPC), Part II — SubstantivePatent Law, Ch. I — Patentability, Article 52 — Patentable inventions(November 2000) http://www.european-patentoffice.org/ legal/epc/e/ar52.html FN9European Patent Office (EPO), “Patentability ofMethods of Doing Business” (August 2000)http://www.european-patent-office.org/ news/pressrel/2000_08_18_e.htm FN10EPO, Administrative Council, Report on the 80th meetingof the Administrative Council of the European Patent Organisation, p. 310 (June2000)http://www.european-patent-office.org/ epo/pubs/oj000/7_00/7_3070.pdf FN11BPatG Automatische Absatzsteuerung GRUR 1999, 1078(both for apparatus and method claims). FN12United Kingdom Patent Office, “Manual of PatentPractice,” Edition 4, Part I: New Domestic Law, Section 1: Patentableinventions, �1(2)(c) (December 1999)http://www.patent.gov.uk/ patent/reference/mpp/s01_06.pdf FN13R. Hart, et al., “The Economic Impact ofPatentability of Computer Programs,” p. 27 (July 2001)http://europa.eu.int/comm/ internal_market/en/indprop/study.pdf (citingMerrill Lynch, [1989] RPC.561,CA). FN14B. Michaux, et al., Rapport Q 158, “Labrevetabilit� des m�thodes commerciales” (Patentability of commercialmethods), L’�tat du droit en Belgique (The state of rights in Belgium)(2001) http://www.aippi.org/ reports/q158/gr-q158-Belgium-f.htm FN15Japanese Patent Law �2(1). FN16Pharmaceutical Research and Manufacturers of America(PRMA), “Enforcing the TRIPS Agreement is Critically Important to U.S.Industries” (visited Jan. 2002)http://www.phrma.org/intnatl/ intellprop/importtrip.phtml. FN17‘The right to good ideas” The Economist (June2001) http://www.economist.com/ displayStory.cfm?Story_ID=664495 . FN18Gowling Lafleur Henderson LLP, “Patentability ofSoftware and Business Methods” (July 2001)http://www.gowlings.com/resources/ publications.asp?showWhat=697. FN19Agreement on Trade-Related Aspects of IntellectualProperty Rights, Parts I and II (April 1994)http://www.wto.org/english/ tratop_e/trips_e/t_agm2_e.htm FN20PRMA, Id. FN21P. Salmon, Senior Counselor, WIPO, United Nations, NewYork, from a lecture given at George Mason University School of Law,International Protection of Intellectual Property (February 2001). FN22Patent Abstracts of Japan, First Informal Meeting ofthe Heads of Patent Offices in Certain Developed Nations (Oct. 1999)http://www.jpo.go.jp/infoe/paj_13.htm FN23EPO, Report on Comparative Study, Carried Out underTrilateral Project B3b, Trilateral Technical Meeting, Consensus Summary,Confirmed Current Practices on Business Method Related Inventions (June 2000)http://www.european-patent-office.org/ tws/b3b_start_page.htm FN24International Federation of Intellectual PropertyAttorneys, Resolution regarding business methods patents, (June 2000)http://www.ficpi.org/ficpi/ newsletters/45/resolengl.html FN25International Intellectual Property Institute, TheLeadership of the USA on Business Method Patenting (March 2001) http://mail.iipi.org/db/ views/detail.asp?itemID=15 FN26International Association for the Protection ofIntellectual Property, Patentability of Business Methods, Final Resolution(March 2001) http://www.aippi.org/reports/ resolutions/res-q158-e-Congress-2001.htm

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