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Economist Carl Lundgren has performed the patent equivalent of the Hail Mary pass in football. His 1988 method of calculating pay for managers to prevent collusion in oligopolies — industry groups with few competitors — won approval last week from a five-judge Board of Patent Appeals and Interference in a rare precedential decision on a 3-2 vote. The administrative ruling reinstating patent protection in the case is expected to launch a new wave of business method patent applications after years of quiet denials by patent examiners. Ex parte Lundgren, No. 2003-2088 (Bd. Pat. App. & Inter. 2005). The ruling puts patent examiners on notice that they have strayed too far in recent years from the broad language of the U.S. Court of Appeals for the Federal Circuit in its landmark State Street Bank & Trust Co. v. Signature Fin. Group Inc., 149 F.3d 1368 (1998). State Street, for the first time, allowed patent protection for computer software coding that described a method of doing business or accomplishing a financial transaction. With the subsequent rise in litigation asserting rights to new business method patents, the U.S. Patent and Trademark Office came under sharp criticism, chiefly by big business for broad licensing of these patents. In response, patent examiners began rejecting business method patent applications if the process could be carried out in the human mind without the aid of a machine, holding that it failed to meet a “technical arts” test. This trend of denying applications grew out of a nonprecedential 2001 decision, Ex parte Bowman, 61 U.S.P.Q.2d 1669. “ Bowman represented an attempt by the patent office to respond to severe criticism for issuing overbroad business method patents,” said Jeffrey Sullivan, patent specialist with Houston-based Baker Botts’ New York office. Now anyone with a business method patent claim will immediately rely on Lundgren to get around Bowman, he said. In Lundgren, the majority said, “Our determination is that there is currently no judicially recognized separate ‘technological arts’ test to determine patent eligible subject matter under section 101.” “This decision overturns Bowman,” said Dennis Crouch, a patent attorney with McDonnell Boehnen Hulbert & Berghoff in Chicago. “That puts us back in the broader world of State Street,” he said. VOICE OF DISSENT In his dissenting opinion, Judge Jerry Smith said that he would reject the patent. The mandate of Congress “is that an invention must in some manner be tied to a recognized science or technology in order to promote progress of the useful arts,” he wrote. Smith called it “ludicrous” to think that writers of the Constitution would find the concept of compensating executives in Lundgren‘s application merits a patent. “This is going to increase the number of applications filed,” said Robert Sterne of Sterne, Kessler, Goldstein & Fox, a Washington patent firm. Sterne said he does not believe that the Supreme Court will take up the issue any time soon, even though it has never ruled on business method patents, because the high court did not take up the State Street case. Crouch agreed. It could take four years for litigation stemming from infringement of the few existing business method patents to reach the high court, he said. The patent office cannot appeal on its own to the Federal Circuit, according to a spokeswoman for the office. Sullivan predicted the patent office could issue new rules that will require some tangible mechanical output by an invention, and not simply patents for a mental process. Sterne called the Lundgren decision a big win for inventors, providing protection for innovation by small start-up companies. Crouch said the United States has been out in front of Europe and Japan, which generally oppose patenting software. The Lundgren ruling “puts us on the liberal end of patent requirements,” he said. As for Lundgren, who has waited more than 17 years for a resolution, it is not over yet. His patent faces new potential rounds of review to decide it if is truly new and was not obvious.

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