The new "problem" of business method patents: the convergence of national patent laws and International Internet transactions.

Author:DiMatteo, Larry A.

    This article analyzes two evolving legal and technological domains: e-commerce and the law of patents as applied to business methods. Both of these domains possess a distinctly international character. Both are sources of conflict. E-commerce is a "borderless medium" that breeds multi-jurisdictional conflict. (1) Similarly, the computer implementation of business methods in e-commerce has generated both forces of conflict and forces of convergence among national patent laws. (2) This intersection of e-commerce and intellectual property law is further complicated by the recent divergence in national patent laws on the issue of the patentability of business methods. Internet-related applications can quickly transform a business method developed in a specific industry to one whose appeal reaches across the boundaries of that industry. Thus, a patent obtained for an Internet business method application has potentially wide-reaching impact.

    Patent law in the area of business methods is in a state of flux. In 1998, the United States Court of Appeals for the Federal Circuit swept aside the long-standing business methods exception to patentability. (3) Broadening the scope of patent law unleashed widespread criticism and commentary not only in the United States, but internationally because of the resulting divergence with the patent law systems of Japan and the European Union. This divergence begs two important questions: (1) In the short-term, how will American business method patent holders be able to enforce their newly granted patent protections internationally; and (2) What long-term changes will this divergence be likely to produce?

    This article will review the evolving area of patent law from both short-term and long-term perspectives. Part II will consider current jurisdictional issues associated with the international enforceability of American business method patents. Part III will review some of the public policy rationales underlying the debate over the patentability of business methods. Part IV will examine current developments in Europe and Japan, and solutions offered to improve the process of granting business method patents. The article will conclude that soon the issue will not be whether business method patents should be recognized internationally, but instead, how best to improve the patent system in granting such patents.


    Most traditional issues of jurisdictional application of laws have been answered through the use of factors based upon the territorial considerations of national boundaries. In the United States, the amenability of a company to the courts of a foreign state was founded upon whether the company had minimum contacts with that jurisdiction. (4) The Constitutional requirement of due process was satisfied if it could be found that a company was "doing business" in the foreign jurisdiction. (5) If an entity is found to be conducting business, then it is reasonable for that entity to be required to defend itself in the foreign court. Furthermore, it is reasonable to require it to comply with the regulatory laws of that jurisdiction.

    The "ordering" of transactions implies a certain level of intentionality. Thus, the reasonableness of exercising jurisdiction, even extraterritorially, is premised on the idea that the party had "purposefully availed" itself of the benefits of doing business in the foreign jurisdiction. (6)

    In cyberspace, this physical or territorial connection is easily severed. The process of downloading technology or products electronically may not involve a physical connection to any particular jurisdiction. (7) Product transactions and technology applications may be performed instantaneously under a veil of anonymity so that the identity and location of the party who has initiated the transaction remains unknown to the seller. This globally seamless web of interaction is inherently inconsistent with the jurisdictional approach of applying the laws of a fixed territorial state. National regulatory regimes are made to look obsolete as the advance of technology challenges their enforcement powers. (8) The weakness of national enforcement powers is evident in the international protection of intellectual property rights. A divergence in the scope of patent protection offered by the patent law systems of the United States, Europe, and Japan results in the opportunity to "forum shop" in order to obtain patent rights or to avoid patent enforcement actions. (9)

    1. Personal Jurisdiction and Choice of Law

      In the event that a foreign party uses a business method that is the subject of an American business method patent, (10) will an American patent holder be able to hale the foreign party into an American court? Most cases involving personal jurisdiction involve an analysis of the direct contacts between the defendant and the jurisdiction of a foreign court. State courts are allowed to assert jurisdiction over foreign state defendants to the extent allowed by the due process requirements of the Constitution. (11) Under the seminal case of International Shoe, (12) to satisfy the Due Process Clause of the Fourteenth Amendment the defendant has to have "minimum contacts" with the forum jurisdiction "such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice." (13) The Supreme Court further clarified the minimum contacts standard in Hanson v. Denckla, when it stated that the defendant must perform some act "by which [it] purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." (14) In Rostad v. Cn-Deck, Inc., (15) the Minnesota Supreme Court enunciated five factors to be weighed in considering whether minimum contacts with a jurisdiction had been established: "(1) the quantity of the contacts with the thrum state, (2) the nature and quality of the contacts, (3) the source and connection of the cause of action with these contacts, (4) the interest of the state providing a forum, [and] (5) the convenience of the parties." (16) The court there also held that in close cases the presumption weighs in favor of jurisdiction. (17) A number of courts have held that the fact that a large number of persons within a state accessed a website supports the contention that a foreign website owner has purposefully availed itself of the privileges of conducting business in the state. (18)

      The substance of the contacts may be overcome by the frequency of the contacts. For example, in Minnesota v. Granite Gate Resorts, Inc., (19) the defendant Granite Gate provided Internet advertising and information on Nevada tourism. (20) One of the sites advertised was that of WagerNet, an on-line wagering service based in Belize that was "to be made internationally available in the near future." (21) The WagerNet website invited Internet users to put themselves on a mailing list for WagerNet information. (22) The Minnesota Attorney General alleged that Granite Gate had engaged in a deceptive trade practice by falsely advertising that gambling on the Internet is lawful. (23) Granite Gate argued that they had not directed their activities towards Minnesota because they "only placed information on the Internet." (24)

      Although not directly addressing the issue of personal jurisdiction, the United States District Court for the Southern District of New York in Playboy Enters., Inc. v. Chuckleberry Publ'g., Inc. (25) found that for the purpose of violating an injunction, Internet websites transmitted from outside a jurisdiction established in personam entry into the jurisdiction. (26) Under this rationale, the party transmitting the website information may be deemed to have established minimum contacts with the jurisdiction. Similarly, the Minnesota Supreme Court in Granite Gate noted that WagerNet, through Granite Gate, had expressly stated that its services were available internationally, thereby "indicat[ing] an intent to seek customers from a very broad geographic area." (27) The Granite Gate court further rejected the importance of a website disclaimer that stated that users should consult with local authorities regarding legal restrictions on offshore sports betting before registering with WagerNet. A defendant cannot "hide behind the structuring of its distribution system when [its] intent was to enter the market [in the forum state]." (28)

      In Braintech, Inc. v. Kostiuk, (29) the plaintiff, Braintech, a company incorporated in Nevada and transacting business in various United States jurisdictions sued Kostiuk, a resident of British Columbia in Texas. (30) Braintech obtained a default judgment for defamation stemming from Kostiuk's posting of information on an Internet bulletin board. (31) Braintech then sought to enforce the judgment in British Columbia. (32) Kostiuk's only connection with Texas was his bulletin board posting'. (33) The Canadian court considered whether Kostiuk's posting amounted to a "real and substantial connection" to Texas. (34) Braintech argued that the Texas long-arm statute provided the authority to serve Kostiuk in British Columbia because he had committed a tort in Texas. (35) The British Columbia Court of Appeals recognized the impact of the Internet on traditional notions of due process and relied on Morguard Investments, Ltd. v. DeSavoye (36) for the statement that "modern requirements of commerce and the reality of modern means of communication justified a departure from nineteenth century standards." (37) The Braintech court held that the Texas court did not have proper jurisdiction and declined to enforce the judgment, again following the Morguard court's reasoning that:

      [The concerns of modern commerce] must be weighed against the fairness to the defendant. The taking of jurisdiction by a court in one province and its recognition in another province must be...

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