The proliferation of electronic commerce patents: don't blame the PTO.

• Author: Quinn, Eugene R., Jr.
• Position: Patent and Trademark Office

1. INTRODUCTION

   In the Dot Com world of today, many players are spending large sums on the acquisition of electronic commerce patents. Most of these E-commerce patents are a little bit software patent, a little bit business method patent, and likely invalid. There is indeed growing concern among commentators that the United States Patent Office (1) is issuing an ever-increasing number of invalid patents. Of course, this statement is legally incorrect because a patent once issued is presumed to be valid, (2) but the reality is that many patents that are not objectively valid are indeed emerging from prosecution and are enjoying the presumption of validity. In fact, there are many examples of business method and software patents that have been issued that likely are not valid, or that have been demonstrated to be invalid. (3)

   For example, Priceline.com has received a United States patent on pricing, selling, and exercising options to purchase airline tickets. (4) This patent, however, apparently gives Priceline.com the exclusive right to what is known as a Dutch auction, (5) something that is hardly new or nonobvious. In fact, the Priceline.com patent acknowledges the use of options in other markets, before explaining in its specification that:

   Until now, however, there has been no acceptable way to minimize the risk of fluctuations in airline ticket prices. In particular, as far as we are aware, options to purchase airline tickets have never been sold. Moreover, no systems have been developed for determining prices for options on airline tickets, and keeping track of the sale and exercise of those options. (6) Apparently the fact that this type of system had never been implemented makes this business method patentable in the minds of Priceline.com and its attorneys. (7) Patentability, however, is not so easy a question. The fact that it has not been implemented is perhaps entirely due to the fact that there existed no means for reaching individuals in real time to engage in such a Dutch auction with respect to purchasing airline tickets. The invention that allows the Priceline.com business method to work is the Internet, not any technological advancement by the inventors of the method for which the Priceline.com patent was issued. Therefore, it would seem that the advent of the Internet has enabled Priceline.com to obtain the exclusive right to a business method that has been within contemplation for quite some time.

   In all fairness to the United States Patent Office, it is certainly not to blame for the explosion of E-commerce patents, and it is also not to blame for the number of invalid software and business method patents that are being issued. The Patent Office is attempting to engage in more rigorous examination of such patents, but these laudable improvements are falling short of the mark. One reason for this is that the patent examiners are simply too overworked and do not have the proper resources to examine patent applications in a manner likely to result in the weeding out of patents that ought not see the light of day.

   The real problem can be summarized by a 1999 survey conducted by Greg Aharonian, which revealed that fifty percent of all patent applications cited no prior art at all. (8) Mr. Aharonian similarly estimates that somewhere between fifty percent and seventy percent of software patents would likely not issue if the examiners were to conduct prior art searches of both Patent Office archives and databases that are readily available but not accessible within the confines of the Patent Office. (9)

   A change is necessary to ensure that USPTO issues only software and business method patents that justifiably deserve to enjoy the presumption of validity. The primary pieces of prior art considered in the examination process are previously granted United States patents. Unfortunately, however, the patenting of both software and business methods is a relatively new phenomena, which means that relatively few United States patents have been issued in this area. Moreover, with respect to business method patents, the bulk of the available knowledge resides mainly with the companies employing those methods. (10) This leads to the inescapable conclusion that there is very little prior art being considered when the examiners assess patentability of new software and business method patent applications.

   With this in mind, this article will propose a modification to 37 C.F.R. [section] 1.56, commonly referred to as Rule 56, that would require those applying for a patent to conduct a patent search prior to filing for an application. It will also be proposed that Rule 56 return to the old definition of materiality, requiring applicants to divulge that information which a reasonable examiner would desire. Before exploring these proposed changes, however, it will first be necessary to examine the fundamentals of patent law and the patent system. Part II of this article, therefore, will explain the fundamentals of the patent law by exploring the patent grant, the role of the United States Patent and Trademark Office, and the basic requirements for patentability. Part III will then detail the history of software patents. Part IV will take a similar, albeit shorter, look at the history of business method patents. Part V will discuss the mechanics of Rule 56 and the applicable standards. Part VI will then explain the proposed modifications to Rule 56, which will be followed by a brief Conclusion in Part VII.

2. UNDERSTANDING THE FUNDAMENTALS OF PATENT LAW

   1. General Introduction to the Patent Grant

      A patent is a legal right granted by the United States government to inventors of new, useful, and nonobvious inventions. (11) The authority to grant patents is bestowed upon the United States Congress, and stems from the Constitution, which gives Congress the power "[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." (12) To patent attorneys this clause of the Constitution will forever be known as the Patent Clause. For attorneys specializing in copyright law this clause is known as the Copyright Clause. More important, perhaps, than the partisan nomenclature is the recognition that the Founding Fathers deemed intellectual property rights so fundamentally important to the success and stability of our new country that these rights were written into the Constitution, a document not generally known for its length and specificity.

      Under the authority of the United States Constitution, Congress has from time to time enacted various laws relating to patents. The first Patent Act was enacted by the first Congress in 1790. The Patent Act, which has undergone several major revisions since its enactment, had its last major revision in 1952. More recently, the Patent Act was revised in several significant ways by the enactment of the American Inventors Protection Act of 1999, (13) which was enacted into law on November 29, 1999. (14)

      The right conferred by the patent grant is, in the language of the statute and of the grant itself, "the right to exclude others from making, using, offering for sale, or selling" the invention in the United States or "importing the invention into the United States." (15) The patent owner enjoys this exclusive right for a term of twenty years from the date on which the patent application is filed in the United States Patent and Trademark Office. (16)

   2. The Role of the United States Patent and Trademark Office (17)

      The role of the United States Patent and Trademark Office (PTO), is to examine and, if appropriate, grant patents for the protection of inventions. The PTO is also charged with examining and registering trademarks. The PTO is split up into two offices, the Patent Office and the Trademark Office. In order to practice in front of the Patent Office, it is necessary to take and pass the Patent Bar Examination. Only those individuals with scientific education are allowed to sit for the examination. There is, however, no similar examination given by the Trademark Office. Attorneys admitted to practice in any state may practice before the Trademark Office.

      The PTO serves the interest of inventors and businesses with respect to their inventions, corporate products, and service identifications. It also advises and assists the bureaus and offices of the Department of Commerce and other agencies of the Government in matters involving "intellectual property" such as patents, trademarks, and semiconductor mask works. Through the preservation, classification, and dissemination of patent information, the Office aids and encourages innovation and the scientific and technical advancement of the nation.

      In discharging its patent-related duties, the Patent and Trademark Office examines applications and grants patents on inventions when applicants are entitled to them; it publishes and disseminates patent information, records assignments of patents, maintains search files of U.S. and foreign patents, and maintains a search room for the public to use in examining issued patents and records. It also supplies copies of patents and official records to the public. The office performs similar functions relating to trademarks

   3. Patentable Subject Matter in General - 35 U.S.C. [section] 101

      "Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title." (18) The legislative history of the 1952 Patent Act informs us that Congress intended the patentable subject matter referred to in [section] 101 to "include anything under the sun that is made by man." (19)

      Given that Congress intended everything made by man to be patentable, it is sometimes more helpful when discussing patentable subject matter to identify that...