Sweeping the E-commerce Patent Minefield: the Need for a Workable Business Method Exception
| Publication year | 2000 |
| Citation | Vol. 24 No. 04 |
I. INTRODUCTION: A SEATTLE DAYDREAM
Four friends, recent college graduates and lovers of fine micro-brewed beers, use youthful exuberance and computer science degrees to create a business model and the software necessary to make it a reality. Beer2U.com will actively seek out small brewers, catalogue their products, accept orders on-line, contact producers, and arrange shipments. The genius of this business model is the software itself: a computer algorithm monitors the flow of data through the processor and factors in the short life span of unpasteurized beers and the vagaries of shipping to different locations throughout the United States (the world is next year), creating a sliding scale of cost that accounts for the declining value of beers as they age and the increased shipping costs on rush orders. The software can pinpoint the cheapest possible way to get a six pack of stout from Bend, Oregon to Kearney, Nebraska. Producers are contacted, favorable contracts arranged, and, using leftover graduation money, the business goes on-line.
Everything goes well. Amazingly well. Six months into business the company is turning a steady profit and talking about an initial public offering (IPO). The brewers are happy because Beer2U.com has enlarged their market. Then, Beer2U.com receives a call from Budweiser. It seems two years ago Budweiser patented a distribution system for its beer. Needing to keep a steady flow of cans marked with "born-on" dates, it created a software program to account for the "best within 110 days" factor and the vagaries of shipping and calculate an optimal price at which to sell to its distributors. Budweiser read about Beer2U.com in Wired Magazine and thinks the new company has infringed its patent. Budweiser wants licensing fees. Lots of licensing fees. Retroactive licensing fees. Further, it has retained heavy-hitting lawyers to squeeze the licensing fees out of Beer2U.com. Besides paying up or shutting down, the new company's only other option is to hire its own patent attorney and file for a declaratory judgment to invalidate the Budweiser patent. Unfortunately, a call to a patent lawyer will let Beer2U.com in on an awful truth: almost any method of doing electronic commerce is patentable.
This daydream is not terribly far-fetched. Although any com-puter-sawy person who wants to sell beer with a limited life span can write an original program to do so, this
This Comment will suggest that, although innovation and technological creations need to be protected to encourage technological development, it is a mistake to grant patent protection for previously existing business methods. It should make no difference that these methods have been made available, via computer software, in the "new world" of the Internet. Extending patent protection to the "virtual" equivalents of business methods needlessly restricts the ability of businesses to develop in the electronic marketplace.
This Comment will trace the history of patent protection for methods of doing business over the past two decades, then it will inspect the problems that this protection has wrought: litigation, increased barriers to e-commerce entrepreneurs, and the threat of a less vibrant electronic marketplace. Because each traditional method of protecting intellectual property-patent, copyright, and trade secret-has strengths and limitations in protecting advancements in software technology, this Comment will examine the relative benefits of each method.
Finally, this Comment will suggest a simple, easily applied test that will offer patent protection to true innovations while reserving methods of doing business for the open market, as they are the building blocks of commerce. Under this test, if a patent claim is made that is directed toward a business or commercial objective in which the only novelty is the application of a computer processor to speed the processing of information, the patent claim would per se fail.
II. What Is a Business Method?
This Comment ultimately suggests a reborn "business method exception" to bar patents for software-based methods of doing business and thereby protect the vitality and economic efficiency of doing commerce on the Internet. The initial, and perhaps most difficult problem is defining the term "business method." As will be discussed in greater detail in the following section, recent case law has made patent protection available for any process claim that combines computer software with a computer processor to produce a "tangible" result of data.(fn1) Thus, for example, the process of using a computer to calculate prices and carry out beer distribution may be patentable, even though it is nothing more than an improved version of the old paper-and-pen method.
To create a test that bars patents under certain circumstances but still serves the underlying policies of patent protection, the definition of "business method" must be clear and concrete. A line must be drawn that protects true innovation but bars the sequestering of tools other businesses need to operate.
Is a business method any activity that furthers commercial goals? If so, then the use of accounting programs, even word processing programs if properly applied, could be considered business methods. Certainly methods of advertising, taking and processing orders, creating products, and organizing logistics within a commercial enterprise are all, to some extent, business methods.
One scholar has defined a business method patent as requiring two key ingredients.(fn2) The first ingredient requires that the end result of the process, or the product the "machine" produces, be of commercial rather than technological interest.(fn3) Typically, this would be the execution of a business process or the generation of information important to a commercial entity. Second, the hardware and software elements in the patent claims must be described generally enough that the real import of the patent claim is the underlying process.(fn4) The intent of this requirement is that the novelty of the innovation does not derive from any specific advance in mechanical or software-based processes. The software is written in well-known code. The machine parts are common and used in other applications. The only novelty of the innovation is the fact that someone decided to use a computer to do the specific type
The first ingredient is apt, and the second, if clarified, completes the description. If the novelty of the process was a machine, some new or improved gadget, then the patent would properly be granted for that machine and not its result. Eli Whitney's invention was not seed-free cotton; seed-free cotton had been around for millennia. Eli Whitney's invention was the machine that took the seeds and husks off the cotton without the investment of incredible time and effort.
Thus, the definition of business method this Comment offers is a process that is directed toward a business or commercial objective in which the only novelty is the application of a computer processor to speed the processing of information. Any specific improvements that utilize the capabilities of information technology to expand upon or add to a physical world equivalent would fall outside this definition and remain patentable.
III. The Development of Case Law-
Until 1998, the case law surrounding the patentability of software-based inventions was not clear.(fn5) This uncertainty is often traced back to the 1972 Supreme Court holding in
Justice Douglas, writing for the Court, rejected the patent claim as containing nonstatutory subject matter, holding it to be nothing more than an idea.(fn8) He noted such "abstract intellectual concepts" are merely tools to be used in scientific and technological work. Any patentable invention that might come from this discovery would have to apply this idea "to a new and useful end."(fn9) The Court also noted that the claimed formula had no application except when run in a computer; such "process" claims, when not tied to a machine, must transform or reduce an article to a different state or turn it into a different thing.(fn10)
One logical reading of this case would be that computer programs, in and of themselves, are not patentable. However, this conclusion was not clearly articulated in the opinion. Thus,
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