An Introduction to Patents on Financial Services

and Payments

Jay ThomasProfessor of Law

Georgetown University Law Centerjaypatent@aol.com

U.S. Patent No. 6,315,196Method and system for debt

deferment• A method of debt deferment for at least one credit

account of a customer of a financial institution, comprising . . . .– automatically marking the account file by the credit

protection system server with an indicator for activation of the deferment benefit consisting of at least one of a zero minimum payment due, no adverse credit reporting, no fee accrual, and no new credit card charges on the account . . . .

U.S. Patent No. 6,012,043Method used in financial planning

A computerized method for illustrating a plurality of savings level required to fund a plurality of retirement scenarios, comprising. . .

• receiving financial and retirement data from a customer; and

• providing a graphical output . . . illustrating the plurality of savings levels required to fund retirement, corresponding to a plurality of combinations of assumed retirement ages and assumed rates of return . . . ;

• wherein said step of providing is performed by a computer processor based on the received financial and retirement data.

U.S. Patent No. 5,991,745Reverse Mortgage

A process for calculating monetary payments by a lender to a borrower based on the value of an asset using at least one of a plurality of constants stored in look-up tables, comprising the steps of:

inputting borrower specific information including indicia of borrower age;

inputting property specific information including property value; . . .

calculating original principal limit equals principal limit factor multiplied by property value; [and]

calculating net principal limit equals original principal limit minus costs.

U.S. Patent No. 6,112,188Privatization Marketplace

• “Computerized methods and tools for developing and implementing economic policies are provided.”

• Claims a “method to achieve widespread share ownership by aggregating rights to state owned assets, in the context of uncertainty and volatility in the value of said state owned assets, and in the context of constraints on investment sophistication and technical infrastructure . . . .”

U.S. Patent No. 6,329,919System and method of providing

reservation for restroom use

A method of providing reservations for restroom use, comprising:

receiving a reservation request from a user; and

notifying the user when the restroom is available for his or her use.

Overview

• Overview of the Patent System

• History of Business Method Patents

• Policy Tensions

• Patent Quality

• Concluding Observations

Patent Acquisition

• Patent rights do not arise automatically.

• Inventors must prepare and file an application at the PTO.

• A patent application must completely disclose and distinctly claim the invention.

• Examiners review the application to ensure that the invention meets the requirements of the Patent Act.

Substantive Patentability Criteria

• Statutory Subject Matter – section 101– Process, machine, manufacture, composition of

matter

• Useful – section 101– Minimally operable, not better

• New – section 102– Different than public domain knowledge

• Nonobvious – section 103– Patentable invention must not have been obvious to a

skilled artisan at time of invention

Term and Scope of Protection

• Issued patents ordinarily enjoy a term of 20 years measured from the date of filing.

• Patent proprietors may exclude others from making, using, selling, offering to sell and importing into the United States the patented invention.

• The patent proprietor bears responsibility for monitoring competitors to detect infringement.

Enforcement of Rights

• The patent proprietor may commence enforcement litigation against accused infringers.

• Accused infringers may assert that the asserted patent was improvidently granted.

• However, patents enjoy a presumption of validity that must be overcome by clear and convincing evidence.

Perceived Benefits

• Solves public goods problems associated with information products.

• Coordinates rivalrous R&D efforts by competing firms.

• Encourages disclosure of information.• Discourages wasteful expenditures

associated with maintaining trade secrets.• Reduces transaction costs of bargaining

by commodifying information.

Perceived Detriments

• Increases industry concentration.• Creates barriers to entry.• Attracts speculators.• A game industry cannot afford not to play.• Unified patent bar results in dearth of policy

debate.• Capture of agency and specialized appeals

court.• Public goods problems associated with

challenging issued patents.

Statutory Subject Matter

• Section 101 provides that a "process, machine, manufacture or composition of matter" may be patented.

• These broad words contain few inherent limitations.

• Judicial limitations nonetheless traditionally cabined the scope of the patent system.

Traditional Exclusions

• Laws of Nature

• Abstract Ideas

• Mathematical Algorithms

• Mental Steps

• Printed Matter

• Methods of Doing Business

Broadening Subject Matter Trends

• The patent system has become increasingly ambitious in terms of subject matter.

• Traditionally confined to biology, chemistry and physics.

• Now virtually every human endeavor subject to private appropriation via patenting.

• "Everything under the Sun made by Man" may be patented.

Patent Protectionfor Business Methods

• Key Events:– Statute of Monopolies (1624)

• Abolishes Crown-sponsored commercial monopolies• Patents allowed for “any manner of new Manufacture”

– Ex parte Abraham (Patent Office Comm’r 1869)• No patents on “methods of book-keeping”

– Giles S. Rich, Principles of Patentability (1960)• “one of the greatest inventions of our times, the diaper

service” not patentable

Patent Protection forBusiness Methods

• Paine, Weber v. Merrill Lynch (D. Del. 1983).

• Patent claims directed to a "Securities Brokerage-Cash Management System."

• “The Court finds that the '442 patent claims statutory subject matter because the claims allegedly teach a method of operation on a computer to effectuate a business activity.”

Patent Protection forBusiness Methods

• State Street Bank v. Signature Financial Group (Fed. Cir. 1998)– Patent claimed data processing system for

managing master feeder funds– Claim language tracks tax code and

regulations governing single-pass taxation– District Court holds invention is not patentable

subject matter because it is either math or a method of doing business

Patent Protection for Business Methods

• Court of Appeals Holds:“. . . the transformation of data, representing discrete dollar amounts, by a machine through a series of mathematical calculations into a final share price, constitutes a practical application of a mathematical algorithm, formula, or calculation, because it produces ‘a useful, concrete and tangible result’ – a final share price . . . .”

Patent Protection forBusiness Methods

• Regarding Business Methods:– “We take this opportunity to lay this ill-

conceived exception to rest.”

– “Since the 1952 Act, business methods have been, and should have been, subject to the same legal requirements for patentability as applied to any other process or method.”

The Amazon.com Litigation

• Amazon.com was awarded U.S. Patent No. 5,960,411, directed towards a method of placing an order to purchase an item on the Internet.

• Timeline– Patent Issued September 1999– Suit Filed Against BarnesandNoble.com on October

1999– Preliminary Injunction Issued December 1999– Federal Circuit Lifted Injunction February 2001

The Amazon.com Litigation

• The Internet Version of a Vending Machine?

• Concerns Over Consumer Lock-In

• Patents don't have to be enforceable for very long to have a significant marketplace impact.

Policy Tensions

• Business methods are older than the patent system.

• Not a case of the patent system embracing novel technologies such as biotechnology, lasers or polymer chemistry.

• No limits on what is patentable.

• If you can name it, you can claim it.

Policy Tensions

• No evidence suggests market interference is needed without traditional industry.

• With business method patents in place –– Incentives to Innovate

• Word Perfect 9.0 or 1.0

– Industry Concentration• Frequent flier miles

Policy Tensions

• Difficult to distinguish between business methods and traditional technologies– Is FedACH software a business method or

software?

• Reward for innovation

• Dissemination

• No concrete evidence of market harms

Patent Quality

• Public domain knowledge is poorly documented.

• Norms of publication versus secrecy.

• Difficult for USPTO examiners to assess novelty and nonobviousness.

• Official USPTO grant rate listed at approximately 70%; actual grant rate could be closer to 90%.

Concluding Observations

• Consider introduction of patented techniques into ACH services

• Patent-induced innovation?

• “Trolls” – speculators with patent-based hold-up powers

• NACHA and Patent Policy

• Patent rights are territorial – what about SWIFT?

Concluding Observations

• Private enterprise will react: – shift from a trade secrets to patent protection.– public goods begin to show pockets of

proprietary rights.

• Patents will play a substantial regulatory role in the private orderings within the financial services industry.

• Recent changes in patent policies present an opportunity for empirical research.