Trolling With Business Method Patents – Glory Days Ending?

Trolling With Business Method Patents – Are the Glory Days Coming to an End?

©Broox W. Peterson 2006 All Rights Reserved

The U.S. Supreme Court on June 26, 2006 agreed to hear an appeal in a case that could stem the issuance of questionable business method patents and make it easier to invalidate those that have already issued. (KSR Int’l Co. v. Teleflex Inc.)

Filing and obtaining patents on key business processes can help a company protect its freedom to operate under its business model and processes (the “shield” effect), and may give competitive advantage if the patent protects a process that cannot be duplicated by competitors. Amazon’s “one-click” on-line purchase patent is an example.

A patent can also be used as a sword against competitors to keep them from competing or to extract large royalties. That is fair, since the whole point of having a patent is the ability to protect a legal monopoly on the patented claims. However, in too many cases, patents are asserted against companies on processes that don’t seem new or novel at all. Oftentimes the owners of these patents are not in any business other than using their patent to extract royalties from companies that are in business to produce products or services.

The payments industry has seen a flood of business method patents issued in the last 10-15 years, starting with the granting in the 1980’s of a patent to Merrill Lynch for its money market “sweep” account. At the time the notion that an account funding process could be protected by a patent seemed revolutionary, but now companies and inventors are filing applications for patents with the PTO on every conceivable business process. Many feel that the PTO has been granting protection to “inventions” that are not novel, and in fact are quite obvious to persons familiar with the field. For example, one patent was granted on the process of asking for identification prior to completing a financial transaction. Now why didn’t I think of that?

Invalidity of a patent for “obviousness” is a common defense raised in patent infringement litigation, but since an issued patent is presumed to be valid, it is a difficult defense. The usual way of proving obviousness is to show that the patented invention was anticipated by “prior art”, consisting of previously filed or issued patents or other published material. Several pieces of prior art can be combined to show obviousness, and this is often required in order to knock out all of the claims of the patent. However, the Federal Circuit (the special court that hears appeals of patent decisions by Federal District Courts) has also in recent years required that the defendant prove that there existed, in addition to the prior art, a “teaching, suggestion, or motivation” that would have led a person of ordinary skill in the art to combine the relevant prior art teachings in the manner claimed in the patent.

This requirement has been an often-insurmountable hurdle on the path of the steep climb to invalidate a patent. Simplified (overly so), a defendant claiming obviousness based on prior art must also prove that there existed some sort of “hint” stemming from prior publications or some set of events or circumstances that would have led the person schooled in the art to come up with the particular combination of prior art comprising the patent. It is not enough that an “invention” is obviously “obvious”. The PTO has also been employing this standard in its review of patent applications for obviousness, with the same difficulty, except the effect in the PTO is that questionable patents are issued because the PTO is unable to find the required teaching-suggestion-motivation to establish obviousness and thus deny issuance.

Before agreeing to hear the appeal in KSR Int’l Co. v. Teleflex Inc. the Supreme Court requested that the United States Solicitor General provide its opinion. The Solicitor General’s brief, which was also signed by the General Counsel of the PTO, strongly urged the Supreme Court to hear the case. The recommendation was both legal and policy-based. The following excerpt from the Solicitor General’s brief sums up both: “The Federal Circuit has transformed one means of establishing obviousness under the framework [previously established by the Supreme Court in Graham]–proof that the prior art provided a teaching, suggestion, or motivation for combining separate prior art references–into an inflexible requirement for determining obviousness. As this case demonstrates, the Federal Circuit’s teaching-suggestion-motivation test extends patent protection to non-innovative combinations of familiar elements. The issue is important, because many patent applications rest on the combination of prior art reference, and because extension of patent rights to obvious combinations of familiar elements retards, rather than advances new discoveries.

In other words, the Federal Circuit has been improperly inflexible in its requirements for proving obviousness, and this has hurt the patent system. Another excerpt from the Solicitor General’s brief elaborates on problems with the “teaching/suggestion/motivation” test:

“The test requires the party challenging the patent to come forward with affirmative evidence in the prior art of a teaching, suggestion, or motivation to combine the features [in the new claim]. That showing may be difficult or impossible even though the combination, on its face, would have been obvious. For example, such affirmative evidence may be lacking if the claim arose in a newly emerging technical field or if the combination was so obvious to persons skilled in the art that no one would have need or incentive to record the trivial extension of the art.”

In my experience, that last sentence describes the payments industry.

Although it is impossible to predict with certainty what the Supreme Court will say after it hears this appeal, it seems pretty clear that the Federal Circuit’s “teaching/suggestion/motivation” requirement is going to be overhauled, and the result is likely to be fewer obvious patents issued by the PTO and more patents that have already been issued being invalidated. This would be good news for innovation and bad news for certain trolls. Go find another bridge.