BUSINESS-METHOD PATENTS; Congressional Record Vol. 157, No. 173
(Senate - November 14, 2011)

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[Pages S7413-S7414]
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                        BUSINESS-METHOD PATENTS

  Mr. KYL. Mr. President, I ask unanimous consent to have printed in 
the Record a letter concerning section 18 of the America Invents Act, 
sent to me and others by the chairman of the House Judiciary Committee.
                                         House of Representatives,


                                   Committee on the Judiciary,

                                 Washington, DC September 8, 2011.
     Hon. Jon Kyl
     U.S. Senate,
     Washington, D.C.
     Hon. Charles E. Schumer,
     U.S. Senate,
     Washington, D.C.
     Hon. Patrick Leahy,
     U.S. Senate,
     Washington, D.C.
     Hon. Chuck Grassley,
     U.S. Senate,
     Washington, D.C.
       Dear Senators Kyl, Schumer, Leahy and Grassley: I am 
     writing to discuss further the importance of the transitional 
     program for business method patents as included in H.R. 1249, 
     the Leahy-Smith America Invents Act. As you know, this 
     provision enables the U.S. Patent and Trademark Office 
     (`USPTO') to correct egregious errors that were made in the 
     granting of a wide range of business method patents.
       Business methods were generally not patentable in the 
     United States before the late 1990s, and generally are not 
     patentable elsewhere in the world. The Federal Circuit, 
     however, created this new class of patents in its 1998 State 
     Street decision. In its 2010 decision in Bilski v. Kappos, 
     the U.S. Supreme Court clamped down on the patenting of 
     business methods and other patents of poor quality. It is 
     likely that many or most of the business method patents that 
     were issued after State Street are now invalid under Bilski.
       There really is no sense in allowing expensive litigation 
     over patents that are no longer valid in light of the Supreme 
     Court's clarification of the law. The new transitional 
     program included in the House bill creates an inexpensive and 
     speedy alternative to litigation--allowing parties to resolve 
     these disputes more efficiently rather than spending millions 
     of dollars in litigation costs. In the process, the 
     proceeding will also prevent nuisance litigation settlements.
       Moreover, the new administrative proceeding allows business 
     method patents to be reviewed by the experts at the USPTO 
     under the correct (Bilski) standard. To use this proceeding, 
     a challenger must make an up-front showing to the USPTO of 
     evidence that the business method patent is more likely than 
     not invalid. This is a high standard. Only the worst patents, 
     which probably never should have been issued, will be 
     eligible for review in this proceeding.
       This program provides the Patent Office with a fast, 
     precise vehicle to review low-quality business method 
     patents, which the Supreme Court has acknowledged are often 
     abstract and overly broad.
       Specifically, the bill's provision applies to patents that 
     describe a series of steps used to conduct every-day business 
     applications in the financial products and retail services 
     sectors. These are patents that can be and have been asserted 
     against all types of businesses--from community banks and 
     credit unions to retailers and businesses of all sizes and 
     from all industries.
       The provision is, indeed, limited to patents that are non-
     technological in nature (i.e., business methods) and that 
     involve a process or related apparatus used in the practice, 
     administration, or management of a financial product or 
     service. The program's exception for ``technological 
     inventions'' precludes review of patents for inventions based 
     on application of the natural sciences or related engineering 
     or inventions in computer operations. And by requiring that 
     the covered patents be applicable to a financial product or 
     service, the proceeding in the House bill ensures that the 
     patents eligible for review will generally include only those 
     that have some business or commercial orientation.
       Nothing in the bill, however, limits use of the proceeding 
     to one industry; rather, it applies to non-technological 
     patents that can apply to financial products or services. Any 
     business that sells or purchases goods or services 
     ``practices'' or ``administers'' a financial service by 
     conducting such transactions. Most business-method patents 
     are fairly plastic in nature and could apply to a whole host 
     of business activities. See 157 Cong. Rec. 1363, 1365 (daily 
     ed. March 8, 2011) (statement of Sen. Schumer) (``To meet 
     this requirement, the patent need not recite a specific 
     financial product or service. Rather the patent claims must 
     only be broad enough to cover a financial product or 
     service.''). To be sure, the fact that a patent has been 
     asserted against a financial institution with respect to 
     products or processes that are unique to such institutions 
     will be a fairly clear indicator that the patent applies to a 
     ``financial product or service,'' and should provide guidance 
     to the USPTO in administering the program. See 157 Cong. Rec. 
     1368, 1379 (daily ed. March 8, 2011) (statement of Sen. Kyl).
       The transitional program can be used to review patents for 
     ``a method or a corresponding apparatus.'' The distinction 
     between a ``process'' and a ``machine'' (two of the terms 
     used in section 101 of the patent code to define what is 
     patentable) is not a firm one, and many inventions can be 
     characterized either way. A ``corresponding apparatus'' for a 
     business method would include, for example, a computer that 
     was programmed to carry out the business process. Wary of the 
     stigma that attaches to business-method patents, many 
     applicants try to obscure the nature of these patents by 
     characterizing a computer that has been programmed to execute 
     the process as the invention, and thus asserting that the 
     process is really a ``machine'' or a ``system.''
       The program's definition of ``covered business-method 
     patent'' includes a ``corresponding apparatus'' in order to 
     prevent such obvious evasions. Any other approach would 
     elevate claim-drafting form over invention substance. 
     Finally, any ``apparatus'' that is subject to review under 
     the program would need to be used to implement or effect a 
     business method. Legitimate inventions in technological 
     fields will not be subject to review under this program.
       The transitional program also extends to privies of parties 
     charged with infringement. This was done specifically to 
     prevent downstream customers or users from being dragged into 
     frivolous litigation over suspect or improperly granted 
     patents. H.R. 1249 also extends the time frame for the 
     transitional program. This change is important to prevent 
     patent trolls from waiting out the program. This issue of 
     folks ``lying in wait'' may actually be a significant 
     argument for extending or making permanent this program in 
     the future. Similarly, the program's definition was expanded 
     in H.R. 1249 so that it is not limited to class 705 patents. 
     This change is key to the program's success, because many 
     business method patents are assigned to classes other than 
     705, and it makes no sense to exclude them because of the 
     quirks of USPTO's classification regime.
       This program is not tied to one industry or sector of the 
     economy--it affects everyone. The provision as developed in 
     the Senate and later perfected in the House will ensure that 
     the vast majority of non-technological business method 
     patents will be eligible for review under this program. As 
     the USPTO had a presumption to grant many of these erroneous 
     patents, they should now have a presumption to allow most 
     non-technological

[[Page S7414]]

     business method patents that have a commercial nexus into 
     this new program for review. This program was designed to be 
     construed as broadly as possible and as USPTO develops 
     regulations to administer the program that must remain the 
     goal.
       The strength of our patent system relies on not simply the 
     mechanical granting of a patent, but the granting of strong 
     patents, ones that are truly novel and non-obvious 
     inventions, that are true innovations and not the product of 
     legal gamesmanship. This provision is an integral component 
     of H.R. 1249 and will not only help correct past mistakes but 
     ensure a stronger U.S. patent system going forward.
           Sincerely,
                                                      Lamar Smith,
                             Chairman, Committee on the Judiciary,
     House of Representatives.

                          ____________________