[Congressional Record Volume 146, Number 122 (Wednesday, October 4, 2000)]
[Extensions of Remarks]
[Pages E1659-E1660]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

[[Page E1659]]



STATEMENT ON THE INTRODUCTION OF THE BUSINESS METHOD PATENT IMPROVEMENT 
                              ACT OF 2000

                                 ______
                                 

                         HON. HOWARD L. BERMAN

                             of california

                    in the house of representatives

                        Tuesday, October 3, 2000

  Mr. BERMAN. Mr. Speaker, in recent months, substantial concern has 
been expressed over the patenting of Internet and business strategies 
and techniques. Both the quality and appropriateness of a number of 
recently granted patents have been questioned.
  My primary concern in this issue is the protection of intellectual 
property, which I believe is critical both to innovation and to the 
economy--and in that context, I want to make sure that the quality of 
U.S. patents is the highest possible.
  As the breadth of patentable subject matter grows, it is incumbent 
upon Congress to consider two questions. First, are the Patent and 
Trademark Office and the courts properly interpreting the scope of what 
should be patentable? Second, is the process for patenting appropriate 
for the subject matter we allow to be patented?
  It is clear from my conversations with those who are developing the 
Internet, those financing Internet ventures, individuals conducting 
business and those in the patent community--and the public at large--
that the patenting of Internet and business strategies and techniques 
is controversial and deserves serious examination. Some believe that 
``business method'' patents should simply not be allowed. They argue, 
by analogy, that a toaster should be patentable but the idea of 
toasting bread should not. Others argue that business methods should 
remain patentable, but the PTO should apply much greater scrutiny when 
it examines such patent applications. To extend the analogy: we have 
been toasting bread for a long time and if you are going to patent a 
method of doing so, the PTO better make sure that it has never been 
done in just that way before. Some note that people have received 
patents on activities that have been undertaken for decades and even 
centuries, and argue that merely placing an activity on the Internet 
does not make for novelty. Finally, there are a number of strange 
examples that lend themselves to questions about whether such common 
human activities deserve patent protection at all. Surely, the patent 
system is functioning in a curious manner when patents have been issued 
on a technique for measuring a breast with a tape to determine bra size 
(Pat. No. 5,965,809), methods of executing a tennis stroke (Pat. No. 
5,993,366) and swinging a golf club (Pat. No. 5,616,089), an 
architect's method of eliminating hallways by placing staircases on the 
outside of buildings (Pat. No. 5,761,857), and a method for teaching 
custodial staff basic cleaning tasks (Pat. No. 5,851,117). Others have 
noted with suspicion the patent for a method of exercising a cat using 
a laser light as a tease (Pat. No. 5,443,036).
  Other patents, granted to more serious endeavors, have also have been 
roundly criticized. With regard to patenting Internet adaptations of 
brick-and-mortar businesses, questions have arisen about patents 
granted for a method of selling music and movies in electronic form 
over the Internet (Pat. No. 5,191,573), a method of developing a 
statistical ``fantasy'' football game using a computer (Pat. No. 
4,918,603), a method of allowing car purchasers to select options for 
cars ordered over the Internet (Pat. No. 5,825,651), a method of 
rewarding online shoppers with frequent flyer miles (Pat. No. 
5,774,870), and an arguably very broad patent on managing secure online 
orders and payments using an ``electronic shopping cart'' to purchase 
goods on the Internet (5,745,681).
  In lay terms, the basic question in each case is whether the patent 
owner merely adapted a well known business activity to the Internet in 
a straight forward manner. In patent parlance, the question is whether 
any of these activities are truly new and would not be obvious to one 
skilled in the relevant art. Other questions that may be relevant are 
whether others in the United States had known of the invention or had 
used it, and whether the invention was used or sold in public prior to 
the filing for a patent.
  I am not asserting that any of these patents should be invalidated. 
However, patents are becoming a critical factor in valuing many new 
economy businesses, and that means they are significant to the health 
of the economy. If business method patents are indeed being issued 
based on insufficient information about the relevant inventions that 
preceded the patented invention or if a patent is issued on the basis 
of insufficient ``prior art,'' there is substantial risk to the 
inventor that those who know of the ``prior art'' could step forward at 
any time, invalidating the patent. This uncertainty means that 
investors cannot be confident that businesses will in fact reap the 
returns they expect on the patented inventions.
  In the context of the Internet, many argue that rather than spurring 
innovation, patents interfere with innovation; that fierce commercial 
competition, as opposed to patent monopolies, has driven innovation; 
and that a culture of open sharing of innovation has been the key to 
the Internet's rapid growth. Whether this is true or false, an 
invention that is tied up because of an inappropriate grant of patent 
is problematic and may interfere with the advancement of technology. If 
a patent is granted for an invention that is not truly novel or one 
which is obvious to an expert in the field, it may then become 
unavailable for competitors to exploit. Such a patent may also open the 
user of the prior invention to an infringement lawsuit.
  The U.S. patent system, created under the specific authority of the 
Constitution, grants for a limited time a statutory monopoly over one's 
inventions. An inventor should have an incentive to create--a monopoly 
for a limited time allows an inventor the opportunity to appropriately 
benefit from his creativity, and at the same time, reveal in detail the 
invention to allow others to build on his advances. Historically, the 
concept of invention was limited to the physical realm, a machine or 
process by which a product is produced. Over the years, however, the 
courts and the PTO have expanded the scope of patentable subject 
matter. In fact, the Patent and Trademark Office is of the view that it 
is operating under Supreme Court instruction to patent ``anything under 
the sun made by man.'' To that end, they have allowed the patenting of 
business methods.
  Three events have contributed to the rapid growth in the number of 
applications for business method patents:
  In the 1998 ruling in State Street Bank v. Signature Financial Group, 
the Court of Appeals for the Federal Circuit, (which has exclusive 
jurisdiction over patent appeals) concluded that methods of doing 
business implemented using a computer are patentable. Some interpret 
the opinion as not even requiring computer implementation, and thus 
more broadly affirming the patenting of any business method. State 
Street was notable because it resolved a question where there had 
previously been divergent opinions among the lower courts. Some courts 
were of the view that there was a ``business method exception'' to 
patentability dating back to at least 1868. In resolving this issue, 
the court opened the flood gates for business method patents.
  The second key event has been the explosive growth of the Internet. 
As businesses move to the Internet, they either adapt methods of doing 
their ongoing brick-and-mortar business or they invent new and 
innovative methods to take advantage of the unique qualities of the 
Internet.
  Finally, business executives and entrepreneurs alike are gaining a 
better understanding of the economic value of intellectual property and 
patents, and are pursuing ways to take advantage of these 
opportunities.
  Given this growth in patent applications, has the quality of patents 
suffered? There are several reasons identified for the lessening of the 
quality of patents in this area. In the view of some, the existing 
patent corps does not have the expertise to examine these ``new tech'' 
and ``business'' patents. The PTO needs more resources to enhance their 
examiners expertise and increase the size of the examiner corps in the 
relevant areas of art. Also, as a result of industry practices, there 
is a dearth of ``prior art'' data, the evidence of preexisting 
inventions, available in the areas of the Internet and business 
methods.
  To be patentable, an invention has to be novel, useful, and not 
obvious to an expert in the field. Novelty is judged by comparing the 
invention with both patented and non-patented inventions. Determining 
whether an invention existed before the patent application was filed--
or whether the invention is obvious--is an extraordinarily difficult 
task in the realm of business methods and the Internet. Core Internet 
tools such as the Amazon.com ``1-click'',

[[Page E1660]]

may have been in use prior to the filing of Amazon's patent 
application. Priceline.com's ``buyer-driven sales'' over the Internet 
arguably may have been ``obvious'' to an expert in the field of 
auctions.
  I do not know whether these patents should or should not have been 
granted (and ongoing litigation will inevitably make that 
determination), but it is clear that the review of business method 
patent applications is impaired by the lack of documentation capturing 
the history of innovation in the Internet or the development of 
business techniques and methods.
  By contrast, in the fields of engineering or science (two areas in 
which many patents are sought), inventions and innovations are 
meticulously documented and published. With these publications at hand, 
an examiner has easy reference to existing inventions. But very little 
published information exists with Internet and hi-tech practices . . . 
and most of what does exist is analogous to ``folk knowledge'', handed 
from person to person orally or in chat rooms or by e-mail. Where 
developments are documented, there is no common organizing scheme. 
Where business plans are involved, they are usually closely held as 
trade secrets. Since an examiner can reject a patent application only 
on published ``prior art'', informal communications are excluded.
  As to obviousness, it is usually up to the patent examiner--using his 
own expertise and research of ``prior art''--to assess whether an 
expert in the field would think to come up with the applicant's 
invention. In the area of business method patents, the endeavors for 
which patents are being sought are very new to the PTO. It has been 
only five years since the Internet became a tool of business, and only 
two years since the court clearly established the rule that a business 
method is patentable in the United States. Unfortunately, although PTO 
is taking strides to develop expertise in the appropriate fields, there 
must be improvement in how experts can submit information to the PTO 
regarding specific patent applications.
  Many of the changes needed can be met only by legislative action. It 
is critical that we create new mechanisms to get ``prior art'' into the 
system and make it available to applicants and the PTO. We must enhance 
the deference given the PTO in rejecting patent applications on the 
basis of all of the provisions of subsections 102(a) and (b) of title 
35 by allowing examiners to rely on evidence of knowledge, use, public 
knowledge or sale in the U.S. that may not be documented in published 
references.
  I am today introducing with Mr. Boucher a bill that will enhance the 
quality of Internet and non-Internet business method patents by 
increasing the opportunity for expert input into the patenting process. 
These improvements will provide patent owners and investors alike with 
greater confidence in the quality of their patents. The bill requires 
the PTO to publish business method patent applications and give the 
members of the public an opportunity to present ``prior art'' they 
believe may disqualify the application. Members of the public may also 
petition the PTO to hold a hearing to determine whether an invention 
was known, used by others, or in public use or on sale in the U.S. 
prior to the filing of the application. The bill also establishes an 
expeditious administrative ``opposition'' process by which a party will 
be able to challenge a business method patent. The opposition process 
provides parties with substantial evidentiary tools but will be much 
less costly and more efficient than litigation. The opposition process 
must be invoked within 9 months of the granting of a patent, and must 
be concluded within 18 months thereafter. Thus, we assure that within 
27 months after the granting of the patent, a patent owner will either 
have enhanced confidence in the quality of their patent--something akin 
to quiet title--or will know the patent has been invalidated. The 
procedure will be presided over by an Administrative Opposition Judge 
who has substantial patent expertise and will have the responsibility 
to assure efficient review.
  In regard to adaptations of business methods to the Internet, the 
bill establishes that where an invention only differs from ``prior 
art'' in that it is implemented using computer technology, such an 
invention shall be presumed obvious and therefore not patentable (this 
presumption can be overcome if a preponderance of the evidence shows 
that the invention was not obvious). Finally, the bill lowers the 
burden of proof for a challenge to a patent from ``clear and convincing 
evidence'' to ``a preponderance of the evidence''--an appropriately 
lower standard where the difficulty of producing evidence is 
complicated by the traditions and practices of the industries.
  In introducing this legislation I am not taking a final position as 
to whether business methods should be patentable--I tend to think they 
should be, but I could be persuaded otherwise. I am not wed to any 
particular provision of this bill itself But I do believe that we need 
to be sure that the Patent and Trademark Office is well equipped to 
consider these patents, that there are adequate means to get good 
information into the system describing prior inventions, and that there 
are the appropriate standards and processes in place to assure the 
quality of the patents that are actually issued. There should be no 
question that the U.S. patent system produces high quality patents.
  This bill is a work in progress, and one that will likely generate 
great debate. As I have noted, there are some who believe that 
``business methods'' should not be patentable at all. Others who are 
certain to argue that current law ``ain't broke'', so there is no need 
for Congress to fix it. Still others believe that, to the extent there 
may be a problem, the Patent and Trade Mark Office will address it 
administratively. My intent with this legislation is to stimulate the 
dialogue. We need to air these issues and ultimately (and hopefully 
quickly) find the proper solutions.

                          ____________________