Crossing the pacific

Unfavourable environments for business method patents in the US have led to an increase of filings in Asia. Benjamin Keim of Lee & Hayes explains

In the US, business method patents have become more difficult to obtain following the US Supreme Court’s decision in Alice Corp v CLS Bank.

Analysis of US Patent and Trademark Office (USPTO) rejections after the Alice decision shows a large increase in the number rejections for lack of patent eligible subject matter under section 101 of the US Patent Act, and a corresponding decrease in the allowance rates for certain categories of inventions.

This change is most dramatic in art units that examine business methods. In the two years following the Alice decision, the percent of applications receiving a rejection under section 101 in some art units jumped from around 40 percent to over 90 percent. These art units examine technology in areas such as business processing, eshopping, finance and banking, incentive programmes, and operations research. Accordingly, allowance rates in these art units have decreased following Alice. For business process applications, prior to the Alice decision there was a low allowance rate of 9 percent, which dropped further to only 2 percent.

Other areas had larger percentage changes. Eshopping applications had an allowance rate of 27 percent prior to Alice that decreased to 9 percent, while the finance and banking art unit’s allowance rate declined from 24 percent to only 3 percent. Obtaining meaningful patent protection for some types of business method inventions has become significantly more difficult at the USPTO than it was five or 10 years ago.

This has caused some applicants to forego filing applications on business method inventions. Hopefully, the decrease in patent application filings does not indicate a decrease in the amount of investment and innovation in this area.

In the years since Alice, the US Federal Courts have provided numerous examples of computer-implemented technology that is patent eligible. The USPTO is responding to these court decisions, and pathways to allowability are increasing.

In China and Japan, however, patent applications on business method inventions may receive favourable consideration due to recent perspective changes by the patent offices of both countries.

For inventors of new and non-obvious business methods, there is now a real possibility of obtaining meaningful patent protection in Japan and China. On 24 March 2017, the Japan Patent Office posted a webpage describing recent trends in business-related inventions. In Japan, business method patents are described as “covering a business method by using information and communication technology”.

This definition emphasises the role of technology in patent eligible business method inventions. In Japan, allowance rates for business methods have increased dramatically from 10 percent in 2002 to 69 percent in 2012. Although more recent data is not available, it is reasonable to assume that the current allowance rate for business method patents is similar to the overall Japan Patent Office allowance rate of 70 percent. This is a vast difference from the 2 percent, 3 percent, or 9 percent allowance rates of some art units in the USPTO. This increase in allowance rate has taken place while the popularity of business method applications has grown.

The number of applications granted by the Japan Patent Office has steadily increased year after year from about 750 applications in 2002 to about 1,900 applications in 2012. Notably, the total number of individual claims filed in business method applications has been increasing since the end of 2009 while the total number of claims filed across all technologies with the Japan Patent Office has decreased slightly.

To see if the reported behaviors of the USPTO and the Japan Patent Office matched the experiences of our clients, we reviewed a set of applications filed in the US that were ultimately abandoned and that had an issued counterpart patent in Japan. Of the abandoned US applications, 55 percent had section 101 rejections that referenced Alice at the time of abandonment. For the 20 percent that had only Alice rejections at the time of abandonment, it is reasonable to assume that absent of the Alice decision—or a change in the way the Alice decision is applied by the USPTO—these US applications would have issued like their Japanese counterparts.

However, 70 percent of the abandoned US applications had obviousness rejections under section 103 of the Patent Act at the time of abandonment. Therefore, although patent eligibility may be a differentiator between allowances in the US and Japan, it may be important to note that obviousness was a more common reason for rejection in the abandoned US applications. For US applications that had both section 101 and section 103 rejections at the time of abandonment, applicants may have elected to allow the applications to become abandoned because of the section 101 rejection rather than file a potentially successful response to the section 103 rejection.

Responding to an Alice rejection by abandoning an application is an option selected by many applicants. Almost 20 percent of all applications at the USPTO are abandoned after receiving an Alice rejection.

Since 1 April 2017, the State Intellectual Property Office (SIPO) has operated under new patent examination guidelines that strengthen protection for software and allow for patenting of business methods. Prior to this change business methods were not patentable in China. The new guidelines indicate that SIPO, like the Japan Patent Office, views the combination of business methods and computer technology favorably. The guidelines state: “If a claim related to a business model involves not only content of business rules and methods but also a technical feature, it shall not be excluded from the possibility of being granted a patent right.”

The revisions also remove an example that indicated a system for learning a foreign language as patent ineligible. The explanation for the now deleted example explained that the claims were patent ineligible because the invention used well-known electronic equipment and the improvement in teaching was not a technical improvement. Analysis by ignoring well-known components and searching for a technical improvement solely in the remainder of a claim is difficult to rebut effectively, and is an analytical technique applied by US courts, the USPTO, and other jurisdictions, such as the European Patent Office.

By deleting this example from the guidelines, SIPO is asking examiners to make a more holistic analysis of how the business method and the technical features interact to achieve a particular solution. This should enable SIPO examiners to find that many inventions designed to work on ordinary computers are patent eligible. The amendments to the examination guidelines also permit claims to computer-readable storage media if the stored computer program provides a technical solution to a technical problem and claims to an apparatus that includes programme modules. Both were previously patent ineligible subject matter in China. This brings the scope of potential claim styles and patentable subject matter in China closer to that of the US. It remains to be seen how SIPO examiners will apply the new guidelines in practice.

We also reviewed a set of abandoned US patent applications of our clients that had a counterpart application issued in China. In contrast to the results we found when looking at applications with issued counterparts in Japan, none of the abandoned US applications had rejections for section 101 at the time of abandonment. The grounds of rejection were split 25 percent for anticipation and 75 percent for obviousness. The lack of section 101 rejections in the abandoned US applications may be due to the difficulty of patenting business methods in China before the recent change in examination guidelines. It would have been a rare invention that was both patent eligible in China and drew an Alice rejection in the US. The difference between Japan and China may also be due to the small sample size. We found only a handful of Chinese patents with abandoned US counterparts.

Five or 10 years ago US applicants were filing in Japan more than in China. Without a change in the US law, going forward we expect to see an increase in the number of issued Chinese patents on business methods with an abandoned US counterpart due to both the new guidelines and increased filing in China.

The most favorable patent office for applications on business method inventions may have shifted from the US to another jurisdiction such as Japan or China. Innovators, even those focused mainly on the US market, should consider seeking patent protection for business method inventions in multiple jurisdictions.

Patent coverage in multiple jurisdictions, even if the US is not included, may discourage a global competitor from developing an infringing product or service and may provide leverage for cross licensing. Using the Japan Patent Office or SIPO as the office of first filing can provide applicants an evaluation of novelty and nonobviousness without the confounding effects of Alice. An allowance from the Japan Patent Office or SIPO may even influence a patent examiner at the USPTO to allow an application that might otherwise be rejected particularly if combined with use of the Patent Prosecution Highway.
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