In re Bilski

The CAFC today decided a much-anticipated patent law case, In re Bilski.  The opinion: PDF and html.  At issue was the patentability of a method for hedging risk in the trading of commodities.

– If upheld (i.e., presuming the Supreme Court doesn’t grant cert and then overrule the CAFC’s opinion here), it could mean a significant narrowing of what constitutes patentable subject matter as a business methods patent.

– At issue: “The question before us then is whether Applicants’ claim recites a fundamental principle and, if so, whether it would pre-empt substantially all uses of that fundamental principle if allowed.” (p. 10) 

– The State Street formulation might be out in the process (pages 19-20 of the opinion; on p. 20: “Therefore, we also conclude that the ‘useful, concrete and tangible result’ inquiry is inadequate and reaffirm that the machine-or-transformation test outlined by the Supreme Court is the proper test to apply.”).

– The court makes plain that some business methods and software patents can still issue, but they’d need to meet the machine-or-transformation test.  (Fn. 23, e.g.: “Therefore, although invited to do so by several amici, we decline to adopt a broad exclusion over software or any other such category of subject matter beyond the exclusion of claims drawn to fundamental principles set forth by the Supreme Court.”)

– The CAFC didn’t seem to think much of the claim itself, making this a great set of facts for anyone wishing to shrink what is patentable and to take a crack at eliminating business methods patents altogether.  One gets a hint of the court’s view of the claim in the description of the invention: “…Applicants here seek to claim a non-transformative process that encompasses a purely mental process of performing requisite mathematical calculations without the aid of a computer or any other device, mentally identifying those transactions that the calculations have revealed would hedge each other’s risks, and performing the post-solution step of consummating those transactions. … [W]hile the claimed process contains physical steps (initiating, identifying), it does not involve transforming an article into a different state or thing. Therefore, Applicants’ claim is not drawn to patent-eligible subject matter under § 101.”  (p. 32) 

What others are saying: Patently-O has a nice explication, as always, plus an extraordinary set of comments.  (Man, is that an impressive community of blog readers and commenters.  Not your usual comment spam.)  There’s a Slashdot thread.  The WSJ Law Blog was very quick to cover it.  And I found the Patent Baristas’ review of how we got to this point to be a useful background read.

Entrepreneurship, the Patent Law, and Scale of Firms

I’m at a wonderful summer program hosted by the Kauffman Foundation on Law, Innovation, and Growth. They’ve convened a truly interdisciplinary crowd interested in how law can affect rates of innovation and growth. Many, though by no means all, of the conversations are about innovation in technology-related fields. All the papers presented will be posted to the web site, which (great news) seems to be open for public view as of now.

The conversation about the proper role of intellectual property — patents, especially — in promoting growth, innovation, and entrepreneurship brought to mind a recent post by Jim Moore about the Allied Security Trust. Jim and I have been working together for several years on various entrepreneurial and scholarly projects. In the past few years, he’s been digging in on this question of how the patent law can work to promote start-ups and other entrepreneurs pursuing innovations in the information technology space. He points here to the extent to which large players in the IT sector are working together to develop strong patent pools to keep smaller entrants from competing effectively against them.

This theme resonates with many of the key themes here at the Kauffman Foundation’s event. One of those themes is scale. Many presentations have implicitly or explicitly dealt with whether and how scale effects innovation. From the perspective of entrepreneurs who start and build businesses, this question of the effect of the patent law and how it’s used is crucial. If we stipulate that small-scale entrepreneurs are a key driver of economic growth and innovation generally, and that large firms are (at least) not the only home of socially beneficial innovation, then this issue of patent pools and how they are used is crucial.

I’ve been thinking a lot about what we’re studying actively at the Berkman Center, which I’ve just left as executive director. We’ve not yet done enough serious work on this question of patents and the effect on innovation, growth, and other social concerns. A few scholars at the Center have got a forthcoming paper on patents, but it’s not been an area of focused research. Over time, I think we should get more serious exploring multiple points of view about how the patent system should work in the Internet space. And plainly, the intersection between patent and competition law (or antitrust in the United States) is an essential one to understand, as Mark Lemley and his co-authors, Phil Malone, Francois Leveque and others have been. The new executive director might profitably think about how we could contribute more to this discussion.

Francois Leveque on Standards, Patents, and Antitrust

As part of our Berkman@10 celebration this year, we at the Berkman Center tonight welcome Francois Leveque, professor at the Ecole des Mines, Paris, and visiting prof at the faculty of law at UC Berkeley. He’s presenting the findings of two new papers, each co-authored with Yann Meniere: “Technology standards, patents and antitrust” and “Licensing commitments in standard setting organizations.”

Prof. Leveque offers us a series of insights about the interaction of economics and law in the context of patents in the standards setting process. One key finding of his papers: it would be best for consumers and for innovation in general for the licensing of patents by players in standards setting processes to occur ex ante, rather than ex post. More surprising, he and M. Meniere argue that it also may be better, under some circumstances for the patent holder also to set the royalty level ex ante. He notes that, in this setting, the interests of consumers and patent owners are aligned. As he goes on to explain, in other settings, these interests may not be so well aligned. Read the papers for more insights, including with respect to the VITA royalty cap policies, ways to mitigate the costs of the risk of hold-up, and his proposal of announcing a royalty cap ex ante as a more flexible means of accomplishing such mitigation while still enabling patent holders to revise the royalties.

Prof. Leveque very kindly participated in both the Weissbad (Switzerland) and Cambridge (MA, USA) workshops that guided our work on Interoperability and Innovation over the past year. His interventions were crucial to informing our understanding of these complicated matters and he was unusually generous with his input, for which Urs Gasser and I and our teams are extremely grateful.

Launch of LegalForce, Creation of Markets for IP

I got word today of the launch of a new service called LegalForce. They’re creating an online marketplace for patents. They’ve also got something of a community-building idea for stakeholders in the patenting system, it appears. It ‘s a seed-funded company out of Palo Alto. They welcome inquiries from academics who wish to do research on their data set. Jim Moore — who thinks and works extensively on issues related to patents, software, and innovation — is saying very positive things about LegalForce and what its launch means.

This model makes me think of the argument that Kenneth Cukier put forward in The Economist (reg. req’d.) about a year ago, when he described the development of a market in patent rights — in Mr. Cukier’s view, a positive thing, on balance.  A podcast/interview with Mr. Cukier on this argument is still up, and it seems even The Economist is willing to let you have these thoughts for “free.”

What does it mean?  Surely it’s another sign — not unlike the PatentBoard’s section in the Wall Street Journal every Tuesday — that intellectual property rights have become an asset class.

More patenting in the RSS space

As a follow-up to earlier posts on this topic: Microsoft has filed a large-scale patent application related to RSS. (A news story here and Dave Winer’s post on it here.) Microsoft’s patent application, (published on December 21, 2006, filed on June 21, 2005 — though those may not be the most relevant facts in terms of priority), reads:

A content syndication platform, such as a web content syndication platform, manages, organizes and makes available for consumption content that is acquired from the Internet. In at least some embodiments, the platform can acquire and organize web content, and make such content available for consumption by many different types of applications. These applications may or may not necessarily understand the particular syndication format. An application program interface (API) exposes an object model which allows applications and users to easily accomplish many different tasks such as creating, reading, updating, deleting feeds and the like.

As the Guardian notes, Apple applied for RSS-related patents previously. Apple’s patent application, (with a publication date of December 29, 2005 and a filing date of April 13, 2005, i.e., filed and published prior to the MSFT patent application, but not necessarily first in line from an invention standpoint), reads in part:

Techniques for detecting, managing, and presenting syndication XML (feeds) are disclosed. In one embodiment, a web browser automatically determines that a web site is publishing feeds and notifies the user, who can then access the feed easily. In another embodiment, a browser determines that a web page or feed is advertising relationship XML, and displays information about the people identified in the relationship XML. In yet another embodiment, a browser determines that a file contains a feed and enables the user to view it in a user-friendly way. In yet another embodiment, feed state information is stored in a repository that is accessible by applications that are used to view the feed. In yet another embodiment, if a feed’s state changes, an application notifies the repository, and the state is updated. In yet another embodiment, a feed is parsed and stored in a structured way.”

So has Google, (with a publication date of July 28, 2005 and a filing date of December 31, 2003), with respect to including ads in RSS feeds:

Incorporating targeted ads into information in a syndicated, e.g., RSS, presentation format in an automated manner is described. Syndicated material e.g., corresponding to a news feed, search results or web logs, are combined with the output of an automated ad server. An automated ad server is used to provide keyword or content based targeted ads. The ads are incorporated directly into a syndicated feed, e.g., with individual ads becoming items within a particular channel of the feed. The resulting syndicated feed including targeted ads is supplied to the end user, e.g., as a set of search results or as a requested web log. Embedding of targeted ads into syndicated feeds and/or user response to the embedded ads is be tracked in an automated manner for billing. The automated targeting and insertion process allows ads to be kept current and timely while the original feed may be considerably older.”

Small companies, including Technorati, among many others (including Newsilike Media Group, Inc.; for my relevant disclosures, please see this page, updated periodically), have also filed applications against this back-drop. Jim Moore has a great deal of interesting and provocative things to say about this dynamic. Anyone interested in the development of Web 2.0, syndicated media, user-generated content, whatever-you-want-to-call-it, ought to pay attention to this emerging story.

Microsoft and Novell make a deal

In big interoperability news, Microsoft and Novell have entered into a deal to work together. Those are some interesting bedfellows. Much to unpack and understand.

One insight, from ArsTechnica’s report: “From Microsoft’s standpoint, virtualization is a good thing, especially when Windows is the host operating system. A close linkage between Microsoft and Novell reinforces Microsoft’s message to corporate types that Microsoft’s Windows Server and Virtual Server products are serious players, no matter what your mix of operating systems is.”

A copy of an announcement letter, which I received by e-mail, also reads in relevant part: “More importantly, Microsoft announced today that it will not assert its patents against individual, non-commercial developers. Novell has secured an irrevocable promise from Microsoft to allow individual and non-commercial contributors the freedom to continue open source development, free from any concern of Microsoft patent lawsuits. That’s right, Microsoft wants you to keep hacking.”

It brings to mind Bill Gates’ executive e-mail about interoperability by design in software development at Microsoft.

Microsoft's Open Specification Promise

Microsoft has just unveiled a new commitment not to assert certain rights against people who develop code based on specifications that Microsoft has developed. It’s called the Open Specification Promise. Warning: the announcement itself, at the top of the page, is written in legalese, though probably pretty readable legalese. The FAQs make things a lot clearer for non-lawyer readers.

The upshot of this announcement is that it will hopefully turn out to be a Very Good Thing. Bravo to the lawyers and the policy people who no doubt worked very hard on it; the promise obviously reflects a huge amount of careful and open-minded thinking. The notion is that Microsoft agrees unilaterally not to come after people based on IP rights that the company holds with respect to a series of widely-used web services, such as SOAP and various of its progeny, WSDL, and so forth (all listed mid-way down the announcement page). From a geeky-lawyerly perspective, one of the things I like a lot is the fact that the requirement of availing oneself of the promise is yourself NOT to participate voluntarily in a patent infringement suit related to the same specification — commitments of this sort could help to create an anti-patent-thicket. (Maybe, down the road, this aspect of the promise might not prove to be as great as I think it could be, but for now, from here, it looks very appealing, in a detente kind of way.)

Why could this promise help? Any promise of forbearance by a huge player — where they say they won’t stand in the way of your innovating on top of the work of others — is certainly positive. More than that, such a promise that is made “irrevocably” establishes a commitment on the part of the company for the long haul. Set aside the legal enforceability of such a promise, the idea has enormous rhetorical force and would make it very hard for the company to backtrack and to go in another direction. Of course, the idea no doubt has good business judgment behind it in an era of dramatic growth in terms of the open development of web services, including those related to security and to web 2.0 apps.

Why might it not be so great? Well, I think it is a great thing, and not just because we at the Berkman Center have been looking into interoperability, with support from Microsoft and others, and learning more about how companies are taking novel steps in this sort of direction. Its limitation might take a few forms, I suppose. The promise itself has limitations — it applies to some specifications and the promise extends only to some possible IPR-related claims, of course, but that seems natural, especially with such a first step. Other possible limitations: 1) Will developers pay attention to it, and in fact believe it? 2) Will this promise itself be interoperable with other such promises? I am reminded of Prof. Lessig’s speech at Wikimania last month, when he talked about interoperable licenses. Hopefully, others will either follow this lead or help developers to understand how this meshes with other similar promises of forebearance in the marketplace. 3) I don’t know well enough whether these are the right specifications to be included in such a promise. Are there other specs that developers would like to see opened up in this fashion?