Is the Use of Patents Promoting the Creation of New Types of Securities?

By Fusco, Stefania | Santa Clara High Technology Law Journal, January 2009 | Go to article overview

Is the Use of Patents Promoting the Creation of New Types of Securities?


Fusco, Stefania, Santa Clara High Technology Law Journal


INTRODUCTION

In the last few years a renewed interest in the validity of patenting business methods has emerged. The issues appeared to have been settled in 1998 with the State Street Bank and Trust Co. v. Signature Financial Group, Inc. decision. (1) However, in 2008, the U.S. Court of Appeals for the Federal Circuit (Federal Circuit), following the more restrictive approach toward the patent system adopted recently by the Supreme Court, (2) has questioned the soundness of the policy of extending patent protection to this type of subject matter. The change of scenario happened explicitly in In re Bilski (3) when the Federal Circuit decided to rehear the case en banc and to openly solicit amicus briefs on whether State Street should be overruled. (4)

The issue under consideration revolves around an empirical question: does the patent system indeed foster innovation in business methods? If so, patent protection may not only be appropriate, but needed because society benefits from the increased knowledge engendered by this form of incentive. However, if an increase in the level of innovative business methods does not occur as a consequence of providing patent protection to them, State Street should be overruled, because society can be hurt by the grant of property rights that do not produce additional knowledge in return.

The focus of this paper is on innovation in financial methods (as a subset of business methods) and, more specifically, in the production of new types of securities over the past twenty-five years. Its purpose is to investigate whether after State Street there has been an increase in the level of innovation in new types of securities which could correlate to the adoption of patents to protect them.

Therefore, Section I of this paper is dedicated to a brief overview of the relevant cases on the patentability of business methods. Section II focuses on the studies of financial innovation which have been produced so far. Particular relevance has been given to those research studies that empirically analyze the effects produced by the recent interaction between the patent system and the financial industry. Section III describes the present research project and the method adopted to perform it. Finally, Section IV illustrates the data collected through the selected method and provides a full data analysis.

I. PATENTABLE SUBJECT MATTER

The Copyright and Patent Clause of the U.S. Constitution gives the Congress the power "to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." (5) This constitutional provision is complemented in relevant part by 35 U.S.C. [section] 101, which prescribes that patent protection must be granted to any applicant who "invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof...." (6) Together, the US Constitution and the Patent Act define what is known as patentable subject matter.

The language of these provisions suggests a very broad scope of patent protection which, however, is not unlimited. Indeed, three judicially created exceptions (7) contribute to providing the required guidance to determine what, under U.S. law, is considered to be "good patentable material." Specifically, these three exceptions include: laws of nature, natural phenomena, and abstract ideas. (8)

From time to time, significant debates have surrounded interpreting the meaning of the aforementioned provisions. Scholars and critics of the patent system have often speculated about determining the ultimate boundaries of patentable subject matter. A definitive answer to this issue has yet to emerge. The only unquestionable conclusion that one can derive from the overall scenario is that, primarily due to judicial intervention, these boundaries change over time, perhaps in relation to altered economic circumstances or to the emergence of new technologies. …

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