As technology develops rapidly, new types of inventions that have never existed before are increasing. As the world enters the IT era, new software continues to be created, and various business models are being created one after another according to economic and industrial trends. In this trend, we wonder whether software and business models can be protected by intellectual property rights or as patents. In this issue, we will look at application trends and legal protection methods for *software and *business models that are difficult to protect under the traditional categories of intellectual property rights.
*Software: The opposite of computer hardware, it performs the function of instructions by giving instructions directly to the hardware or providing input to other software.
*Business Model (BM): A
model of what value is created for the company's business, how to deliver it,
and how to make profit.
Software and Business Model (BM)
Since the beginning of the 21st century, 90%
of research and development subjects have been software-related. Inventions
implemented by computer can now be found in almost every field of technology.
This aspect is also reflected in patent applications, and most
computer-implemented inventions are based on software. The development of
software dates back to the 1960s. In the past, software development was
primarily focused on mainframe and minicomputer computing, but today it is
further divided into software development for personal, general purpose, and
embedded computing.
*Mainframe: A computer that can support numerous users, applications, and device, large computers process complex tasks such as statistical data, financial computing tasks, and enterprise resource management.
Can it be protected by a patent?
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In the past, software was primarily protected legally through copyright, but now many companies are trying to protect their software inventions through patents. For example, SAP Software Group established its own patent department in 1998. As of May 2001, SAP held four software-related patents. Through this period, the impact of patents became increasingly important in international market competition.
The start of the software patent boom occurred in 1992, thanks to a groundbreaking court decision that led to the *Freeman-Walter-Abele test (two-step test), which made it possible to patent software in the United States. In 1998, this test was repudiated in the *State Street Bank court decision in the United States, which made mathematical algorithms patentable if they led to something concrete and substantive in their results, rather than being simple algorithms. This ruling marked the beginning of the era of business method (BM) patents in the United States. In fact, this ruling led to a rapid increase in the number of patent applications and granted patents for software and business methods worldwide in the 2000s. We will discuss the two-step test in detail below along with the Alice decision.
*Freeman-Walter-Abele
test: The first step examines whether the claim directly or indirectly recites
a mathematical algorithm. If it does not contain a mathematical algorithm, it
may be subject to a patent. The second step is, if it contains a mathematical
algorithm, it is to determine whether the algorithm is applied in any manner to
a physical element or process step or it is subject to protection in some other
respect other than the algorithm. If these two tests are met, the invention is
eligible for a patent.
*State Street Bank court decision: If the claim only claims the mathematical algorithm itself without any application, patentability should be denied. However, it is eligible for protection by a patent if the mathematical algorithm described in the claim is useful, concrete and tangible results.
Computer-Implemented Inventions (CII)
In the European Patent Office, software is considered ambiguous as a patent. This is because software refers to a list of programs written in a programming language to implement an algorithm, but it also refers to code loaded on a computer-based device and may include accompanying documentation. Therefore, in place of this ambiguous term, the concept of *computer-implemented invention is introduced. A computer-implemented invention refers to one or more features implemented entirely or in part through a computer program using a computer, computer network, or other programmable device.
For a computer-implemented invention to be
patentable, a technical problem must be solved in a new and non-obvious way.
Additionally, a computer-implemented invention must be novel to be patentable,
involve a creative step, and be capable of industrial application. Furthermore,
in protecting a patent, the basic rule is that it must apply to an invention in
any technical field.
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Patentability according to appellate precedent
EPO precedents state that the control or
execution of a technical process is not excluded from patentability, regardless
of how it is implemented in hardware or software. Cases have shown that patentability
should not be rejected on the grounds that a computer program is involved, as
whether a process is executed via special circuits or a computer program may
depend on economic and technical factors.
*Computer-implemented inventions (CIIs) that are protected by patents include computer programs and computer program products. Subject matter claimed in this form may be patentable if the computer program, when run on or loaded into a computer, is capable of producing 'additional technical effects' beyond the 'ordinary' physical interaction between the computer program and the computer hardware which is running. The usual physical effects of program execution, such as electrical flow, are not enough to give technical properties to a computer program, and additional technical effects are needed.
Additionally, plans, rules, and methods (BMs) for doing business cannot be patented as methods of doing business. However, new methods that solve technical problems rather than simply administrative functions can actually be patented.
Things that do not apply to inventions by
each country’s patent office
Below is a list of items that are not
recognized as inventions by the patent offices of each country. Looking at
items that do not constitute inventions, we can see why software and business
models require examination and legal/institutional considerations from various
perspectives to be recognized as patentable. This is because they’re an item
that does not qualify as an invention but has technical creativity, so patent
eligibility must be judged more deeply.
Alice decision and second step test
The 2014 Alice decision has implications for
how we view the patentability of business methods. This ruling was issued in a
legal dispute between Alice Corp. and CLS Bank, in which the U.S. Supreme Court
at the time did not recognize the patentability of a method of securing
intermediary payments (electronic escrow). By ruling Alice's patent invalid,
the court introduced a new procedure called the two-step test to determine
patent eligibility.
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| EPO's two-step approach for evaluating computer-implemented invention (CII) |
This test first determines whether the
claimed invention relates to an abstract idea, natural phenomenon, natural law,
mathematical formula, or similar abstract concept. If it applies to a listed
concept, the court will take a second step to examine how the claimed invention
embodies the abstract concept and whether it includes a creative concept.
According to the Alice test, a claimed invention is patentable only if it
involves a natural phenomenon or abstract idea along with a creative concept or
creativity. If it has that level of creativity, the claim can be registered as
a patent.
The USPTO’s examiner group for Business Methods responded quickly to the Alice decision. The number of finance-related patents allowed has been reduced to 10% of its pre-Alice decision. The Patent Appeals and Appeals Board reacted in a similar way. We found that only about 20% of appeals of business method rejections by patent examiners resulted in the results being overturned by the appeals board. This can be seen as meaning that it was not easy to have enough creativity to be recognized as a patent.
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| Decrease in patents related to business methods compared to software after the Alice decision |
So far, we have looked at the patent perspective on software and business models. After the 4th Industrial Revolution, the need to determine the patent suitability of various IT technologies, including software, and business models is expected to gradually increase. Since securing patent rights is the first step toward technology protection and industrial development, we hope that laws and systems to protect new types of inventions can be systematically developed and reorganized. Furthermore, we hope that new types of inventions will be protected by law and they will lead to the competitiveness of companies and individuals and become a driving force for industrial development.
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In the text, contents related to ‘Software and Business Model (BM)’,
‘Computer-implemented inventions’, ‘Patentability based on appellate
precedents’, ‘Things that do not qualify as inventions by each country’s patent
office’, and ‘Alice decision and two-step test’ is excerpted and referenced
from 'Patent management: Protecting Intellectual Property and Innovation 2021',
Oliver Gassmann, Martin A. Bader, Mark James Thompson, Springer. Other contents
were written by WIPS.
The explanation of the ‘Freeman-Walter-Abele test’ and the ‘State
Street Bank court ruling’ are excerpted and referenced from ‘The validation of
a Business Model as an Invention’ by Duhyeong Lee
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