NEW YORK – Patent lawyers from financial services companies and other firms this week said they are hopeful that change at the US Patent and Trademark Office will bring solutions to their concerns with the business method patents, application backlogs, patent quality problems and other issues.

With David Kappos of IBM likely to be confirmed soon as the head of the US Patent and Trademark Office, the lawyers said they hope he will bring more industry perspective to the patent process.

During a 28-29 July conference on patents and the financial services industry in New York, speakers discussed business method patents, transparency, the forthcoming US Supreme Court consideration of the Bilski case (on business method patents), IP strategies in today’s market climate, patent reform, and what a new Supreme Court justice may mean for business patents. The conference was part of the World Research Group Intellectual Property Management Series.

Although more regulation of the financial industry may be coming from Congress after the recent economic meltdown and Wall Street bailout, George Washington Law School professor John Fitzgerald Duffy said the demand for more transparency may be good for the patent system. Whereas many businesses have traditionally relied much on trade secrecy to protect ideas and innovations, companies can be more encouraged to patent their ideas. But there have to be strong enough protections in place first, he said.

Wayne Sobon, associate general counsel and IP director for Accenture, and founding member of NewEconomyPatents.org, said national patent systems have been wrestling with subject matter scope for decades, particularly since the advent of computer systems in the 1960s. Many of today’s gadgets – like the iPod or the Blackberry – are nothing more than a general purpose computer, which can do more things than every anticipated. For today’s financial, business method and software patents, the value lies in applying math and engineering to solve human-related problems, such as making a better smart-phone interface. Business methods include processes or products such as Amazon.com’s “1-click” ordering, for example, or ways of processing financial data.

One overarching complaint of many participants was shoddy patent quality – an underpinning of many other problems facing the patent system. Although the USPTO has been hiring more examiners, some participants said this creates problems of having newer examiners not being as thoroughly versed in certain areas, particularly business-method patents. Some rejections may be due to the fact that many examiners simply do not understand business-method patents, some said.

On the plus side, with the flailing economy and fewer legal jobs available, more patent examiners may be staying put. Patent pendency is a problem cited by both members of Congress and corporate America.

New leadership at the USPTO, particularly by someone who has been on the applicant side of the system may help make further improvements, speakers said.

“At the office, there’s great opportunity right now to address a lot of the concerns,” said Dana Robert Colarulli, director of government relations for the Intellectual Property Owners Association. Kappos “may bring some change – some change we want to see.”

Robert Glance, formerly the senior counsel of patents for Wells Fargo, said more resources need to go into establishing an effective prior art search system to reduce costly litigation. From a large bank perspective, getting hit with patent lawsuits means “there’s big money involved in doing these,” he said. The current state of the patent system – including the uncertainty surrounding it after Bilski – is often more of a cost to big corporations’ bottom lines. “It’s hard to make the case to executives that it’s [business method patent] a good investment,” Glance added.

On patent reform, a Senate bill (S. 515) is awaiting floor time, while Senate staffers work behind the scenes to iron out issues like post-grant opposition, inter partes reexamination and fee diversion. The House of Representatives is further behind in its progress. No real action is expected until autumn. Although many conference-goers agreed that the bills are far from satisfactory, they may be better than nothing, especially when it comes to providing more tools to attack “garbage patents,” decrease litigation costs, and tamping down on so-called “patent trolls.”

But much of the financial industry may be focusing attention on forthcoming reform of its industry by Congress after the recent Wall Street meltdown.

“There’s bigger fish to fry right now” than patent reform, Glance said.

Circuit Judge Arthur Gajarsa of the US Court of Appeals for the Federal Circuit also stressed the need for encouragement of innovation in whatever reform is enacted.

“We need innovation in this country … I think our patent system has helped” make the United States the most innovative country in the world,” Gajarsa said. But “I think we need to incentivise individuals. We need to provide the ability for patents to be strong, we need quality patents.”

Bilski Before Supreme Court

The Supreme Court is expected to consider In re Bilski this autumn (IPW, US Policy, 31 July 2009). The Federal Circuit last fall narrowed the scope of patentable subject matter amid an explosion of business method and computer-related patents. The Supreme Court will debate whether to uphold, among other things, the machine-or-transformation test laid out by the lower court. That test requires a claimed “process” to be associated with a particular machine, apparatus, or transformation of a specific thing into a different state, or different thing altogether.

Sobon said Bilski is almost working to the detriment of the United States when it comes to how the country is viewed by the rest of the world.

“Already some national governments are taking notice of the United States position, at least in the Bilski case,” Sobon said. “For so long, the United States has been taking a bit of a cudgel to other nations” to have strong IP systems, he added, but Bilski may make it seem like the United States is not as protective as it says it is.

Many conference-goers voiced hope that incoming Supreme Court nominee Sotomayor – expected to be confirmed by the full Senate next week – may be more friendly toward business patents than her predecessor, Justice David Souter, and could help contribute to an overturning of Bilski – or, at the very least, some tinkering with it. It is anticipated that the court will say the machine-or-transformation case is too rigid. Hordes of briefs are expected to be filed in the case.

Duffy said “it can only help” the court to have Sotomayor on the bench ruling on business-method patents.

“It can’t hurt Bilski. Instead of getting someone you know who has a very narrow view of patentable subject matter, you at least get someone who is a blank slate,” he said. Her past judicial experience shows “she’s somewhat open” to business arguments. Sotomayor served eight years in private practice and was a partner in the New York law firm of Pavia & Harcourt, where she focused on “intellectual property issues, international litigation and arbitration of commercial and commodity export trading cases.”

Gajarsa noted that Sotomayor “could be very, very strong … on this issue.”

“I think it’s going to be an interesting argument,” Gajarsa said. “I’m sure it’s going to be a full house.”