Financial Services Using New Business Methods Enabled by Software Patentable in the US -- With Extraterritorial Effects

(PRWEB) March 27, 2006 -- One might fairly question what good is there owning a U.S. patent when one’s business is not located in the United States. First, having a U.S. patent enables the owner to prevent sale of the product in the United States, a significant portion of the market for almost any international business. Such a sale would be infringement based on 35 U.S.C. §271(a)-(c).

In other words, if the patent includes claims to a computer encoded with the software, then importation or sale or merely offering to sell the computer with the software by an unauthorized third party in the U.S. would infringe the patent. If the patent includes claims written to a method encoded in a computer-readable medium, then the patent owner could prevent unauthorized importation into the United States of the program stored on a disk, for example. If the invention is a process or method, the patent owner can prevent the practice of the claimed process in the United States.

This means that U.S. competitors of the patent owner could be denied the right to practice the invention, thus giving the patent holder a comparative advantage commensurate with the exclusive right to practice the technical advantages of the protected invention. Further, not being able to access the U.S. market may provide de facto worldwide protection in so far as economies of scale or some other business factor, such as the location of major clients in the U.S., play a significant or controlling role in a competitor's decision as to whether to deploy a similar system.

Regarding patented processes, title 35 U.S.C. § 271(g) states the following:

Whoever without authority imports into the United States or offers to sell, sells, or uses within the United States a product which is made by a process patented in the United States shall be liable as an infringer, if the importation, offer to sell, sale, or use of the product occurs during the term of such process patent . . .

This means that process patent protection is extraterritorial is a sense in that anything created by the patented process may not be used or sold in the U.S.     Therefore, by having the rights evidenced by title to a U.S. patent, one may exclude access to the U.S. market of the information which is the end result (i.e., the « product ») of a patented method of doing business. For instance, if Signature had been successful in obtaining process patent protection for the HUB AND SPOKE(TM) system, they could prevent access of the output of this process to American mutual funds or American mutual fund clients from all sources but their own. If the Internet is contemplated as a means of distributing information which is the «product» of a process or method claim, then, given the as-yet-unresolved question as to whether offering information on the Internet from a server outside the United States is an infringement of a U.S. patent, this makes such distribution by anyone but the patent owner a risky endeavor. Thus, only the patent owner can distribute the « product » of the protected method without such a risk.

At a recent European conference attended by international patent professionals, one practitioner announced a claim drafting strategy for the protection of software for use on the Internet which will raise significant extraterritorial effects for national patents.     The strategy, if adopted in the United States, will essentially prohibit the implementation and use by unauthorized third parties of software on the Internet that is patented in the United States, unless measures are taken by the third party to deny access to U.S. users. This strategy is implemented by obtaining a patent claim which provides protection for a signal encoded with the new software. This suggestion received contemporaneous approval by Mr. Anton Holzwarth, Director of the European Patent Office who further stated that the word « medium » when used in a claim, should be interpreted broadly to include a signal where possible.

Therefore, if a signal carrying the computer program is transmitted to the United States and a valid patent for the software having a claim to the « a signal encoded with the computer program . . . » has been obtained, the patent owner or exclusive licensee may take action for patent infringement in the United States. A defense that the infringer has no means of controlling access to the program from countries in which the software is patented will not likely be effective because some semi-private networks on the Internet provide their users with the ability to deny access from users attempting to gain access from selected countries.

Further, 35 U.S.C. §271(b) states that whoever «actively induces infringement of a patent shall be liable as an infringer». There is no stipulation that this person need be within the territorial boundaries of the U.S. when this inducement takes place. This means that the executive director of a bank who calls someone anywhere in the world for the purpose of enticing or pressuring another person into infringing the patent may also be adjudged an infringer. This means as well that if a partial « signal » is sent into the United States, which, when combined with a signal generated by a user in the United States, reproduces the protected software signal (as described in the preceding paragraph), then the party sending the partial signal may be liable for contributory infringement.

Therefore, in a global financial system, being able to practice the invention to the exclusion of U.S. competitors may represent a significant comparative advantage to the patent owner, whether based in the U.S. or overseas.

Conclusions and Implications:

Concerning the extraterritorial effects of U.S. patents, these simply cannot be ignored in a global business environment, particularly in a global Internet environment. Therefore, a U.S. software patent search should be performed before committing to any long-term or capital-intensive software development project. Further, U.S. patent protection should be sought for any technology which might afford a patent holder a global competitive advantage. In addition, in the rare case that the U.S. market is not of interest, yet implementation of a method patented by someone else in the U.S. on a portion of the Internet is of interest, consideration should be given to blocking access to the information product of the method for those who would try to access the information from the U.S. or any other country in which others have obtained patent protection.

For questions on patenting business methods, fill out our contact form on our website at www.moetteli.com.

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