Financial Update (Second Quarter 2003)


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Business Method Patents Take Center Stage at Atlanta Fed Conference

By Clifford Stanford, senior counsel

2003 Financial Markets Conference

Coinciding with the rise of the Internet as a new business channel, a landmark legal case in 1998, State Street Bank & Trust Co. v. Signature Financial Group, Inc., provided the impetus for what may be a new “patent flood.” Financial services firms realized the potential competitive value of patents on their business methods and software. These firms also recognized that their businesses are not immune from costly patent infringement lawsuits and are threatened by new competitors, including nontraditional players such as technology firms.

A recent Federal Reserve Bank of Atlanta conference focused on the emergence and legitimization of business method patents in the United States and the effects these developments are having on financial services firms and innovation. At the Atlanta Fed’s 2003 Financial Markets Conference, co-sponsored with the University of North Carolina School of Law, Federal Reserve Chairman Alan Greenspan outlined dilemmas that “bedevil” economists and jurists alike: How does one strike the right balance “between the interests of those who innovate and those who would benefit from innovation”? Does the law correctly calibrate the rewards embodied in intellectual property rights? What are the societal and economic costs of intellectual property rights? Furthermore, does the U.S. system of intellectual property law facilitate a proper delineation of the “metes and bounds” of property rights in ideas?

Greenspan’s discussion provided the foundation to a lively debate among participants, who comprised an international mix of economists, legal academics, jurists, policymakers, practicing lawyers, bankers and technologists.

The State Street case declared that the mere fact an innovation is a method of doing business, or is software designed to accomplish business goals, does not mean that such an innovation is not patentable under U.S. law. (Patents issued by the U.S. Patent and Trademark Office grant the holder the right to exclude others from making, using or selling the patented invention for 20 years from the filing date.)

Although the discussion at the conference was wide ranging, four key themes were prominent. First, how does the U.S. patent system compare to those of other countries? Second, how have business method and software patents affected the competitive behavior and strategy of financial services firms? Third, are patents a boon or bane for financial services innovation? And finally, what are the policy implications of business method patents?

The prevailing view among participants was that business methods and software patents in the United States will remain. Although lessons can be drawn from the experiences of other industries, much empirical study remains to be done on patents’ effects on financial services innovation, competition and business strategy.

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