Financial Method Patents in the EPO

(IPRinfo 1/2008)

Mari Komulainen
M.Sc. (El. Eng.), M.Sc. (Econ. & Bus. Adm.)
Principal Examiner
National Board of Patents and Registration

Financial methods, as well as software and business methods, are patentable in the USA. The European Patent Convention (EPC) does not allow patenting of financial methods as such: they must have a technical character in addition to novelty and inventive step.

In my Master’s Thesis at the Helsinki School of Economics I studied the patentability of financial methods in Europe.
Originally, the purpose of the patent system was to protect only technical inventions, and this is still the case in most countries. Nevertheless, applicants increasingly try to patent non-technical inventions, such as financial methods, which are a subgroup of business method patents. Both these groups also include software patents, since usually computer programs are used to implement a financial or business method.

The interest to patent non-technical inventions increased significantly after the State Street decision in the USA in 1998. The U.S. Court allowed the patenting of business methods and software that lack technical character. The European Patent Office (EPO), however, only allows patenting of business methods and software if there is a technical contribution, i.e. the inventions add something new to the present level of technology.

The objective of my study was to examine how financial methods are patented in Europe. Do they involve enough technical character to be patentable? I analysed 378 European patent applications related to class G06Q 40/00B Exchange with priorities from 1989 to 2005. For a more thorough study I chose six applications concerning exchange innovations, which, having a less obvious technical character, might include a greater number of financial methods as such.

Patenting financial innovations raised doubts
Financial innovation represents something new that reduces costs or diminishes risks, or provides an improved way to satisfy participants’ demands. Previously, the IPR system was not considered important for financial innovation. Instead, many financial institutions have relied on trade secret protection even if it may have been difficult. Therefore, it has not been customary for the finance sector to invest in R&D or patenting.

Underlying technologies, such as telecommunication and data processing, as well as the unstable macroeconomic conditions have enhanced innovation in the financial services industry.

Previous research in the field of financial method and business method patents highlighted the alleged negative effects of those patents. Several authors were concerned about high social costs such as high litigation costs, high licensing costs, the misuse of patents, and a retarding effect on diffusion and cumulative innovation.

In other words, the patent system would deteriorate and obstacles to innovativeness would arise if low-quality and non-technical financial and business method patents were granted patent protection. On the other hand, the defenders claimed that financial and business methods should not be excluded from patent protection if they are novel and inventive.

USA active in applying for financial method patents
The number of Exchange-related applications at the EPO increased suddenly after the State Street decision, but by 2004 it had fallen to the same level as before 1998. It seems that the applicants wanted to test if financial methods can be patented also in Europe. The decrease in the number of applications is likely due to the strategy of the EPO – the applicants of financial method patents received “no search” statements from the EPO and interpreted it as a signal that these methods are not patentable in Europe.

As expected, the largest number of applications came from the USA. Since financial methods are patentable in the USA, it is natural that applicants there have the routine and experience necessary for patenting those methods. Also, the highly developed financial services industry in the USA generates more innovations.

In my dataset, almost three quarters of the 378 applications were from the USA, 6% were filed straight to the EPO with no priority application, and 6% came from Japan where financial methods are patentable, too.

The top-three applicants – of the total of 220 – were the financial software providers eSpeed, EBS Group, and Trading Technologies International. Out of the top-ten, six companies were US-based, and four from Europe. Interestingly, the top-ten applicants had filed only 118 applications in total, whereas the other applicants had filed 260 applications.

Few financial methods were patentable in the EPO
In this dataset of 378 published Exchange-related applications, the patentability was low: the granting rate was only 4%. However, 5% of the applications did have a statement that the invention is novel and involves an inventive step, i.e. they were waiting for a grant.

The low granting rate is probably due to the nature of financial methods: it is difficult to identify a technical problem and its non-obvious solution in them. Bars to novelty or inventive step were found in 23% of applications.

In addition, the EPO or a PCT authority had found the invention not patentable in 61% of the applications. This means that the EPO, under Articles 52(2) and 52(3) EPC, had refused to do a search, or a PCT authority had announced that the invention does not include a patentable invention under Article 17(2)(a)(i) PCT and Rule 39 PCT.

Since 215 applications are still pending, it is possible that those percentages will change. For example, a “no search” decision can be contested by the applicant, i.e. he may disagree with the EPO and amend the claims if he considers that there is a technical solution in the invention.

In addition to the low granting rate, the opposition rate for granted patents was as high as 45%, whereas the EPO average opposition rate is 5%. It can be concluded that companies actively monitor the patents granted to their competitors and are ready to file an opposition if the grounds for the patent are not sufficient in their opinion.

EPO admitted technicality, not the inventive step
The six applications of the dataset that I studied more thoroughly were selected so that they might enlighten the EPO policy of patentable and not patentable financial innovations related to Exchange, i.e. they were chosen from granted patents and applications with oppositions and/or appeals.

It became clear that the EPO emphasized that the patent should contain technical features which solve a technical problem and which as such involve an inventive step.

Usually, the applicants have the skill to draft the claims to appear technical so that at least some technical features can be found even if the technical problem to be solved may be questionable. The case study indicated that the EPO more easily accepts the technicality of the invention after amendments to the claims, but the grounds for refusing or revoking the application were based on the lack of an inventive step.

Further research needed
The focus of academic publications in this field has been on U.S. patents, and studying European patent applications has played a minor role. Financial method patent studies in particular have been in minority, because they have made a part of the wider groups of business methods and software.

Because the patenting of financial methods, business methods and software is such a controversial issue in Europe, more empirical studies are needed to enlighten their patentability and the definition of technical character.

Source:
Komulainen, Mari: Financial Method Patents in Europe – An Empirical Study of European Patent Applications related to Exchange, Master’s Thesis, Helsinki School of Economics, 2007.

“State Street Bank decision”: United States Court of Appeals for the Federal Circuit, July 23, 1998. State Street Bank & Trust Company v. Signature Financial Group, Inc. [Reference 149 F.3d 1368 (Fed. Cir. 1998), 47 USPQ2d 1596]
Opinions by the United States Court of Appeals for the Federal Circuit can be found on the web site of Georgetown University Library.