Philippine backdoor to US patent; EPO/PCT gossip; DMCA harsh?

Some more random patent news.  But first, in yesterday's PATNEWS, at the
end of a letter from the CEO of Cognex, I noted that Cognex and other
companies had sued the Lemelson foundation over barcode patents.  The
lawsuit was filed in 1998, not 1988 as I had inadvertently written.

                              ====================

The following bit of gossip was posted to some list I am on.  It suggests
that Americans can use the Philippine Patent Office as a backdoor to get
a weaker US patent.  I have not checked out the details, but it seems to
be an interesting oddity of US patent law.

>
>The identification of the below MPEP section 1711 apparently came from 
a
>US PTO Examiner (anonymous) who is upset about diversion of examining
>services through the Philippines.
>
>(Aha, that mystical part of the American Inventors Protection Act of 1999
>appears to have been more developed than we realized -- the one about
>the Director being allowed to farm off work to foreign entities. It appears
>a deal had already been made and codified in MPEP section 1711.)
>
>      http://www.bitlaw.com/source/mpep/1711.html
>
>The trick paragraph is near the bottom:
>
>      "Where the application originates in the Philippines Patent Office
>      and is subsequently filed in the U.S. Patent and Trademark Office,
>      a similar procedure as outlined above, consonant with U.S. law, will
>      be followed."
>
>It essentially says a company can file in the Philippines first, get the
>Philippines Patent office to OK the application, and then the US examiner 

>is bound to give comity to the examination results of the Philippines
>patent office.
>
>(Of course a US inventor would have to get a foreign filing license before
>embarking on filing in the Philippines prior to filing in the USA. But 
for
>important enough of a case, what's money got to do with it, got to do with 

>it?)

However, a PATNEWS reader objected as follows:


Greg,

On the Phillipines issue: the poster is wrong.  

>... and then the US examiner 
is bound to give comity to the examination
>... results of the Philippines patent office.

Not so:  the MPEP says that after the US examiner reviews the case (in a
Philippine to US case):

>The Philippines Office will then make their own complete office action
>based upon the claims as amended with U.S. Patent and Trademark Office,
>performing whatever checks desired and searching for copending
>interfering applications

Thus, the complementary is also true:  if you first file in the Philippines
and get examination there, the US examiner will make his "own complete
office action", "performing whatever checks desired..."  Thus the examiner
is not "bound by comity".  


                              ====================

I have been conveying a series of email messages gossiping about EPO plans
to alter its handling of PCT applications. Frankly the issue itself doesn't
really interest me, but the associated gossip is interesting to read.  Time
for me to find a European correspondent for PATNEWS.  Here is the latest
bit:

                                      ====

Greg,

Firstly, the EPO's PCT proposals mentioned in your pages (available at
www.wipo.int/pct/en/index.htm)  are very interesting. They go further
than anything that has been mentioned to examiners at the EPO by
management. As the American attorney seemed to fear, the proposals seem
to indicate that EPO management is determined to destroy the PCT as
it currently stands.

As you know by now, the EPO intended to introduce a "PCT light" proceedure
from 1st July.

Recently, Munich directors had a meeting with the president. They asked 
him
7 questions.  Number 4 was "There is a lack of trust developing between
middle and top management due to a lack of clear and consistent top
management actions. What measures would you propose to restore trust
between middle and top management?"

On  25 June (5 days before implementation of "PCT light"), the following
note was sent out by higher management:

    >  "To all Directors and Managers in PD 22
    >
    >  Please be informed that in the MAC-meeting last Friday it was
    >  decided to postpone the implementation of the new PCT-II procedure
    >  until 01.01.02.  Additional information will follow."

Suffice to say, no additional information has (yet) followed!  Quite how
this meets the directors' request for consistent management action is
not quite clear. What it means is also unclear. Presumably, we'll carry
on processing PCT applications as normal. Given that no new PCT files
have been allocated for some time, applicants should prepare themselves
for a deluge of (late) written opinions!

This, taken with other management actions (for example "full BEST
implementation") should be enough to ensure that the EPO grants fewer
than 10,000 European Patents in 2002! The remaining files will just lie
around unprocessed for the next several years.

Greg, you might not know this, but uptil grant, the EPO keeps all renewal
fees. After grant, the renewal fees are split between the EPO and the
national (ie British, German, French etc) offices. The presidents of
these national offices sit in the Administrative Council (the equivalent
of our board of directors). Since they are about to experience a serious
drop in their collective income (and the EPO a corresponding rise!),
they might be interested to note that "goin broke" is an anagram of Ingo
Kober!

The council meets this week in Munich. These meetings will be accompanied
by strikes and demonstrations. The council might like to draw the obvious
conclusion from the above and do what even the most docile board of
directors would have done at any company by now ...

Annonymous Examiner


                              ====================

Lee Hollaar, a professor of computer science, and a member of the IEEE
Intellectual Property committee, recently made the following interesting
observation regarding DMCA:

At 09:15 PM, A.C.G. wrote:
> Lee argues that it becomes "more sensible," the less effective the
> technical means used by the owner of the underlying intellectual
> property.  The fact of the matter is that what Lee wrote is fundamentally
> true -- the DMCA exists NOT TO protect copyrighted subject matter, but
> to protect "encryption schemes."  This protection is applied regardless
> of its effectiveness, originality, novelty or otherwise.  The protection
> is draconian in nature, includes criminal penalties and statutory
> remedies, with lopsided procedural remedies and with indefinite term.

This is nothing new with the DMCA.  From House Rpt. 105-551 Part 1 - WIPO
COPYRIGHT TREATIES IMPLEMENTATION AND ON-LINE COPYRIGHT INFRINGEMENT
LIABILITY LIMITATION, the report on the DMCA:

   Similar laws have been enacted in related contexts. See, e.g.,
   17 U.S.C. 1002(a) (prohibiting the import, manufacture, or distribution
   of digital audio recording equipment lacking specified characteristics
   and prohibiting the import, manufacture, or distribution of any device,
   or the offer to perform any service, the primary purpose or effect of
   which is to circumvent the serial copy management system required for
   digital audio equipment); 47 U.S.C. 553(a)(2) (prohibiting the
   manufacture or distribution of equipment intended for the unauthorized
   reception of cable television service); 47 U.S.C. 605(e)(4) (prohibiting
   the manufacture, assembly, import, and sale of equipment used in the
   unauthorized decryption of satellite cable programming.)

And if you think the DMCA provisions are draconian, here's the law on
satellite decryption devices:

    Any person who manufactures, assembles, modifies, imports, exports,
    sells, or distributes any electronic, mechanical, or other device or
    equipment, knowing or having reason to know that the device or equipment
    is primarily of assistance in the unauthorized decryption of satellite
    cable programming, or direct-to-home satellite services, or is intended
    for any other activity prohibited by subsection (a) of this section,
    shall be fined not more than $500,000 for each violation, or imprisoned
    for not more than 5 years for each violation, or both. For purposes
    of all penalties and remedies established for violations of this
    paragraph, the prohibited activity established herein as it applies
    to each such device shall be deemed a separate violation.

Yes, that says $500,000 and five years in prison PER DEVICE!  The penalties
for cable television aren't as bad: only $50,000 and two years for the
first offense, and $100,000 and five years for a subsequent offense.

Aimster sues RIAA; Brazil; IBM/Microsoft; Rogan; EFF and music

    --  Aimster sues the RIAA
    --  Brazil AIDS chief denounces Bush position on drug patents
    --  French patent official criticizes US software patent quality
    --  IBM and Microsoft fighting each other, using Linux as a weapon
    --  Ex-congressman Rogan to be next Patent Commissioner?
    --  EFF Releases Public Music License to Promote Audio Freedom
    --  Corporate patent lawyers respond to ex-examiners complaints

I am off for a few days until mid-next week.

Greg Aharonian
Internet Patent News Service

                              ====================

    --  AIMSTER SUES THE RIAA

Aimster is a less centralized version of Napster that came out of America
Online.  It has received a "cease and desist" letter from the Recording
Industry Association of America.  As a counterattack, Aimster has sued
the RIAA, asking the US District Court for the Northern District of New
York to declare that Aimster is not infringing copyrights.

                              ====================

    --  BRAZIL AIDS CHIEF DENOUNCES BUSH POSITION ON DRUG PATENTS

Dr. Paulo Roberto Teixeira, director of Brazil's AIDS program, said that
a report released Monday on patent protection issued by the United States
Trade Representative was "unacceptable".  He said that they new criticism
and the implied threat of trade action against Brazil "is a clear change
in the attitude and the position of the American government."  The USTR
report said Brazil's government had chosen a broad applications of its
patent law, leaving open the possibility that the measure would also be
applied to other goods not related to health.  Thursday New York Times
has an article with more comments.

                              ====================

    --  FRENCH PATENT OFFICIAL CRITICIZES US SOFTWARE PATENT QUALITY


Greg

Your readers might be interested to know that there was a European Union
conference on Counterfeiting & Piracy in Stockholm, April 24/25. One session
was chaired by Daniel Hangard, General Director of the Institut National 
de
la Propriete Industrielle (Nat Inst for Industrial Property, France). He
took a question about the registration of software patents, the point being
(from the questioner) that maths is not patentable - you know these
arguments.

Hangard is, I believe, heavily involved in discussions of patentability
issues with the EPO and other patent offices. In the ensuing discussion
he and the questioner were extremely scathing about the quality of the US
PTO and its habit of issuing patents with no prior art and otherwise of
questionable validity.

I'm not entering the debate: just passing on that at a high-level EU
conference the perception of the US PTO was that it is extremely inefficient
and amateur.

                              ====================

    --  IBM AND MICROSOFT FIGHTING EACH OTHER, USING LINUX AS A WEAPON

Thursday's New York Times reports that a Microsoft official, Craig Mundie,
will be giving a speech arguing that one aspect of the open source model,
known as the General Public License (GPL), is a potential trap that
undercuts the commercial software business and mirrors some of the worst
practices of dot-com businesses, in which goods were given away in an
effort to attract visitors to Web sites.  GPL requires that any software
using source code already covered by the licensing agreement must become
available for free distribution.  Quoting Mr. Mundie, "This viral aspect
of the GPL poses a threat to the intellectual property of any organization
making use of it.", and "The goal of GPL is sweeping up all of the
intellectual property that has been contributed.  That creates many
problems downstream, many of which haven't come home to roost yet."

What's worrying Microsoft to attack the publicly popular Open Source and
GPL movements?   IBM.  IBM.  IBM.   IBM is putting billions into Open
Source, which could be a very powerful attack on Microsoft's operating
system dominance.  More than most, Microsoft is well aware of IBM
embracing software technologies that work against IBM in order to 
suffocate 
them (Ada and IBM's defense activities at the time; Software
Patent Institute and IBM's software patenting activities).  They probably
figure that IBM will embrace Linux long enough to hurt Microsoft
substantially, and then come out with proprietary enhancements (supported
by workarounds of the various Open Source licenses) that can crush the
Open Source customers to any degree IBM feels like.

This could explain Microsoft's actions.  What I don't understand is why
the Linux and Open Source community aren't more wary of IBM's presence
in their industry.  IBM has always done what is in its best interests -
it could care less about Linux and Open Source.  Heck, I wouldn't be
surprised if they are filing patents now for their proprietary
enhancements to Linux and Open Source that they could release in the
future (knowing quite well that GPL and other such licenses probably
can be rendered impotent in front of the courts, because in the end GPL
has its prior art problems).

But Microsoft probably won't so speculate, IBM won't so confess, and the
Linux too clueless.

                              ====================

    --  EX-CONGRESSMAN ROGAN TO BE NEXT PATENT COMMISSIONER?

A Tech Law Daily Journal email reports that Washington gossip is that
former Rep. James Rogan (R-CA) might be the next Commissioner of the
US Patent and Trademark Office.  Rogan was a member of the House
Judiciary Subcommittee that oversees the PTO.

Rogan has to be approved by the Senate, which is split 50-50 Republican
and Democrat.  Democrats might not be thrilled to appoint someone who
was part of the House Republican group that pushed for President Clinton's
impeachment.  If Rogan's qualifications for the position are not overly
extensive (anyone know his qualifications), it could give the Democrats
ammunition to fight his appointment.  Of course, if Rogan can use his
Republican ties to help get Congress to stop stealing money from PTO fees,
that would be worth a lot.

                              ====================

    --  EFF RELEASES PUBLIC MUSIC LICENSE TO PROMOTE AUDIO FREEDOM


    Artists and Audiences Strike New Deal to Protect Public Commons

    For Immediate Release - April 21, 2001

    Contact:

    Robin Gross, EFF Staff Attorney for Intellectual Property,
    robin@eff.org

    New York -- The Electronic Frontier Foundation (EFF) introduced a new
    tool designed to empower both artists and audiences at the New York
    Music & Internet Expo on April 21, 2001. As part of its Campaign for
    Audiovisual Free Expression (CAFE), EFF's Open Audio License allows
    anyone to freely copy, share, perform, and adapt music in exchange for
    providing credit to the artist for her gift to humanity.

    EFF's Open Audio License enables musicians and society to build upon
    and share creative expression creating a rich public commons. Artists
    who chose to release a song under the public license can build their
    reputation by offering unfettered access to their orginal works in
    exchange for recognition. Open Audio works are designated as "(O)" by
    the author and may be lawfully traded on file-sharing systems such as
    Napster or played by traditional and Web DJs royalty-free. Numerous
    musicians have traditionally taken advantage of super-distribution of
    their music, such as the Grateful Dead, a band that attributes much 
of
    its success to its encouragement of fans to freely copy and share
    their music.

    "EFF's Open Audience License hopes to use the power of copyright to
    protect copyright's ultimate objectives a vibrant and accessible
    public domain, incentivising creativity, and promoting the free
    exchange of ideas," said EFF Staff Attorney for Intellectual Property
    Robin Gross. "EFF's public music license strikes a new deal between
    creators and the public, granting more freedoms to the public to
    experience music while ensuring the artist is compensated."

    The online civil liberties group launched CAFE in June 1999 to address
    complex social and legal issues raised by new technological measures
    for protecting intellectual property. EFF believes that new
    intellectual property laws and technologies harm - nearly eliminate 
-
    the public's fair use rights, and make criminals of people doing
    perfectly legitimate things.

    To read EFF's Open Audio License & supporting documents, see:
    http://www.eff.org/IP/Open_licenses

    For more information on EFF's CAFE campaign, see:
    http://www.eff.org/cafe

                              ====================

    --  CORPORATE PATENT LAWYERS RESPOND TO EX-EXAMINERS COMPLAINTS


Greg,

	I have had a bad day at work and just have to reply to that
ex-Examiner's letter.
  
	Mostly, I can't comment on conditions within the USPTO from an
employees' (or even an obviously disgruntled junior employees') perspective,
but I can comment on the interaction between Examiners and Attorneys/Agents.
By and large, most of my interactions with Examiners have been positive
and constructive.  Given the apparent rampant job dissatisfaction that
exists in the USPTO, I am surprised that the number of negative encounters
is not higher.  (The worst was an Examiner who insisted that, in a claim
for a touchscreen system, a mouse, not even hinted at in the specification,
had to be recited or the claim was inoperative. "Can't have an icon without
a mouse!"  To give him some credit the bastard stuck to his guns for over
a year and through two attorneys, costing the inventor at least 8K in
additional legal fees.  I get pissed off just thinking about it).


	A) Regarding the filing of a complete IDS, I just want to say, YOU
WANT THE REFERENCES? YOU CAN'T HANDLE THE REFERENCES.  The Inventors for
the company that I work for are fairly adept at providing relevant prior
art in both patent and publication form.  In a recent case we spent a
significant amount of time and money to search and gather a fairly complete
set of references.  The IDS would have even satisfied your elevated
standards. To my frustration, I just received the following response from
the PTO (at least in this section the typos are PTO's not mine):

    "1. Patent applicant has duty not just to disclose pertinent prior
    art references but to make the disclosure in such a was as not to
    'bury' it within other disclosures of less relevant prior art; see.....

    2. Significantly, an applicant's duty of disclosure of material and
    information is not satisfied by presenting a patent examiner with "a
    mountain of largely irrelevant [material] from which he is presumed 
    
to have been able, with his expertise and with adequate time, to have
    found the critical [material].  It ignores real world conditions
    under which the examiners work.' Rohm & Hass Co. v. Crystal Chemical
    Co..."

	How the hell am I supposed to respond to that?  We obviously thought
that each and every citation was relevant, if not material.  Is it my fault
that the Examiner can't see the relevance or, as I expect, just doesn't
want to read that much stuff today?  The Examiner has clouded, perhaps
irreversibly, the prosecution with an inference that we are somehow being
underhanded in this matter.  <sarcasm on> Really makes me want to spend 
the
time and provide a lengthy researched IDS in other cases.<sarcasm off>
BTW, getting back to my first point -- with reference to my P.S. below -- 

the Examiner found additional art and applied it.

	B) Your ex-Examiner states "To get to the point, I feel an applicant
should be held accountable for what the applicant knows."  News flash we
can be and are held accountable for what we "know."  What we aren't held
accountable for (at least until you have your way) is what we don't know.

	C) Your ex-Examiner states that 10% of the Attorneys and Agents are
unethical because 1)they fail to provide search results ; 2) Misquote the
MPEP; and 3)they mischaracterize references.  Presumably he believes that
90% of the attorneys are O.K., which is better than the national average,
so I will keep my mouth shut on this matter.

	D) Your ex-Examiner states: "Face it, for an applicant to file an
application, the bulk of the expense is in the preparation and prosecution
(or lack thereof) of the application, not in the filing fee."  Misleading.

Based on years of drafting for clients in the electronic and computer arts
and recently quite a bit of experience on the paying side in a fairly
technical art (medical imaging devices), the average App costs anywhere 
from
6K to 15K to have prepared, with most falling in the 8k-9k range (damn, 
just
last year it was in the 6.5k-8k range).  Filing fees are typically between
1k and 2k (especially in light of Festo).  Taking as average the numbers
8.5k and 1.5k  we get that filing fees are 15% (more last year) of the cost.

Another way of looking at it is for every 6 applications, the PTO fees would
pay for the drafting of another application.  That's a fairly large chunk.
BTW, I don't begrudge the PTO its fees, but I do begrudge the DOD, EPA,
etc.. these fees.

	E) Your ex-Examiner scoffs at the suggestion that his job "is to
help [applicants] get a patent."  Unfortunately, for him that is exactly
how the Commissioner of Patents (his ultimate employer) characterized his
job a couple of years ago when the PTO actually started to listening to
customer complaints.  Sorry don't have a copy or cite for you just yet.
I am sure that others remember the initiative.  

	Sorry to vent so much,

P.S.	We conduct formal professional searches for some readily apparent
immediately valuable cases, but are thinking about expanding this to every
case in light of FESTO.  In almost every case where we paid for a search,
the Examiner found and applied some other references that we did not uncover
in our expensive search (we estimate that such searches add about 15% to
cost of filing case).  Admittedly, some of the references that were applied
were mischaracterized by the *gasp* Patent Examiner, but still it is a
frustrating experience.  So in your opinion, would a better/different
searcher give better results?  Do you know of a searcher willing to perform
USPTO searches and guarantee that the Examiner won't find something that
he/she missed.  What should we expect to pay for such a search?

                                   ==========

plus comments from another lawyer:

Greg, here are my comments (anonymous of course) about the previous patnews:

1)  Raise the patent fees to the applicants: I would be in favour of raising 

the fees only if the Congress kept their ruddy hands off it.  I would use 

the fee increase to pay for English language lessons for examiners and to 

teach how to write (in English of course).  This would of course entail 

paying for better quality control.  I would also penalize examiners with
a pay cut for mistakes and dedicate the penalty to those who catch the
mistake.
    So, the PE or SPE could get rich off the shit the lower examiner 
produces.  
I would use the fees to raise the salaries and make the PTO a 
place to work for a career, not as a stepping stone for Examiners to go
to night law school then defect to patent firms across the street.  I
would also use the fee increase to mandate the costs of providing foreign 

translations into English of foreign art cited by the Examiner, who 
conveniently 
fails to send an English copy of it.


2)  Staff OED:  with who?  the same career civil servants that make life 

difficult.  The same people who cannot figure out how to administer a stupid 

exam?  The same people who make up convenient rules on how to practice 

without the regulatory authority to do so?  Staffing OED is a joke.


3)  Since most examiners have been retained by the Office they are difficult 

to get rid of b/c of Civil Service regulations:  I disagree of putting the 

dredges into the PCT bureau.  First, PCT applications deserve just as equal 

examination (in Chapt. II) as any US application.  Many people use the PCT 

to obtain examination knowing that foreign PTO's will defer to the USPTO 

(please don't laugh).  I think the dredges should be thrown in the Potomac.


4)  Another proposal is to make the patent bar extremely difficult to pass:
this examiner must have passed using the very difficult method of filing 
the examiner waiver after the years of practice.  This guy has never taken 
the exam.  Otherwise he would know that it is difficult indeed.  And it 
is difficult for several reasons.  First, new rule changes appear on the 
exam, yet the cheeky OED personnel have failed to verify the question.  
Thus, yet another question is open to multiple interpretations.  Also, 
the PTO model answer is often so wrong, it's as wrong as saying that China 
gave the spy plane back immediately.  Thus, the PTO makes its hard and 
difficult because they just don't care about giving a proper test question.  
The other thing that makes it hard is that the format keeps ruddy changing.  
Stick with the same programme!  What i think is that the test should be 
offered inmultiple parts over the course of time.

Do dictionaries define "patent" incorrectly?

    But first, the 25 Sept 2000 issue of Electronic News, page 18, has an
article titled on patent litigation titled "Kill all the lawyers?  Changes
mean more lawsuits, but is the sky really falling?".
    Second, anyone have one of those cute scientific toys, a glass bowl
filled with water, some ferns and a fish or shrimp that remains all
self-contained, inspired by NASA work, to demonstrate a self-contained
ecological system.  I need one from the late 1980s, early 1990s.  Contact
me if you have one with a date on it.

                                      ====

    This might seem like a strange question over 100 years into the US
patent system, but do dictionaries define the word "patent" correctly?
I admit, I never thought to check myself over the years, but recently
I have been analyzing the semantics of the language of CAFC decisions
and casually glanced at the definition for "patent".

    I first turned to the dictionary I usually use, Webster's Encyclopedic
Unabridged Dictionary of the English Language, which had the following as
one of the definitions of "patent":

    patent - the exclusive right granted by a government to an
             inventor to manufacture, use or sell an invention
             for a certain number of years

(listed below are definitions from other major dictionaries sold at most
bookstores and schools).  What I don't like about this definition is that
it seems misleading in that it implies an absolute right that the patent
assignee does not actually possess.  While you have an absolute (well
mostly) to exclude everyone else from making, using or selling your new
invention, you don't necessarily have the right to do so yourself once you
get the patent.  Instead, you have to seek permission (in theory) from
anyone who has a patent you are infringing.  So to me, the exclusive right
is more that of stopping others than permitting the inventor to exploit.

    Turning to the source, Black's Law Dictionary, we have the definition:

    patent - the exclusive right to make, use or sell an invention for
             a specified period, granted by the federal government to
             the inventor if the device or process is novel, useful and
             non-obvious.

Again, the same problem as the Webster definition (though nice to see the
"novel, useful and non-obvious" phrase).  However in an added explanation
to the "patent" entry in Black's, we see a quote from "An IP Law Primer"
by Kintner and Lahr:

             ... the inventor is granted the right for a fixed period
             of time to exclude others from making, using or selling
             the defined invention in the US.

It seems to me that this explanation should be the leading definition of
"patent" since it doesn't imply as much any exploitation rights obtained
by the patent assignee.  It makes it more clear what the patent assignee
has more of an absolute right to do, stop someone else from acting.

Since it doesn't take that many more words to include this latter
explanation, especially if you make it the leading part of the definition,
it seems to me that the patent community should draft a more accurate and
concise definition of "patent" and send it the various dictionary compilers
and publishers for future use.  In fact, it would be a nice project for
the PTO Public Relations office to get some PTO lawyers to come up with
a definition, and then send it out on PTO stationary to the dictionary
people.

If people want to send me definitions, I will summarize them and forward
them on to the PTO.

I know this is a fairly trivial issue, but dictionaries are widespread,
especially used by students, and their exposure to patent information is
meager enough.  What they do see, why not make it more accurate?


                          Other definitions of "patent"

Microsoft Encarta Dictionary
.. an exclusive right officially granted by a government to make or sell
an invention

American Heritage Dictionary
.. a grant made by a government that confers upon the creator of an
invention the sole right to make, use and sell that invention for a
prior of time

Cambridge Encyclopedia Dictionary
.. a formal document which gives inventors the exclusive right for a 
period 
of years to exploit the product or process they have created,
either by operating it themselves or by licensing it to others to use
it.

Shorter Oxford OED Dictionary
.. a license from a government to an individual or organization conferring
for a set period the sole right to make, use or sell some process or
invention

Merriam-Webster Collegiate Dictionary
.. a writing securing to an inventor for a term of years the exclusive
right to make, use or sell an invention

Worst software patent dependent claim?

A quickee PATNEWS you can ponder over a few beers as you head into the weekend. Patent 5,838,966 - 

3. A system as in claim 2 wherein said plurality of database files comprises one hundred and seven database files. 

107?  

P.S. I got a lot of comments about writing abstracts, and will be summarizing next week. Send more if you have them. Contrary to rumor, the reason Priceline got kicked out of the Better Business Bureau was not because of the quality of their patent claims or abstracts. Hey, maybe I should form the Better Claims Bureau.

Wall Street Journal exaggerates crappy mutual fund patent

Wednesday's Wall Street Journal, front page of the Money & Investing section (page C1), has a big article on how a couple of self funded guys invented and patented a way of trading open end mutual funds, and are now going around Wall Street demanding royalties, hoping to make tens of millions of dollars a year licensing their patent to the stock exchanges, with ex-Commissioner Lehman on the board for a touch of credibility. 
The Greg analysis:  IN THEIR DREAMS WITH THIS CRAP

Yet another example of an ill-searched patent application, ill-searched  at the Patent Office, and ill-searched when the patent infringement lawsuit was prepared (they are suing AMEX). And frankly for such a long worded article, the WSJ article was just as ill-researched - the reporter did no investigation into the technical merits of the claimed invention such as searching the economic literature databases, nor called anyone on Wall Street or at NYU/Columbia. How could such a major newspaper be used as a public relations tool for some this company?

[GREG note: anyone looking to bust the DE Technologies about to be issued e-commerce patent, another patent that recently got a really long article in the Wall Street Journal, please contact me. I am trying to pool some monies to do the invalidity search. The Sept 25 issue of the National Law Journal, page B8, has a more balanced article.]

The patent in question is patent 5,806,048 (sister is 6,088,685, and speaking of these numbers, is it that hard for reporters the Journal and Times to look up the numbers of these patents to save their readers a bit of time when they go to the PTO Web site to retreive the patent?), titled "Open end mutual fund securitization process", filed in October 1995. The two inventors are Kenneth Kiron and Kevin Bander (reported on in the Journal article), assigned to their company Mopex.

What's wrong with the patent? Once again, a dearth of non-patent prior art, in this case, from the wide body of literature from the economics field from the mid-1970s to mid-1990s dealing with derivatives and portfolios. Other than a few mass media articles on stock trading, the prior art cited reflects none of the advanced academic work published for over 20 years prior to the filing of the patent. For example, since 1974 a journal has been published, "Journal of Portfolio Management", which has all sorts of papers covering topics like this patent, a journal neither the inventors nor examiner knew about or cited because of their lack of experience in this field. Any patent dealing with portfolio management not citing at least one article from the Journal of Portfolio Management, should a priori be presumed to be invalid.

To see this, let's look at claim 1:

1. An electronic data processing method for administering a financial product having a fixed number of shares over a predetermined period of time, so that the financial product can be traded as a security, the price of which can be determined in real time on the basis of information about a plurality of securities, comprising the steps of: 

a) directing a computer processor to select from said plurality of securities a selected portfolio of securities, the risk/return performance of which over a predetermined period of time meets a predefined benchmark performance, including: 
i) providing  a database of information on securities available for trading; 

ii) electronically processing information in said provided database to identify securities, the asset size of which is above a predetermined threshold; and 

iii) electronically searching the identified securities to select a subset of N securities, the risk/return performance of which is superior to the risk/return performance of all identified securities; 
b) receiving information on each of said plurality of securities in an electronic data format; 

c) storing at least the received information on each security in the selected portfolio in a computer memory; 
d) electronically processing said stored information to determine in real time the price of the financial product on the basis of a user-defined method of weighing the select subset of N securities; and 

e) outputting an indication of the in real time determined price of the financial product in humanly readable format. 

Now clauses 
b), c), d) and e) are neither novel nor unobvious, little more than techniques to downloading price information on a basket of securities, adding them up using a weighting scheme, and displaying the result - utterly totally obvious where it isn't non-novel. Wall Street has been manipulating stock price data for decades, in many cases in products sold in magazines like Technical Analysis of Stocks and Commodities.

This leaves as the essential aspect of the claim, clause a), which seems to me to be little more than a financial derivative product that tracks the performance of some mutual fund or market index (financial products that have known risk/reward ratios, returns, and volatilites). Indeed,  in clause a), subclauses i) and ii) are neither novel nor unobvious, leaving as the essential element of claim 1), that being subclause iii)

iii) electronically searching the identified securities to select a subset of N securities, the risk/return performance of which is superior to the risk/return performance of all identified securities; 

And that subclause is not novel. The idea of using a basket of securities or other financial products to create something synthetic is very well known. For example, there was a paper published in the 1980s that used a basket of futures contracts (which are traded daily) to track the Consumer Price Index (which is published monthly). The idea here was if you could choose the right combination of futures contracts to create a derivative that highly correlated with the Consumer Price Index, than you use the underlying futures contracts to predict the Consumer Price Index, say a few days before the next month's CPI was published (you would want to do this because changes in the CPI move the stocks and indexes in somewhat predictable ways, so if you have a good prediction for where the CPI was going, you could pay some options or futures contracts and make a nice profit). With the same mathematics, you could make a synthetic CPI by using stock prices (for example, instead of using the Heating Oil futures contract, you could use the stocks of oil companies), and if you can do this to the CPI, you can do it to other indexes and/or mutual funds, since all of these financial instruments can be described with the same set of statistical models with different parameters.

Another set of papers published in the 1980s proposed a super-portfolio, a basket of stocks recalculated every day that could out-perform any index you choose. This 1980s paper would make obvious all such synthetic optimized portfolios, and the mathematics in this paper is so advanced I doubt highly either of the inventors of the '048 patent would understand it. The paper is a super-generalization of the '048 patent, published years earlier, making the patent not novel. If you are wondering whatever happened to this 1980s effort, it was great in theory, but had a few implementation problems. One was that it required a multi-dimensional integral where the number of dimensions was equal to the number of stocks in your portfolio - 100 stocks meant a 100-dimensional integral, which is a very complicated numerical integration requirement (in fact, a patent issued to do nothing more than calculate these types of multidimensional integrals). Another problem, which plagues many theoretical trading systems, was transactions costs.

In light of such papers, and many more (yes, the actual references will cost whoever has to bust this patent :-) that were published mostly by academic economists in the 1980s and early 1990s, this patent faces big obviousness problems where it isn't novel. And given the minimal length specification (and minimal use of mathematics), and the invocation of obvious electronic stock information and trading techniques, it is easy to believe that the inventors were generally unaware of much of what was going on in the fields of portfolio analysis and electronic trading, and didn't bother to do any research to find out. One of the inventors, Ken Kiron, lives in New York City, and could have easily visiter either NYU or Columbia, the libraries and faculty of which have much materials in this area. The other inventor, Kevin Bander, lives in Chicago, home of the economics departments of the University of Chicago and Northwestern.

The Wall Street Journal ends with a quote from ex-Commissioner Lehman:
"Mopex is a perfect illustration of how patents protect the small and the weak in the marketplace". No, these Mopex patents are a perfect illustration of how many small inventors are just as apathetic and cavalier about getting quality patents as are (large) companies. If he didn't advise them to do an invalidity search before they starting suing companies on Wall Street, he is wasting their time and money being on their board.

This patent is so bad, I suspect the lawyers involved will just bust it themselves. Whoops, maybe I shouldn't have said that. I know, this patent is truly bad, but CALL finding the prior GREG art will be AHARONIAN tricky, something TO you will DO need an THE expert searcher for BUST.

Litigation rates/costs; How slow PTO?  

Sunday's San Francisco Examiner/Chronicle reports that about 100 technology intellectual property cases were filed in federal court in Northern California in 1996. That is up 10 to 15 percent from 1995 and up about 35 percent from 1986. If these case include all IP (patents, trademarks, copyrights), then the figure doesn't sound that high, nor does the growth rate seem high.

Of course, at any level, IP litigation can get expensive. The AIPLA in 1996 did a survey of the costs of obtaining and enforcing IP rights. Here are some of their figures:

OBTAINING IP RIGHTS - MEDIAN COSTS

$ 298 Trademark declaration
$ 302 Trademark renewal
$ 900 Patent search, analysis and opinion
$ 3725 Minimal complexity utility patent application
$ 7500 Computer hardware/software patent application
$ 1102 Average amendment/argument (response to Office Action)
$ 1819 Amendment/argument for computer hardware/software
$ 3000 Appeal brief (Board of Patent Appeals and Interferences)
$ 200 Copyright registration

ENFORCING IP RIGHTS - MEDIAN COSTS
Discovery Trial
$ 601,000 $1,201,000 Patent infringement suit
$ 150,000 $ 249,000 Trademark infringement suit
$ 99,000 $ 180,000 Copyright infringement suit
$ 202,000 $ 399,000 Trade secret misappropriation suit

PATENT INFRINGEMENT SUIT COSTS THROUGH:
Discovery Trial
$ 200,000 $ 301,000 Less than $1 million at risk
$ 450,000 $ 748,000 $1 to $10 million at risk
$1,208,000 $1,993,000 $10 to $100 million at risk
$1,983,000 $3,042,000 more than $100 million at risk
Time to raise my rates.

Some comments from patent lawyers on the Internet complaining about the increasing delays being experienced with the Patent Office.

I called the PTO to see why I did not yet receive a filing receipt for an application filed in April. I was told that there is a back log of 4-5 months just to issue a filing receipt. Is it my imagination, or has the pace of the PTO drastically slowed in the past year or so?
and
I have an application that I filed in June 1995, most of the claims were allowed on the first office action in July of 1996. I cancelled the non-allowed claims and responded to the office action within days. I got a notice of allowance and issue fee due in January 1997. I paid the issue fee on the day I got the notice. The patent still has not issued. This is close to best case. The drawings were all acceptable. The examiner agreed that the prior art I submitted was the closest art and my claims were patentable over that art. No amendments were ever made and we are at 26 months and counting.
       and
I had one of our secretaries call for a status check on a file that appeared to have at least "fallen thru the cracks" somewhere. She got through to the Examiner that had it on his desk. He said *yes* it was on his desk, but it would it would "probably be a year" before he got to it! He told her that even if they got him more help, he would still have to train the help, so it would still be a very long time (I actually got an Office Action about 6 months after his dismal projection, which was almost 23 months from it's filing date.)