Business Method Patents: Characters in Search of Legal Protection Giuseppina Claudia Coniglione A thesis submitted to the University of London for the degree of Doctor of Philosophy Centre for Commercial Law Studies (CCLS) Queen Mary, University of London United Kingdom September 2017 I, Giuseppina Claudia Coniglione, confirm that the research included within this thesis is my own work or that where it has been carried out in collaboration with, or supported by others, that this is duly acknowl- edged below and my contribution indicated. Previously published material is also acknowledged below. I attest that I have exercised reasonable care to ensure that the work is original, and does not to the best of my knowledge break any UK law, infringe any third party’s copyright or other Intellectual Property Right, or contain any confidential material. I accept that the College has the right to use plagiarism detection soft- ware to check the electronic version of the thesis. I confirm that this thesis has not been previously submitted for the award of a degree by this or any other university. The copyright of this thesis rests with the author and no quotation from it or information derived from it may be published without the prior written consent of the author. Signature: Date: 22 September 2017 1 Abstract The aim of this research is to investigate the phenomenon of business method patents in Europe. Not only the issue of patentability of busi- ness methods is discussed, but also the possible strategic use of these patents and patent applications is explored. For this purpose, a data set has been specifically created, including all the applications submitted in the class G06Q (namely data processing systems or methods, specially adapted for administrative, commercial, financial, managerial, supervi- sion or forecasting purpose) at the EPO. A quantitative analysis of the data has been performed, revealing the huge volume of business meth- od patent applications (more than 34,000) filed at the EPO over the last 20 years. Equally, a continued interest of large companies in patenting business methods has been demonstrated. However, these empirical observations seem to be inconsistent with both the legal framework (most notably Article 52 EPC 2000 establishes that business methods are not patentable) and the low rate of acceptance of applications (only a small fraction of patents have eventually been granted) in the category of business methods at the EPO. All of this supports the hypothesis that firm demand for business method patent protection can be driven by strategic purposes, often resulting in inefficiencies in the market and reducing in competition. Hence, the research presented intends to high- light overcoming inefficiencies, as well as possible antidotes provided by the EU competition law. On this purpose, some of the common practic- es, such as hold-up or tacit collusion, are identified. At the same time, the beneficial effects of mutual licensing agreements are highlighted. In particular, the research examines the European legal framework on the technology transfer agreements. Their effectiveness in contrasting busi- ness method patents’ strategic uses is analysed, particularly regarding reduction on competition. Based on this, the thesis argues ultimately that a wider opening in granting patent protection to business methods will not result in discouraging new entries in the field. 2 Acknowledgments “Kindness and good na- ture unite men more effectually and with great- er strength than any agreements whatsoever, since thereby the en- gagements of men's hearts become stronger than the bond and obliga- tion of words.” Thomas More, Utopia This thesis would have not been possible without the direct and indirect contribution of many people. First of all, I shall thank my CCLS super- visor, Prof. Chris Reed. I am honoured for the guidance he has given me during the last four years. I want also to thank all the people at CCLS for the warm welcome I have received since the very beginning of my PhD. A very big thank to all the people that have made my life in the UK great and pleasant, especially to Jane and Anthony, who have adopted us. I would like to thank my colleagues in Italy, especially Vincenzo, for their support. Last but not least, with great emotion, I wish to thank my family: my children, Elisa and Giulio, and my husband Vito, who has read this thesis with patience. 3 Table of Contents Abstract Acknowledgements Table of Contents Introduction Chapter I: What is a business method? 1. Introduction 2. Business methods: a definition 3. How the story began: the non-patentability of business methods 3.1 A historical overview 3.2 Arguments against the patentability of business methods 3.2.1 Business methods as intangible abstractions 3.2.2 Business methods as mental processes 3.3 What was ruled without being ruled: The US Courts’ decisions 3.4 What was stated without being stated: The EPO Board of Appeal’s decisions 3.4.1 A starting point: the UK and the German case law 3.4.2 The EPO Board of Appeal case law 3.5 Concluding remarks 4. A fresh start: e-business methods Chapter II: How business methods became patentable? 1. Introduction 2. A hesitant start 2.1 The US Supreme Court patent-eligibility trilogy 2.2 The Vicom case and the technical-contribution approach 4 3. The turning point 3.1 Towards the State Street decision 3.2 The Pension Benefit System decision and the “any-hardware” ap- proach 3.3 Harmonization 3.4 Summing up 4. Doubts 4.1 The Bilski case 4.2 The EPO Enlarged Board decision 5. Alice vs. CLS Bank and the future of business method patentability 6. Some conclusions Chapter III: What economic and social effects can be ex- pected from patenting business methods? 1. Introduction 2. Possible economic rationales behind patent protection 2.1 Incentive 2.2 Disclosure 2.3 Signaling 2.4 Transaction 3. Invention, innovation and business method patents 4. Detrimental effects of business method patents 4.1 Restraining competition vs. spurring innovation 4.2 Quantity vs. quality 4.3 Monopoly vs. open innovation 4.4 Implementation vs. exploitation 5. Patent thickets: a different point of view 6. Some conclusions Chapter IV: Who applies for business method patents? 1. Introduction 2. Socio–legal researches on business method patents 3. Business method patents and the category G06Q 5 4. Data 5. How many patent applications in the category G06Q? 6. Who applies for business method patents at the EPO? 7. Is there any strategy behind business method patents? 8. Some conclusions Chapter V: A strategic approach behind patenting busi- ness methods? 1. Introduction 2. Patent portfolio 2.1 Patent portfolio: a definition 2.2 Patent portfolio as “super patents” 2.3 Patent portfolio and competition 2.4 Strategic uses of patent portfolios 2.5 Some conclusions 3. Patent ticket 3.1 Patent ticket: a definition 3.2 Main features of patent thickets 3.3 Measuring patent thickets and strategic patenting 3.4 Factors contributing to the growth of patent thickets 3.5 Strategic uses of patent thickets 3.6 Why patent thickets are a problem for firms? 3.7 Some conclusion Chapter VI: What evidence of patent thicketing in busi- ness method patents at the EPO? 1. Introduction 2. The key players in the world of business methods at the EPO 3. How the leading players behave 4. Are the leading players really interested in business method patents? 5. Patent citations and network analysis 6. The network of firm citations 7. Some conclusions 6 Chapter VII: What inefficiencies created by business- method patent thickets? 1. Introduction 2. Strategic patenting, inefficiencies and competition in computer im- plemented inventions 3. Ill effects of patent thickets in business method patents 3.1 Less investment in research 3.2 Low quality patents 3.3 Asymmetry in bargaining positions and information 3.4 Hold up 3.5 “Raising rivals’ costs” schemes 3.6 Tacit collusion 4. Some conclusions Chapter VIII: Can mutual licensing agreements prevent patent-thicket inefficiencies in business methods? 1. Introduction 2. Licensing agreements, technology transfer agreements and mutual li- censing 2.1 Licensing agreements 2.2 Technology transfer agreements 2.3 Mutual licensing agreements 3. Market efficiency and mutual licensing 4. The US debate on beneficial effects of mutual licensing agreements 4.1 The hostile approach 4.2 The turning point 5. Key issues in recognising beneficial effects of mutual licensing agreements 5.1 Substitute and complementary patents 5.2 Essential and blocking patents 6. Some conclusions 7 Chapter IX: The EU competition law, mutual licensing agreements and business method patents 1. Introduction 2. The interaction between IP rights and competition law 2.1 Article 101 TFEU 2.2 Article 101(3) TFEU 2.3 Article 101 TFEU and pro-competitive effects in mutual licensing agreements 3. The Technology Transfer Block Exemption Regulation 3.1 At the beginning of the TTBER 3.2 A new approach to the TTBER 3.3 The EU Regulation n.316/2014 of 21 March 2014 3.4 The TT Guidelines of 28 March 2014 4. The EU competition law, ill effects of patent thickets and business method patents 4.1 Clauses resulting in “raising rivals’ costs scheme” or “hold up” a. Running royalties b. “All product sales” royalties c. Disproportionate royalties 4.2 Clauses resulting in tacit collusion a. Price fixing b. Market sharing agreements b.1 Exclusive clauses b.2 Sale restriction clauses 5. Some conclusions Conclusions 8 Introduction In 1998, a relatively unknown company filed a patent application at the EPO seeking patent protection for a “Method and system for placing a purchase order via a communications network”.1 Admittedly, the inven- tion was not easy to be classified.