1. Claimable Aspects of Software-Implemented Business Methods AndrewChin.com April 3, 2003 Patent Pending

2. Claimable Aspects of Software- Implemented Business Methods 2 Problems Validity –Neglect of non-patent prior art –Diverse classification of analogous patent prior art Valuation –Rapid product innovation –Claims directed toward novel features as seen from inventor’s perspective –Can we do better?

3. Formal vs. Informal Claim Limitations

4. Claimable Aspects of Software- Implemented Business Methods 4 Formal Claim Limitations Logical/mathematical constraints on software design and implementation Programmer’s perspective

5. Claimable Aspects of Software- Implemented Business Methods 5 Examples “calculating a difference between two summations of corresponding multiple samplings; and determining whether an absolute value of the calculated difference equals or exceeds a predetermined value” “said linear combination has weighting coefficients that depend upon the sine and cosine of said horizontal angle along said preselected path”

6. Claimable Aspects of Software- Implemented Business Methods 6 Informal Claim Limitations Steps of a user-system interaction User’s perspective

7. Claimable Aspects of Software- Implemented Business Methods 7 Examples “facilitating annuity purchaser entry of quote solicitation information used by the annuity providers to establish a quote for an annuity” “transacting a purchase of the product in response to a user approving the purchase price” “maintaining a purchase history for the product”

8. Claimable Aspects of Software- Implemented Business Methods 8 The Waterfall Model Application Description Requirements Specification System Design Product Initiation Analysis Design Implementation Operations and Management Specification Design

9. Claimable Aspects of Software- Implemented Business Methods 9 The Waterfall Model Application Description Requirements Specification System Design Product Initiation Analysis Design Implementation Operations and Management Informal Formal

10. Validity Issues Relating to Formal Claims

11. Claimable Aspects of Software- Implemented Business Methods 11 Turing Machines Tape Head Alphabet States Next-move function

12. Claimable Aspects of Software- Implemented Business Methods 12 Church’s Thesis Every machine computation is equivalent to a Turing machine computation –Not provable, but every known digital computer and model of computation satisfies this thesis

13. Claimable Aspects of Software- Implemented Business Methods 13 Universal Turing Machine A Turing machine U that can simulate the behavior of any Turing machine Turing machine specifications can be uniquely numbered: T 1, T 2, T 3, … U reads the serial number i of a Turing machine on its tape, then simulates the behavior of T i

14. Claimable Aspects of Software- Implemented Business Methods 14 Obviousness: General Standard A claimed invention is obvious if its differences from the prior art “are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which the claimed subject matter pertains.” –35 U.S.C. § 103

15. Claimable Aspects of Software- Implemented Business Methods 15 Utility: General Standard To have patentable utility, it is not necessary for an invention to improve upon the performance of the prior art –Lowell v. Lewis (1817)

16. Claimable Aspects of Software- Implemented Business Methods 16 Obviousness: Genus-Species Analysis A claimed species is nonobvious over an encompassing prior art genus only if it has a unique and unexpected advantage or property that distinguishes it over the unclaimed species.

17. Claimable Aspects of Software- Implemented Business Methods 17 Implications of the Universal Turing Machine U is a genus prior art reference –Species are T 1, T 2, T 3, … –No significant utility Every formal claim encompasses (an equivalent) of some T i Software prior art references disclose subgenii of U –For U to be analogous, it may be sufficient for U to contain T i –Genus-species analysis

18. Claimable Aspects of Software- Implemented Business Methods 18 Responses Be prepared to show that the claimed invention has a “unique and unexpected advantage or property” over the prior art Include at least one field-of-use limitation in every claim Include limitations directed to algorithmic efficiency

19. Valuation Issues Relating to Informal Claims

20. Claimable Aspects of Software- Implemented Business Methods 20 The Patent Right Exclusionary, not exclusive Monopoly power: “the power to control prices or exclude competition” Few patents actually confer monopoly power

21. Claimable Aspects of Software- Implemented Business Methods 21 Question Can a patent claim be drafted with a view to acquiring monopoly power in some market? –Annotated patent claims –Rigorous product market definition Limited precedent in caselaw, secondary literature

22. Claimable Aspects of Software- Implemented Business Methods 22 Antitrust Analysis Define a relevant market –Product market –Geographic market Determine whether the defendant has monopoly power in the relevant market –Market share –Entry barriers

23. Claimable Aspects of Software- Implemented Business Methods 23 Defining a Product Market Consider both demand-side and supply- side substitution that would occur if a hypothetical monopolist raised the (quality-adjusted) price of A –Demand-side: Enough consumers would switch from A to B to make the price increase unprofitable B belongs in product market –Supply-side: Another producer would switch from making C to making A, thereby making the price increase unprofitable The producer may be identified as a potential entrant in the product market

24. Claimable Aspects of Software- Implemented Business Methods 24 Overall Approach Initial product –Goal: Define the product market in which the initial product competes –Usually: Defendant’s product Demand-side substitutes –Identify other products that are similar enough to the initial product to take away business Supply-side substitutes –Identify other producers that are capable of producing and selling the initial product (or a substitute) in sufficient volume to take away business

25. Claimable Aspects of Software- Implemented Business Methods 25 Demand-Side Substitutes “The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it.” -- Brown Shoe, 370 U.S. 294, 325 (1962) (emphasis added)

26. Claimable Aspects of Software- Implemented Business Methods 26 Demand-Side Substitutes “Interchangeability of use and cross-elasticity of demand are not to be used to obscure competition but to ‘recognize competition where, in fact, competition exists.’” -- Continental Can Co., 378 U.S. 441, 453 (citing Brown Shoe) Product market boundaries must track areas of effective competition; i.e., “meaningful competition between interchangeable [products].” -- Id. at 456.

27. Claimable Aspects of Software- Implemented Business Methods 27 Demand-Side Substitutes A relevant product market defined around a particular product consists of products that offer: –“[functional] interchangeab[ility]” and –“meaningful competition” with the given product.

28. Claimable Aspects of Software- Implemented Business Methods 28 Defining a Software Product Typically, a software product is defined by reference to accompanying software (code) and documentation, and consists essentially of: 1.A limited license to use the software (according to the documentation); and 2.Technological access to the software for all licensed uses (according to the documentation) It does not include the software itself!

29. Claimable Aspects of Software- Implemented Business Methods 29 Technological Preconditions Use of a software product is subject to technological preconditions –Documented preconditions License and documentation –Material undocumented preconditions Product reviews Testing

30. Claimable Aspects of Software- Implemented Business Methods 30 Consumer Demand for Software Products A consumer uses a software product by interacting with a system. Each interaction embodies a specific user purpose. Consumer demand for software products = Consumer demand for user-system interactions

31. Claimable Aspects of Software- Implemented Business Methods 31 Software Products and System Behavior Software can “call on” any other software that is already present on the system Every Windows program calls on code in the Windows OS (via the Windows API)

32. Claimable Aspects of Software- Implemented Business Methods 32 Software Products and System Behavior A software product supports interactions between the user and the system by allowing the system: –to execute software that accompanies the software product, and –to call on other software that does not accompany the software product. During each supported interaction, the software product assumes responsibility for the system’s behavior by specifying which software is to be executed by the system.

33. Claimable Aspects of Software- Implemented Business Methods 33 Intuition Software products are constituted by processes, not code. Microsoft, FOF 184: “[T]he functionalities of a software product are not provided by the mere presence of code on a computer’s hard drive. For software code to provide any functionalities at all the code must be loaded into the computer’s dynamic memory and executed.”

34. Claimable Aspects of Software- Implemented Business Methods 34 Types of End Uses for Software Products Supporting user-system interactions (“tasks”) –Specifying which software is to run on the system in order to produce system behavior that supports a task –Subject to documented preconditions, conferring sufficient legal rights and technological access to run this software Preinstalling accompanying “platform software” that is required as a documented precondition for the use of another software product

35. Claimable Aspects of Software- Implemented Business Methods 35 Functional Interchangeability Two software products are functionally interchangeable for a desired user purpose if each product supports the same interaction that, when viewed from the user’s perspective, embodies the desired user purpose.

36. Claimable Aspects of Software- Implemented Business Methods 36 Describing an Interaction In the determination of whether software products are functionally interchangeable, the interaction should be characterized so as to: embody a specific user purpose be technology- and implementation- independent be complete, meaningful, and well- defined from the user’s perspective

37. Claimable Aspects of Software- Implemented Business Methods 37 Price Discrimination Markets Captive (i.e. inframarginal) buyers to whom a significant price increase could be profitably targeted A group of buyers who would not switch to other products, or find other sources, in sufficient numbers to make a “small but significant and nontransitory” price increase unprofitable –Horizontal Merger Guidelines, § 1.12

38. Claimable Aspects of Software- Implemented Business Methods 38 Price Discrimination Possible when: –Seller can identify captive buyers, –Seller can discriminate against captive buyers, and –Arbitrage is difficult

39. Claimable Aspects of Software- Implemented Business Methods 39 End Use Segments “Relevant product markets consisting of a particular use or uses” –Horizontal Merger Guidelines § 1.12 Most common type of price discrimination markets

40. Claimable Aspects of Software- Implemented Business Methods 40 (Quality-Adjusted) Price Discrimination Markets Premised on the ability of a (hypothetical) monopolist to discriminate against a particular end use by reducing the quality of its product significantly below a competitive level with respect to that end use only –Difficult with physical products –Relatively easy with information products Digital rights management

41. Claimable Aspects of Software- Implemented Business Methods 41 End Use Segments Should specifically account for some specific part of the consumer demand for the product Complete, meaningful, and well-defined in the eyes of consumers Not functionally interchangeable with any other end use or combination of end uses –Nobel Scientific Industries

42. Claimable Aspects of Software- Implemented Business Methods 42 Essential Use Cases An essential use case is a structured narrative … comprising a simplified, generalized, abstract, technology-free and implementation- independent description of one task or interaction that is complete, meaningful, and well-defined from the point of view of users in some role or roles in relation to a system and that embodies the purpose or intentions underlying the interaction.” -- L.L. Constantine & L.A.D. Lockwood, Software for Use 103 (1999)

43. Claimable Aspects of Software- Implemented Business Methods 43 Example 1’ System: ATM User Purpose: Get cash User ActionSystem Response insert card enter PIN press key … read magnetic stripe request PIN verify PIN display menu

44. Claimable Aspects of Software- Implemented Business Methods 44 Example 1 System: ATM User Purpose: Get cash User IntentionSystem Responsibility identify self choose take cash verify identity offer choices dispense cash

45. Claimable Aspects of Software- Implemented Business Methods 45 Example 2 System: PC User Purpose: Perform a Web transaction User IntentionSystem Responsibility select Web resource retrieve Web resource perceive Web resource offer choice of Web resources request Web resource from Web server receive Web resource from Web server present Web resource

46. Claimable Aspects of Software- Implemented Business Methods 46 Example 3 System: Client-server network User Purpose: Purchase an item Precondition: Purchaser is a previous customer about whom information has been stored User IntentionSystem Responsibility identify self order item display item receive request retrieve purchaser information generate purchase order fulfill purchase order

47. Claimable Aspects of Software- Implemented Business Methods 47 Reasonable Interchangeability “[G]enerally a price differential, even a substantial one, is irrelevant for purposes of determining reasonable interchangeability.” -- ADM, 866 F.2d 242, 246 (8th Cir. 1988) Rationale: Price differentials among functionally interchangeable products are usually offset by differences in quality or other consumer preferences –Exceptions: Government price controls (e.g., ADM); inherent cost advantages (e.g., Consolidated Gas, Alcoa (Rome Cable))

48. Claimable Aspects of Software- Implemented Business Methods 48 Reasonable Interchangeability Competitive variables are “the factors that normally determine the choice or preference of the user.” –Pfizer

49. Claimable Aspects of Software- Implemented Business Methods 49 Augmenting the Essential Use Case Essential use cases are implementation- independent –Different software products can implement the same interaction in different ways –Consumers can have economic preferences regarding these varying implementations We account for consumer preferences by identifying variables with respect to the performance of system responsibilities that can form a basis for “meaningful competition” among software products.

50. Claimable Aspects of Software- Implemented Business Methods 50 Software Metrics Preference MetricsPerformance Metrics Affect Efficiency (subjective) Helpfulness Control Learnability Completeness Correctness Effectiveness Efficiency (objective) Proficiency Productiveness

51. Claimable Aspects of Software- Implemented Business Methods 51 Example System ResponsibilityPerformance Variables offer choice of Web resources request Web resource from Web server receive Web resource from Web server present Web resource search costs; accuracy of presented meta-information communication costs; transfer of personally identifiable information communication costs; accuracy of presented meta- information accuracy of presented information; effects on system resources

52. Claimable Aspects of Software- Implemented Business Methods 52 Demand-Side Substitutes Examples: –Shell browsers Assume (and delegate) system responsibilities; performance variables are essentially the same as for IE: substitutes, but limited in their ability to compete –“Browsers for individual internet extensions” (e.g., multimedia players) Historically, assumed system responsibilities, but only subject to narrow preconditions: probably not substitutes RealOne Player (with built-in shell browser): substitute, but see above

53. Claimable Aspects of Software- Implemented Business Methods 53 Supply-Side Substitutes Actual and potential products All producers who can switch to making the product Consider barriers to entry –Sunk costs of entry and exit that cannot be recovered if entry fails –Production, distribution, and consumer-acceptance obstacles

54. Claimable Aspects of Software- Implemented Business Methods 54 Structural Barriers to Entry –Exclusionary preconditions Proprietary file formats –Proprietary platform software “Applications barrier to entry” –Interference from preinstalled software Overriding of user’s choice of default software

55. Claimable Aspects of Software- Implemented Business Methods 55 Summary 1.Define defendant’s product 2.List relevant consumer purposes 3.Represent as essential use cases 4.Identify functionally interchangeable products 5.List competitive variables 6.Identify reasonably interchangeable products 7.Identify structural barriers to entry

56. Claimable Aspects of Software- Implemented Business Methods 56 Product Market Definition Essential use case Preconditions Ranges of preference/performance metrics

57. Claimable Aspects of Software- Implemented Business Methods 57 Drafting Claims Limitations may include –Interaction steps from the essential use case (e.g., as steps in a method claim) –Preconditions (esp. where necessary for enablement) –Ranges of preference/performance metrics May omit or broaden limitations for claims of varying scope

58. Claimable Aspects of Software- Implemented Business Methods 58 Example Essential Use Case System: Client-server network User Purpose: Purchase an item Precondition: Purchaser is a previous customer about whom information has been stored User IntentionSystem Responsibility identify self order item display item receive request retrieve purchaser information generate purchase order fulfill purchase order

59. Claimable Aspects of Software- Implemented Business Methods 59 Example Claim A method of allowing a user to purchase an item, comprising: –displaying the item to a purchaser; –allowing the purchaser to identify himself or herself; –allowing the purchaser to order the item; –receiving a request from the purchaser to identify himself or herself and to order the item, wherein only one purchaser action is required to cause the request to be received; –retrieving previously stored information regarding the purchaser; –generating a purchase order; and –fulfilling the purchase order.

60. Claimable Aspects of Software- Implemented Business Methods 60 Apple Licenses “1-Click”

61. Claimable Aspects of Software- Implemented Business Methods 61 Conclusions Validity of formal claims will continue to be relatively uncertain Informal claims are more likely to be valuable and less likely to impede programming freedom