Financial and business methods have been patentable in the US for years, but the scope of protection for exportable financial products may stand or fall on a decision of the US Supreme Court expected this spring.

Extraterritorial Reach of US Patent Law

In mid-February, the Supreme Court heard arguments between AT&T and Microsoft concerning a provision of the patent statute that allows patentees to sue for infringement when a patented product is shipped overseas for assembly, rather than assembled here in the US. That provision, 35 U.S.C. §271(f), was intended to close a loophole that allowed manufacturers to ship otherwise infringing products in component form, to be assembled only after their export outside the US — where US patent laws do not apply.

Importance for Business Method Patents

How could the upcoming decision in AT&T v. Microsoft affect patents on business and financial methods? In short, by taking software and other non-physical deliverables outside the purview of the patent statute once they leave the US. Business and financial methods may, and often do, involve such non-physical deliverables. The issue before the Court concerns, in part, what it means to be a "component." Under section 35 U.S.C. §271(f), when "components" are supplied in or from the US, and they include all or a substantial portion of the components of a patented invention supplied in such a manner as to actively induce the combination of the components so as to infringe the patent, doing so is an act of infringement in the US. If software or other device-independent (logical or business method) subject matter is held not to be a component — despite the common use of the word "component" to describe aspects of software — then it may be possible to export US business and financial services without infringing valid US patents.

Overview of AT&T v. Microsoft: Infringement Only When Software is Loaded

Microsoft was found to have infringed a patent owned by AT&T covering speech "codecs" (coder/decoders) used to enhance sound quality of synthesized speech. The codec software is generated in the US and is included in Microsoft Windows software products. However, the software was found to infringe the patent in suit only when installed on computer hardware. In other words, the software itself does not infringe AT&T's patent. Microsoft was therefore found to have infringed under section 35 U.S.C. §271(f) on the ground that it "supplied," from the US, a "component" of a patented invention in a manner that induced its combination with other components outside the US to form the patented invention. If this result stands, patent protection potentially covering business and financial software and services delivered overseas from within the US may be exposed to liability for infringement of US patents.

Likely Outcome?

Supreme Court outcomes are difficult to predict. Yet questioning by the Justices seems to suggest there is a chance the Court will find that the patent statute provides no cause of action for patent infringement when software or device-independent business or financial products or methods are shipped overseas. Many argue that this would be appropriate while others, naturally, disagree. Either way, there are no guarantees, and a reversal for Microsoft would not preclude further legislation.