Monday, July 19, 2010
ALVIN GREENE FOR SENATOR
The people of South Carolina should set aside Alvin Greene's inexperience and elect him to the United States. Why? Because he is not Jim DeMint.
Wednesday, July 07, 2010
SUPREME COURT MEETS INFORMATION AGE, PUNTS
Guns were the subject of the most prominent decision issued by the Supreme Court on June 28, the last day of its 2009-2010 term. But another decision issued that day might ultimately have the most far-reaching impact, at least for the nation’s economic life.
The decision was Bilski v. Kappos, and the subject was patents. Yes, patents; for most, a mind-numbing topic.
In Bilski, the Court affirmed a lower court decision that a process involving a form of financial derivative, specifically a hedging transaction in the energy markets, was not patentable. But the Supremes declined to enunciate a hard rule. Essentially, they left the matter to a case-by-case determination.
Hedging? Sound a little familiar, doesn’t it? Yes, hedging, and other financial exotica were central to the financial crisis that descended upon the nation in 2007. And although the U.S. Patent Office had not granted a patent in the Bilski matter, it has granted quite a number of patents for similar processes and products.
The patent system began at a time when inventions were primarily tangible things. But largely as a result of the computer and the Information Age it brought about, the nature of innovation has changed. Both the importance and ease of innovation in various realms that are not quite tangible—concepts, processes, systems, methods, software, and the like—have increased significantly. Distinguishing mundane from meaningful innovation in these realms of the not-quite-tangible poses many difficulties.
The U.S. patent system has struggled with these difficulties. Following a decision by the Court of Appeals for the Federal Circuit in 1998—the State Street decision—the Patent Office, attempting to adhere to the court’s ruling, swung toward the extreme of no limits on what processes and other not-quite-tangibles could be patented. The resulting patents are often referred to as business methods patents.
Many business methods patents issued by the Patent Office in the years after 1998 were controversial. Briefly described processes and other not-quite-tangibles were criticized as attempts to patent the long-standing or obvious. Detailed described processes were subject to the same criticism and in many cases to another criticism: as described, the alleged innovations were simply beyond comprehension, the convoluted wording amounting to little more than gobbledygook.
Prominent among those business methods was the output of a new Information Age profession, financial engineering. Remember Lehman Brothers? Its failure in September 2008 brought the growing financial problems front and center. Like many organizations in contemporary high finance, Lehman Brothers had been assigned patents for financial “inventions.” One of Lehman’s patents, issued in August 2007, was entitled “Methods and Systems for Analyzing and Predicting Market Winners and Losers.” The patent involved massaging, with a computer program, performance and volume data for securities. Perhaps this particular computer program wasn’t quite up to snuff, eh Lehman?
In December 2007, JPMorgan Chase Bank, N.A., whose parent would rescue Bear Stearns a few months later, received a patent for a computer-implemented financial model involving asset-backed commercial paper. The model produced lower estimates of the liquidity—backup cash—allegedly needed to support a portfolio of assets financed in the commercial paper market. But insufficient liquidity turned out to be a major problem in the early months of the financial crisis. Some patent, huh JP?
Other notable Wall Street denizens that hold patents on alleged computerized improvements to high finance include Goldman Sachs, Morgan Stanley, Barclays Bank, Citicorp, Bank of America, and Credit Suisse First Boston. Big name Wall Street firms are not the only players. Fannie Mae and Freddie Mac, for example, have patents. IBM has a patent for a method to analyze financial derivatives. The Trustees of Columbia University have a patent for providing “Robust” investment portfolios. Indeed, with business methods patents in the financial field as sources, a decent history of the current financial predicament could be attempted.
The point is not to blame the world’s financial difficulties on patents. The patents are just evidence of how the computer and the Information Age have produced a financial system that we mere mortals are having difficulty controlling.
But back to Bilski. The Supreme Court upheld the Patent Office’s denial of the particular hedging process at issue. All of the Justices agreed that no patent should be granted for the described hedging process in the energy markets. But there was no single rationale that could provide much-needed guidance to the Patent Office and the patent and business communities. Four Justices—Kennedy, who wrote the opinion of the Court, Roberts, Thomas, and Alito—said as little as possible. They defined the proposed patent as an abstract concept and rejected it for abstractness. But they did not hold that business methods were unpatentable. Business methods present special Information Age challenges—the opinion specifically recognizes the existence of the Information Age—but the four Justices found no general prohibition on the granting of patents for business methods.
Four other Justices—Stevens, who wrote a concurring opinion, Breyer, who joined in that opinion and also wrote another concurring opinion, Ginsburg, and Sotomayor—took a more expansive view. They would have prohibited business methods patents. Justice Scalia joined a portion of Kennedy’s opinion and a portion of Breyer’s opinion. The portions of Kennedy’s opinion and Breyer’s opinion that Scalia joined were portions that did not question patents for business methods. Interestingly, the portions of Kennedy’s opinion Scalia did not join were also the only portions of the opinion that referred to the Information Age. Perhaps a Constitutional Originalist and the Information Age don’t mix well.
So the outcome is a very messy situation. Business methods patents did not cause the financial crisis and the Great Recession, but they do reflect the thinking that produced those events. And business methods patents are posing significant difficulties for the patent system. The Supreme Court could have provided a little clarity to a very confusing area of the law. By only addressing the factual decision before it and not taking a broader look at an Information Age challenge, however, the Court punted. Now it’s someone else’s problem.
The decision was Bilski v. Kappos, and the subject was patents. Yes, patents; for most, a mind-numbing topic.
In Bilski, the Court affirmed a lower court decision that a process involving a form of financial derivative, specifically a hedging transaction in the energy markets, was not patentable. But the Supremes declined to enunciate a hard rule. Essentially, they left the matter to a case-by-case determination.
Hedging? Sound a little familiar, doesn’t it? Yes, hedging, and other financial exotica were central to the financial crisis that descended upon the nation in 2007. And although the U.S. Patent Office had not granted a patent in the Bilski matter, it has granted quite a number of patents for similar processes and products.
The patent system began at a time when inventions were primarily tangible things. But largely as a result of the computer and the Information Age it brought about, the nature of innovation has changed. Both the importance and ease of innovation in various realms that are not quite tangible—concepts, processes, systems, methods, software, and the like—have increased significantly. Distinguishing mundane from meaningful innovation in these realms of the not-quite-tangible poses many difficulties.
The U.S. patent system has struggled with these difficulties. Following a decision by the Court of Appeals for the Federal Circuit in 1998—the State Street decision—the Patent Office, attempting to adhere to the court’s ruling, swung toward the extreme of no limits on what processes and other not-quite-tangibles could be patented. The resulting patents are often referred to as business methods patents.
Many business methods patents issued by the Patent Office in the years after 1998 were controversial. Briefly described processes and other not-quite-tangibles were criticized as attempts to patent the long-standing or obvious. Detailed described processes were subject to the same criticism and in many cases to another criticism: as described, the alleged innovations were simply beyond comprehension, the convoluted wording amounting to little more than gobbledygook.
Prominent among those business methods was the output of a new Information Age profession, financial engineering. Remember Lehman Brothers? Its failure in September 2008 brought the growing financial problems front and center. Like many organizations in contemporary high finance, Lehman Brothers had been assigned patents for financial “inventions.” One of Lehman’s patents, issued in August 2007, was entitled “Methods and Systems for Analyzing and Predicting Market Winners and Losers.” The patent involved massaging, with a computer program, performance and volume data for securities. Perhaps this particular computer program wasn’t quite up to snuff, eh Lehman?
In December 2007, JPMorgan Chase Bank, N.A., whose parent would rescue Bear Stearns a few months later, received a patent for a computer-implemented financial model involving asset-backed commercial paper. The model produced lower estimates of the liquidity—backup cash—allegedly needed to support a portfolio of assets financed in the commercial paper market. But insufficient liquidity turned out to be a major problem in the early months of the financial crisis. Some patent, huh JP?
Other notable Wall Street denizens that hold patents on alleged computerized improvements to high finance include Goldman Sachs, Morgan Stanley, Barclays Bank, Citicorp, Bank of America, and Credit Suisse First Boston. Big name Wall Street firms are not the only players. Fannie Mae and Freddie Mac, for example, have patents. IBM has a patent for a method to analyze financial derivatives. The Trustees of Columbia University have a patent for providing “Robust” investment portfolios. Indeed, with business methods patents in the financial field as sources, a decent history of the current financial predicament could be attempted.
The point is not to blame the world’s financial difficulties on patents. The patents are just evidence of how the computer and the Information Age have produced a financial system that we mere mortals are having difficulty controlling.
But back to Bilski. The Supreme Court upheld the Patent Office’s denial of the particular hedging process at issue. All of the Justices agreed that no patent should be granted for the described hedging process in the energy markets. But there was no single rationale that could provide much-needed guidance to the Patent Office and the patent and business communities. Four Justices—Kennedy, who wrote the opinion of the Court, Roberts, Thomas, and Alito—said as little as possible. They defined the proposed patent as an abstract concept and rejected it for abstractness. But they did not hold that business methods were unpatentable. Business methods present special Information Age challenges—the opinion specifically recognizes the existence of the Information Age—but the four Justices found no general prohibition on the granting of patents for business methods.
Four other Justices—Stevens, who wrote a concurring opinion, Breyer, who joined in that opinion and also wrote another concurring opinion, Ginsburg, and Sotomayor—took a more expansive view. They would have prohibited business methods patents. Justice Scalia joined a portion of Kennedy’s opinion and a portion of Breyer’s opinion. The portions of Kennedy’s opinion and Breyer’s opinion that Scalia joined were portions that did not question patents for business methods. Interestingly, the portions of Kennedy’s opinion Scalia did not join were also the only portions of the opinion that referred to the Information Age. Perhaps a Constitutional Originalist and the Information Age don’t mix well.
So the outcome is a very messy situation. Business methods patents did not cause the financial crisis and the Great Recession, but they do reflect the thinking that produced those events. And business methods patents are posing significant difficulties for the patent system. The Supreme Court could have provided a little clarity to a very confusing area of the law. By only addressing the factual decision before it and not taking a broader look at an Information Age challenge, however, the Court punted. Now it’s someone else’s problem.
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