Introduction

The debate surrounding the grant of business method patents (BMPs) has caught a second wind owing to the directions issued by the Delhi HC to the Parliament for a review of the current stand on patentability of business methods in the Patents Act, 1970. Unlike the traditional approach which requires a ‘tangible result’, or in case of a process a ‘physical transformation’, a BMP is granted in the model of doing business. The IPAB has given ‘business models’ an expansive definition, holding that the term would cover the entire range of activities arising in the course of transaction of goods and services undertaken by commercial and industrial enterprises. Take for example a credit card. If a BMP were to be given to credit cards, it would mean that the owner attains monopoly not over the technology but the idea behind a credit-based system implemented through electronic means irrespective of the specific technology used. A chip-based card manufacturer could oppose another enterprise from offering the same services via virtual means, like Paytm Postpaid. The proponents argue that it would incentivize and promote innovation and align patent law with modern times where technology and business methods go hand in hand. On the other hand, some argue that it leads to creation of market monopolies without spurring incentive to innovate. In this blog, we shall try and analyze the patentability of business methods in the backdrop of Indian Patents Act and then, the modern business requirements.

The Indian Legal Stance

Section 3(k) of the Patents Act, 1970 (the Act) specifically prohibits the grant of patents in business methods. However, the ambiguity arises in respect of business methods that are technical in nature, based on a computer program or software. S.3(k) prohibits grant of patent in computer programs and software ‘per se’, i.e., computer related inventions that bring about a technological improvement are patentable. This was further established in Ferid Allani vs. Union of India and Ors. , which also resulted in the publishing of guidelines for the examination of computer related inventions (CRI), where it was established that an invention would not be rejected solely because it makes use of computer programmes and software. The same has also led to the grant of a number of patents to CRIs, which begs the question as to the patentability of a business model based in a CRI. This question can be dealt with in two ways: either the invention is denied a patent because in essence it is a business model disregarding any technical aspect or the invention is assessed on its technical aspect even if it is to be implemented as a business model, namely the ‘whole contents’ approach. The problem that would arise with the latter approach is that it would indirectly include subject matter that is excluded from being a patentable invention. Reference can be drawn to the case of Electronics Navigation Research Institute vs. Controller General of Patents , where a patent was sought in respect of a CRI that utilized a unique mathematical method. The patent was denied on the ground that despite technical advance, the inventive step referred to a subject matter that was excluded by S.3.

Similar cases have arisen in respect of business methods but the adjudication upon their patentability has not been constant and the results have varied from case to case. In the case of Yahoo vs. Controller of Patents , Yahoo sought a patent for a model that provided a platform for advertisers to bid for the most preferred spots for advertising their enterprise on a webpage. The IPAB ruled that the technical advance was ultimately an improvement in method of doing business, which was deemed non-patentable under S.3(k). Despite the judgment, business methods based on CRIs have been granted patents. For instance, PNB obtained a patent in a system that calculates credit risk attached to prospective transactions by utilizing all available data on transactions made by the applicant. Similarly, Google has obtained various patents in such systems, for example their system for ‘Generating User Information for Use in Targeted Advertising’. The system makes use of one’s search queries to identify and predict the ads that would best cater to the individual needs of a person. This is also called targeted advertising where niche audiences’ interest is secured by displaying ads relevant to their unique needs. In both these models we see an advance, but it is aimed at deriving maximum profits out of commercial transactions and making the business as a whole more efficient.

Even more surprisingly, a patent was granted to a business model proposed by Afton Chemicals which involves reusing of lubricant oil used in vehicles. The lubricant oil instead of being sold is leased out to the user who is required to return the oil after use. The same oil is then sold as combustible oil in the market. The patent was granted for “enhancing fuel value of used or waste lubricating oil” but nevertheless also grants Afton monopoly over a business model that is eerily similar to the one used by beverage industries in respect of glass bottles.

Spurring Innovation or Monopolizing Markets?

The very conception of the idea of IPR is rooted in a beneficial trade off. The society foregoes a technological advancement that would otherwise benefit it for a limited time period and vests all rights for exploitation of the invention in the inventor. In exchange, the society sees a rise in innovation and inventions since the inventors feel more assured of being able to benefit out of their creations. Eventually, the number of inventions that are witnessed by us increase exponentially and in the longer run we benefit from the scale and quality of technical advancements. The question that arises here is not one of novelty, or an inventive step. A business idea may be novel and may also involve an improvement in the manner of conducting business or a solution to a pre-existing barrier, but would business ideas see a sudden surge if we allow BMPs?

Most business models are built around profit maximisation and overcoming competition. The innovation is fuelled by competition in the market, or at least it has for the centuries that IPR regimes have not recognized business models and also the ones before IPRs were even conceived. The competition-based incentive theory propounds that the forces of competitive demand and supply would normally motivate players in the market to innovate and sail past their competition by generating more demand for their products. Add to that the fact that innovating businesses have enjoyed a first mover’s advantage in the Indian market, take for example Flipkart, Ola, Olx, and the list goes on. Even more interestingly, these brands did not come up with the ideas for their platforms, they copied their models from global players and still reaped the benefits of being ‘regional first-movers’. If a business idea, such as a credit card were monopolized, would we witness the several innovations and schemes that finance companies devise to sell their cards to us? We, as the public, would have to incur monopoly prices as opposed to competitive prices. In return, we may see a slight surge in innovations and a greater one in patent applications to secure monopoly over a certain way of doing business. In the longer run, even innovation gets inhibited.

Author : Arihant Shrivardhan, A Student at Institute of Law, Nirma University, Ahmedabad in case of any query, contact us at Global Patent Filing or write back us via email at support@globalpatentfiling.com.