Prodigy

The Promuda Mouthpiece

Issue 1, July 2002

ARTICLE

Is E-commerce Business Model Software Patentable in Malaysia?

Shutting out the competition with a Government-granted monopoly  

By Arvindran Kandiah  

The intense competitive pressures faced by Internet companies do not allow them to provide generic services; each has to offer or endeavour to offer something unique and value added to attract customers. One such method is to develop or acquire proprietary technology and business models that enhance the user experience, the idea being that the owner of the technology that proves to be the biggest hit with users, wins.  

But how does one protect proprietary technology once it is developed? What can stop the competitor next door from deploying the same technology or business model? This is where Intellectual Property Rights (IPR) come in. Even so, acquiring the proper type of IPR is crucial to leverage off the right granted.  

Usually, and as most people assume, software is protected by copyright. This is true for most forms of software, for example your spreadsheets, word processors, accounting packages, e-mail clients etc. However, there are limits to the extent of the protection that copyright provides. These limits are what could be the turning point in establishing an effective monopoly in the technology concerned. First of all, if a competitor somehow independently develops the same or similar software technology, he has a valid defence against a claim of copyright infringement. Further, trade secrets law cannot protect against technology that is lawfully appropriated through reverse engineering.  

Patents on the other hand, although a more expensive form of protection when compared to copyright and trade secrets, provide a much stronger legal monopoly to the rights holder. Independent development and reverse engineering cannot be a defence against a patent infringement suit. Also, copyright protection awarded to features such as computer program user interfaces has waned over the years. Most importantly in this age however is that patents protect the functions per se performed by the software itself, while copyright does not.  

Once the patent owner holds the rights to the functions performed by the software, he might be having a very lucrative monopoly in his hands, other things considered. This means that if a competitor were to develop a similar variant of the software technology which nevertheless performes the same functions as the patented version, then that is possible infringement.  

What functions are we talking about here? Let us take the example of the business method software patent held by Priceline.com. This business method involves a service which allows customers to offer a price for an airline ticket, say from destination A to destination B, at the same time giving their credit card number. Priceline automatically charges the credit card if an airline accepts the offer.

Now, if a competitor were to develop a different type of software that performs the same functions that are claimed in the patent, i.e. matching the customer’s needs with a willing airline and simultaneously obtaining payment via charging the credit card, then this too might be possible infringement. As it is quite obvious, this could be a very powerful monopoly, for it totally bars the competition from providing the same service.  

As is usual in this field, the United States has taken the lead. The US Patent and Trademark Office (US PTO) and the American courts have taken a robust attitude in allowing business models and related software to be patented. In fact, the US Court of Appeals for the Federal Circuit has held that what is required for patentability is a practical application of a process or algorithm that produces a useful, concrete and tangible result. This admittedly, could be a low standard for patentability, and whether the same standard will apply in Malaysia remains to be seen. However, as the rest of the world begins to accept the US lead (for fear of having local companies lose out to US companies that have patents), it is foreseeable that Malaysia will do the same.  

In Malaysia, although the ‘method of doing business’ itself is not patentable, the product used in such a method is. The question here is: Is the software programme used in a business model on the Internet a ‘product used in the method’?

If the answer is yes, then the business method model incorporating the product is patentable. It is analogous to patenting a badminton racquet as opposed to seeking a patent for a novel method of playing badminton or method of service of the shuttlecock. The former is allowed to be patented while the latter is not.  

The US PTO has granted patents in a wide range of areas in this field. Below are a few examples of those that have been granted in recent years.  

1.      Title:  “Method of Transmitting a Desired Digital Video or Audio Signal”

         Issued on 2 March 1993 .  

This patent covers a general method for transmitting digital content, for example audio and video, on demand. Money is then transferred by a telecommunications line to a first party who controls the content by a second party who desires the content. The content is then stored on the second party’s computer and can be selected for playback in any combination.  

2.     Title:  “System and Method for Conducting Cashless Transactions on a Computer Network”

        Issued on 25 November 1997 to MasterCard Intnl, Inc.      

The patent covers a method and system for conducting cashless transactions through the Internet using an electronic purse built into a customer’s computer. A financial service provider who manages the cashless transaction service supplies a cashless transaction software to the customer. The customer identifies to the financial service provider which banks he is registered with. The financial service provider then loads an amount into the purse and later settles the amount with the customer’s bank. The bank in turn bills the customer for the amount. The customer further has the option to reload the purse or have it done automatically if the amount in the purse falls below a certain amount.  

3.     Title:  “Secure Method and System for Communicating a List of Credit Card Numbers Over a Non-Secure Network”

        Issued on 3 February 1998 to Amazon.com, Inc.  

This covers a method and system for securely reporting to a customer over a non-secure network the credit card number the merchant has on file for the customer. The number is retrieved from the merchant’s database, but only a portion of the numbers is sent to the customer over the non-secure network. The customer then confirms that he wants that particular credit card to be charged. Since only a portion of the full credit card number is transmitted, any third party cannot discover the complete credit card number of the customer.  

Dot-com companies that have developed novel and inventive business model software should seriously consider seeking patent protection in Malaysia by filing patent applications in respect of their business models.

Patent protection is far superior than relying on copyright protection in respect of the software. Copyright law only protects the expression of the model/idea and not the concept or the interrelationship of the various elements in the business model. Copyright law only protects the expression of the idea and not the idea itself. 

Patents allow the holder to exclude others from making, using, selling or offering to sell the patented invention. Therefore the patent can be used as a ‘sword’ to stop others and thus cornering the market for the invention for oneself. Conversely, it could also be used as a shield in a patent infringement suit launched by a competitor over his own patents. An advantage can be derived by asserting one’s own patents against a plaintiff.

Alternatively, these patents can be used for cross licensing for mutual advantage and therefore avoiding a dispute in the first place. Plus, there is also the public relations advantage of having a patent. Company brochures that mention that a product is patented plants in the customer’s mind the much sought after perception that the product is indeed cutting edge and original compared to a competing product.  

Inventors should carefully work with their patent attorneys to obtain a patent that can stand a serious invalidity challenge in the courts, for a patent that can easily be invalidated has very limited value. A precisely crafted patent that provides reliable coverage for the key solution provided by the invention can sometimes give the greatest competitive advantage.  

It has to be remembered that we are discussing the limits of what can be patented. Nevertheless, potential Internet patentees should not avoid seeking patent protection for their inventions. It is better to have an invalid patent that might or might not be challenged in court than to have no patent at all.

The author is an Intellectual Property executive with Kandiah & Associates Sdn. Bhd. and can be contacted at arvin@kandiah.com.my  

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