The Prior Art

What I don't get about in re Bilski: Why do any financial companies support business method patents?

What I don't get about the in re Bilski case argued Thursday at the Federal Circuit is this—why is there any division at all within the financial sector? The lines are a lot fuzzier than, say, the patent reform battle in D.C., which was Big Tech v. Big Pharma but became Big Tech v. Big Pharma et al.

But why would Goldman Sachs, see recent Economist, or any other financial services business, support business method patents? Or American Express and Accenture, as Mike Masnick notes? Seems like they all stand to lose much more than they gain from patent licensing and litigation, with the threat of another non-practicing entity like DataTreasury. From an industry-wide perspective, the relatively recent arms race doesn't make sense. (and of course the big banking industry trade group came out critical of State Street). So why would any (profitable) financial company be opposed to rolling back the 1998 State Street decision that allowed business method patents?

Are there some banks that have amassed giant arsenals—the Microsoft(s) of the banking world? (Microsoft had less than a dozen patents before the 1998 State Street decision, and now has thousands, according to a former IPLB reporter who was inside the Microsoft war room a year ago.)

Is there a giant settlement, or license agreement, or some other indicator of corporate behavior that would indicate why a particular financial company has a pro-BM patent standpoint? Who are the winners and losers of the first 10 years of biz-meth patent war? Who were the aggressors, the victims? I haven't been in the patents game long enough to know, but I'd sure be interested to talk to some lawyers or bank employees or anyone who thinks they know the real story of the stance of any particular company that has a Bilski amicus brief (like maybe the one they work for.) Litigation, licensing, everything. Let's start collecting the data.

On today's oral arguments, there's legal-geek commentary from an eyewitness here (via 271 blog, with more Bilski argument links). My own article on Bilski (with extras here) focused on issues outside the legal arguments entirely, but I still like linking to it and it has a cool picture.

PTT update: Long day closing our June issue delayed today's fourth post in my four-part series on the lawsuits against and subpoena of lawyer-blogger (and, perhaps, reporter) Patent Troll Tracker. I need a real weekend but that one is coming early next week.

(download Bilski oral arguments on the Fed. Circuit site)

Copyright and patent news for May 8, 2008: Big content gives an inch, takes a mile on Capitol Hill; and two patent battles at the Federal Circuit

More posts to come on the Patent Troll Tracker saga later today, but a few things other things worth reporting this morning:

• This morning, the House of Representatives passed H.R. 4279, the so-called PRO-IP bill. The entertainment industry is crowing about that one, which will give them a long-sought after prize: a government commitment  to federal copyright cops at the Department of Justice.They’ll not only get a new “Intellectual Property Enforcement Division,” but the bill would carve out money from existing grants to combat computer crime and earmark part of that to police copyright infringement. Basically, the bill is meant to put some FBI muscle behind those FBI warnings on movies and TV shows.

Government lawyers, of course, would be far cheaper copyright cops than litigators at Hollywood law firms like Munger Tolles & Olson or Mitchell Silberberg & Knupp; especially when taxpayers foot the bill. And the industry might eventually get what it really wants—enforcement of criminal penalties.

The bill was sponsored by Detroit Democrat John Conyers. Only 11 Representatives voted against the bill on the floor—seven Republicans and four Democrats, including Silicon Valley Democrat Zoe Lofgren and former Democratic presidential candidate Dennis Kucinich.

• Before they took a mile, they gave an inch: the House IP subcommittee passed H.R. 5889, an “orphan works” bill that removes the massive penalties associated with copyright infringement if the work belongs to a copyright holder who can’t be identified or found. The bill was sponsored by Rep. Howard Berman, known as Hollywood's man in Washington. The bill moves ahead to the full Judiciary Committee. If passed, it goes into effect in 2013. Freedom to use orphan works has long been a cause of library activist like Internet Archive founder Brewster Kahle.

• Speaking of the Internet Archive, it was revealed yesterday that the FBI attempted to strongarm the non-profit into handing over subscriber information through the use of a national security letter. With the help of EFF attorneys, Kahle resisted, giving us the rare opportunity to take a look at what a (redacted) national security letter looks like. The letters have gag orders attached to them, so as EFF attorney Kurt Opsahl says, ""One of the most important victories here is that we can even say this letter was received." Recorder reporter Evan Hill has the Internet Archive story on today's Law.com newswire; EFF has more documents in Internet Archive v Mukasey, 07-6346-CW (N.D. Cal).

• Tafas v. Dudas will be appealed: When the Patent Office tried to put some limits on how many times patent applicants can come back wielding continuation applications, and how many claims can be put in a single patent, a large chunk of the patent bar revolted. Big pharma led a counterstrike, sued to stop the new PTO rules from taking effect, and won. Now the PTO has said they will appeal. Is it true that "USPTO = gluttons for punishment," as one commentator opined at Patently-O?

The battle lines here are similar to the patent reform debate: tech companies say the patents are needed to prevent abuses like the Lemelson “submarine patents,” which remained hidden  for decades and then were used to sue more or less the whole economy.

• Last but certainly not least, the Federal Circuit will hear arguments today in In Re Bilski, a potentially landmark patent case where a small Pennsylvania “financial engineering” company founded by Rand Warsaw and Bernard L. Bilski is trying to get a wide-ranging patent on hedging weather risk. Warsaw and Bilski have been accused of ripping off consumers by state authorities in Minnesota, as I reported last month. Looking forward to hearing the oral arguments.

Bilski amicus briefs are collected at Patently-O.
A critical history of software and business method patents from Mike Masnick at Techdirt.

Behind Bilski: State A-G says Bilski's inventions were a raw deal for consumers

Illustration from the IP Law & Business print edition, courtesy Matt Faulkner.

What kind of business methods can become "property?" Patent lawyers will fight that one out in May at the U.S. Court of Appeals for the Federal Circuit. Amicus briefs are due shortly: over the next week, we can expect a barrage of legal briefs regarding In re Bilski; or more completely, In re Bernard L. Bilski and Rand A. Warsaw. The patent case is likely to have a big impact on business method and software patents; the case is being closely watched by the patent bar and has garnered some mainstream press coverage as well.

A very different debate over business methods and intellectual property is going on in St. Paul, Minnesota, but Bilski and his co-inventor Warsaw are at the heart of that one, too. Investigators at the Minnesota Attorney General's office say that WeatherWise USA, the company they co-founded in 1996, devised billing programs that helped two local energy companies dodge state regulators and overcharge consumers by $33 million.

The full story is published in the April issue of IP Law & Business.

On this blog, I'll write a few "Behind Bilski" posts to take a more in-depth look at the people and organizations that have a stake in the Bilski case.

Today: The view from Minnesota, and that state's connection to WeatherWise.

In February 2007, Minnesota Attorney General Lori Swanson filed a complaint at the state's Public Utilities Commission against Xcel Energy and CenterPoint Energy, which both have contracts with WeatherWise to provide fixed-price billing programs for natural gas customers. (OAG Complaint)

State attorneys say WeatherWise set the rates in both programs, severely overcharging consumers through programs that were marketed and promoted in a misleading way. One customer saw her gas bill jump from 79 cents to $4.18 per day after joining Xcel's program, and wasn't allowed to cancel; an 88-year-old fixed income Xcel customer had a July gas bill of $221, or $7.13 per day, and wasn't allowed to get out of the program until "after she passed away. (see OAG complaint, pgs. 4-7)

According to the PUC, WeatherWise provided marketing assistance to both companies, helping to set up the call centers that enrolled customers and assisting with promotional materials. However, WeatherWise is not a named party in the PUC complaint; state utility regulators have no authority over them.

Lawyers at Attorney General Swanson's office declined to comment on the ongoing investigation. In October, Xcel Energy was ordered to hand over tape recordings of conversations between fixed-bill customers and a call center apparently operated by "WeatherWise or its agents." (OAG 8/21/07 comments, p. 14)

The energy companies are admittedly ignorant about WeatherWise's methodology, which the company keeps secret. “The Commission should not permit the underlying mechanisms of these programs to remain shrouded in secrecy," wrote Swanson. "If the programs cannot be operated with transparency, they should not operate at all.” (OAG Complaint, p. 14)

According to the A-G's complaint:

• CenterPoint Energy first contracted with WeatherWise in 2001, when Bernard Bilski was still CEO. (he left the company in 2003, when Rand Warsaw took over). In 2005-06, customers in CPE's “No Surprises Bill” program paid an average of $296 more than they would have under standard billing.
• Xcel Energy ran a WeatherWise program for only one year, fiscal 2005-06. Xcel customers whose rates were set by WeatherWise paid an average of $682.76 more than they would have otherwise.

The $26 million over-charge cited in the original complaint didn't include Xcel's overcharge of about $7 million; hence the $33 million total. (PUC Staff brief, May 2007)

The PUC ordered the programs shut down in July. (PUC order, 7/16/07)

WeatherWise CEO Rand Warsaw says the high charges were the result of a streak of mild weather, and the company has done nothing wrong. Energy company clients are able to audit WeatherWise’s data, and they’ve handed over everything the A-G has asked for. “Every dime of our transactions are accountable and explainable by weather and price,” he told me in a recent interview.  “All of this has been explained in Minnesota. There is no data that we have not made available.”

Warsaw wrote to the PUC chairman in July 2007 promising cooperation, but did worry that “any disclosure of our methods or modeling information to the public could diminish some or all of the value of our intellectual property.” (Warsaw's letter)

State attorneys saw it differently. Swanson said WeatherWise “knew full well it was a focus of the investigation, [and] a major reason for delay, and that the OAG would be in contact with WeatherWise to receive more data.” (Footnote, pgs. 6-7, A-G's 8/21/07 comments)

Consumer advocates say letting an out-of-state private company set rates allowed energy companies to profit while dodging state regulators.

“It really made rate-making a secret process for this little group of people,” said Chris Duffrin, Assistant Director of Minnesota’s Energy CENTS Coalition. “WeatherWise sets an inflated amount of usage, to make sure that the gas company doesn’t lose money. It’s a premium program, but they don’t really market it that way—that’s part of the problem.”

The Public Utilities Commission meets this Thursday, April 3, to review the status of the investigations.

More on the case:

• Minnesota case dockets, search for docket numbers CI-07-541 and CI-07-542
• Pittsburgh's Webb Law Firm, representing Bilski, has a page with the relevant briefs
• The Board of Patent Appeals 2006 rejection of the Bilski application
• WeatherWise does hold one patent, on their EnerCheck conservation system
• Bilski, Warsaw, and four other WeatherWise employees are named as inventors on two other pending patent applications related to "capped billing" systems; one filed in 2002 and the other in 2003.