An example from our Chinese neighbours

One of the few business method patents that have been granted by the Chinese Patent Office, which is generally very cautious while allowing such patents, was recently invalidated by the Patents Re-examination Board after an invalidation request was filed by a local University. The patent was for ‘Computer system for data management and method for operating said system’ and was held by Citibank. It is interesting to note, that these proceedings were not filed by a rival company, but rather by the IP center of a Chinese University. The University, in June 2009, has apparently revealed that the patent is no longer valid. Though the proceedings were filed nearly 5 years after it was granted back in 2003, it is laudable that the matter came up for hearing within 4 months of the filing, and was subsequently revoked.

Backtracking slightly, a business method patent can loosely be defined as a patent aimed at performing a commercial purpose by means of digital networks. Business method patents critics have been very critical of these patents claiming that these patent don’t cover physical inventions/innovations, but rather deal with more abstract concepts and mathematical algorithms.

The global position on business method patents is a little dicey. While certain countries such as USA, Japan, Australia, Singapore, etc seem to favour it (last month the US Supreme Court said it would review the Bilski position as to whether business method patents should be allowed or not), other countries such as India, China and most of Europe tend not to allow such patents.

Looking at the case in hand, Chinese patent law doesn’t prohibit business method patents. In fact, Part II, Chapter 9 of the SIPO’s Guidelines for Patent Examination expressly provides for computer software related inventions that possess “technicality”. However, as mentioned, the Chinese Patent Office has been seen to take an extremely cautious approach to granting these patents, and as such, very few business method patents have been granted so far in China. Two of the few that have been granted have been to Citibank. The patent for the ‘Electronic Monetary System’ was granted in December 2002 (and was subsequently lapsed) and the currently revoked patent for ‘Computer system for data management and method for operating said system’ was granted in January 2003.

As per this site, the hearing, which was held in April, 2009, proceeded without Citibank being represented at the hearing and no reasons were published for the decision. Though the decision is not surprising, the reasoning of the decision needs to be published so as to maintain a standard of transparency in proceedings. That Citibank chose not to appear may indicate that it has decided to abandon the patent. However, that aside, this development is important due to the fact that it shows a growing awareness of IP rights and the framework surrounding it, as well as the legal tools available by the society. It also lays down the path for future actions along the same lines.

This case and the decision are also in line with the view, as Spicy IP has opined earlier, that is required by our own patent system. A plain reading of section 3(k) of the Indian Patents Act prohibits ‘business methods’ from patentability, as well as excludes ‘computer programs’ per se and algorithms from patentability. However, as pointed out by Mr. Shamnad Basheer earlier, (in the post as well as the comments section) this has not stopped several bad patents from slipping through the fingers of the Patent Office.

While some say that it is the carelessness of Patent Agents which is leading to these bad patents, the fact remains that even with the most careful of Agents, there is still a chance that some bad patents will slip through. Therefore, there is also a responsibility on Indian civil society , NGOs and other groups/institutions to take a lead from this Chinese example, to pool in resources and keep an eye out for such bad patents so as to ensure the continued improvement and development of our patent system.


  1. AvatarAnonymous

    Can u give example, what all r this bad patents? & secondly how it is the carelessness of Patent Agents those leading to these bad patents?

  2. AvatarAnonymous

    Dear Sawraj Paul Barooah,

    Your report is biased and presupposes that inventions for business methods are products of lesser intelligence which do not deserve patenting.

  3. AvatarShamnad Basheer

    Dear Anon,

    As you will appreciate, Swaraj is merely commenting on the law in India as it currently exists. And to the extent that the law prohibits the patenting of business methods, it must be respected in letter and spirit.

    Even on pure policy grounds, why on earth should something that has a short shelf life and does not exactly involve any significant R&D expenditure etc need to be incentivised through a 20 year monopoly? Would the number of new business methods reduce drastically in the absence of patents? Extra protection through patents must come about only if one demonstrates the usefulness of the monopoly in that context. In other words, the burden is on the proponents of business method patents to establish why such patents are critical to bring about more business methods to the market.

  4. AvatarAnonymous

    Dear Prof. Basheer,

    I hope you like this healthy discussion.

    Patents are meant to be a quid pro quo for the inventor’s contribution to the state of the art and not a quid pro quo to “significant R&D expenditure”. Inventions should be deemed patentable with an with an eye on the merit of the invention i.e. quantum of leap between the state of the art and the invented subject matter and not depending on the depth of the experimenter’s pocket or on the quantum of money invested by him on a frivolous (meaning meritless) subject.

    Agreed that the usefulness of the business method patents are not yet quantitatively established through data based evidence. But you may agree that there are a lot of experts who doubt the usefulness of patents in other fields as well. Does it mean that patents should be abolished in all fields of technology where the usefulness is not proved beyond doubt? Patents were supposed to reward the inventor’s merit and the product of his mind. Other considerations were supposed to be secondary factors.

    Agreed, applications in some field of invention such as business methods need greater scrutiny than some of those of the other fields. But lacking the means or the examining battalion to examine patents in some field is not an excuse to banish patenting in these other equally deserving fields of technology. A good business strategy (e.g. let’s take a vague example of “junk bonds” in the financial markets) is as much as a creation of mind as is a new molecule created in the laboratory? Why be biased against the products of some minds?

    Kind Regards,

  5. AvatarShamnad Basheer

    Dear Anon,

    I never say no to a “healthy” discussion.

    You’re essentially raising the “desert” rationale for patent protection–fairness and all that… All sounds good, except that within the “trade” context today, a more convincing rationale that most countries hinge their IP regimes on (and one that TRIPS seems to be premised upon as well is) is the belief that it IP promotes more innovation and creativity.

    And within the framework of this rationale, the case for IP must be made out by those who argue that without it, innovation would not occur at the same rate. And that the blocking effects of IP on innovation and deadweight losses etc are trumped to a significant degree by the increase in overrall innovation.

    This logic should apply across the board for all “inventive” categories–and you’re right that business methods should not be discriminated against. But let me remind you of something that a wise economist Machlup had stated once:

    ” If we did not have a patent system, it would be irresponsible, on the basis of our present knowledge of its economic consequences, to recommend instituting one. But since we have had a patent system for a long time, it would be irresponsible, on the basis of our present knowledge, to recommend abolishing it”.

    In other words, since the patents system has been around for a variety of technology categories, it may be foolhardy now to abolish it without positive evidence of harm. But since we’re lucky enough to have kept business methods out of the purview of patentability (in India), lets not include this category unless we have positive evidence suggesting that they are absolutely necessary to spur innovation. I haven’t seen any such evidence. Have you?


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