Study Finds NPE Finance Patents Are Lower Quality

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By Tony Dutra

Dec. 9 —A Harvard Business School study released Dec. 9 claims that patents on inventions in the financial services industry score lower on standard measures of quality compared to patents in non-financial fields.

Professor Josh Lerner and his team looked at patents awarded by the Patent and Trademark Office after the Federal Circuit's 1998 State Street Bank decision opened the door to business method patents. The patents featured fewer citations to other documentation—non-patent literature, leading academic journals, etc.—that is likely to show an exhaustive prior art search for patentability assessments.

The study further ties the quality deficit to non-practicing entities (NPEs) and their alleged abuses in patent infringement litigation.

“The results suggest that the absence of links to academic knowledge—a problem that is particularly dramatic for finance patents, especially those awarded to individuals and associated with NPEs—is directly associated with the proliferation of litigation in this area,” the study says.

The study was sponsored by Askeladden LLC as part of its Patent Quality Initiative, which “strives to improve patents by diminishing the number of those that should not have been issued, and by addressing questionable patent holder behaviors,” according to its mission statement.

“It is critically important to address the shortcomings of patent quality in order to improve the understanding, reliability and innovation of patents in financial services,” Sean Reilly, Askeladden general counsel, said in a press release. “This study reinforces the need for patent examiners to have access to the most pertinent prior art.”

Low Examiner Citations Predictable

To the extent the study links quality to examiner search, the results are not surprising. There were few finance patents to use as prior art right after State Street. And, by many accounts, the PTO examination corps at the time lacked the background in the field and did not have access to relevant documentation to adequately investigate the prior art in the financial services industry.

In fact, that was the basis for the “covered business method” (CBM) challenge enabled by the America Invents Act of 2011. This “transitional program” expires in 2020 because, Congress assumed, the patents granted at the time will have expired by then.

However, the Financial Patent Quality: Finance Patents After State Street study looked at 2,799 finance patents issued through 2010, suggesting that the problem was not confined to the immediate post-State Street Bank period. As the report notes, the PTO hoped to solve its problems by adding in 2000 a “second pair of eyes” procedure for business method patents, but that was just the beginning of the period Lerner studied.

The results, therefore, may serve as fodder for legislators—most notably, the CBM provision's foremost advocate, Charles E. Schumer (D-N.Y.)—who have asked Congress to eliminate or at least extend the 2020 sunset provision.

No Claim of NPE Intent

The report also studied differences when patents are awarded to individuals or associated with NPEs, based on PTO patent assignment records, and/or are involved in litigation. It again found a correlation between those two scenarios and low academic citations, and suggested—the sample was too small to make the numbers statistically significant—that the lowest quality patents are in the field of finance and being litigated by an NPE.

The study ultimately offers two possible explanations for the “dearth of academic citations” in these patents: “that there are few financial advances at the frontier of innovation, or that deficiencies in the examination process discourage citations to highly relevant, potentially patent-defeating, prior art.” The report suggests more work is needed to answer “important questions regarding the type of innovations being patented in the finance domain and the strength of their academic foundation.”

In an email to Bloomberg BNA, Reilly said that “the paper makes no conclusions with respect to the intent of any party,” i.e., to the charge made in the anti-patent “troll” debate that NPEs find value in buying and asserting vague and ambiguous patents.

But Lerner told Bloomberg BNA that a follow-up using the study's data might be able to distinguish patents assigned to NPEs immediately after issuance versus those re-assigned later.

Lerner also suggested that further study would be needed to determine the extent to which this quality difference is confined to finance patents, or whether it extends to software-related patents in general.

The study selected finance patents from specific subclasses of the PTO's classification code 705, titled, “Data Processing: Financial, Business Practice, Management, or Cost/Price Determination.” Most of the claims of the finance patents involve data processing on generic computing equipment and are, thus, likely to be claimed as software algorithms.

The comparison groups used in the study did not include other subclasses in class 705 or other software patents, such as in class 707 on search engines, or 715 and 717 on databases.

To contact the reporter on this story: Tony Dutra in Washington at

To contact the editor responsible for this story: Mike Wilczek in Washington at

Text at Files/16-068_702dabb8-70c5-4917-a257-75dc8b0c4f6b.pdf.