So, with that bit of introduction, I'd like to ask Todd to tell us a little bit about his view of the Internet and patents and how those two are interlinked. So, Todd, for five minutes it's all yours.
Q. Todd Dickinson: Thank you, Vint, for that introduction. Just to clarify the last point, we've been issuing software patents for a little over 30 years. There has been programmable digital computers for about 50 years, so I think the software that's been widely available and the programmability of software sufficient to allow you to file an application to make it worth your while probably coincided with when the first filing started, but let me start a little further back in the history. No, I'm actually going to start in business methods. I brought one today that was issued by the U.S. Patent Office in 1867. And, it is a hotel registry book. This is the entire claim: "A hotel registry book with the margin of its leaves occupied by advertisements" substantially as described in that drawing, which looks suspiciously like, if you turned your browser to the right too long today and went to a commercial site, what you'd find.
In 1877, we issued a patent to a man named Alexander Graham Bell for an invention now known as the telephone. During the next 15 years, he litigated that patent roughly 900 times. It was eventually decided by the Supreme Court in his favor in the only opinion that occupies an entire volume of the Supreme Court reports. I asked my folks to do a little bit of examination today, or a little bit of digging in the history. Here's a patent from him in 1946 - a method of linking telephones together and then monitoring the relay of the output of that linkage by a series of lamps and circuitry. Here's one from 1976 which links Watts lines together. So, we've been, I think it's fair to say, issuing patents on communications modes and methods of linking them for a fairly long time. We've also been issuing software patents for a fairly long time and business methods for a fairly long time. But, why are we here today? I think we're here today because of two factors: One, a decision by the Court of Appeals for the Federal Circuit, which is the principal appeals court that hears our opinions, about two years ago. I think it's an opinion most people are familiar with called State Street Bank versus Signature Financial. Signature Financial Company - we issued a patent to them in 1993, which they sought to license with State Street and others. Everybody else took a license except the State Street Bank.
State Street Bank started to practice the invention and that led to infringement litigation. The Court of Appeals for the Federal Circuit did two things. They ruled, first of all, that once and for all, yes indeed, software is indeed patentable subject matter under Section 101, so long as that software produces a tangible - and this is their phrase - tangible, useful, and concrete result. They wiped away a lot of fairly confusing tests on transformativeness and others that had been in the law and basically said, "Let's make it simple."
They also ratified or validated the software examination guidelines which our office had promulgated a few years before and said those were a valid means for examining software patents. And then on the other half of the opinion they said that, upon examination, the law under Section 101, which defines what is patentable as basic subject matter, that there is no exception in the law for what are called business methods. And they reviewed what were thought to be applicable precedents and found those were not appropriate.
The judge who wrote the opinion, Judge Giles Rich, was also the man who'd co-written the 1952 Act and drew on that experience. It's important to remember, though, what he said: that software patents and business method patents are patentable subject matter. They still have to meet the test under Section 102 - they have to be new or novel - and under 103 - they have to be nonobvious. And that's basically shifted the burden to us in the office to ensure that the quality of what of we do, in terms of the search and examination process, which is the way we make the determination about whether something is new and nonobvious, is done as well as we can do it.
About five years ago, because of an increase in the number of the applications, which is now rather substantial, we had created a group - a special art unit called 705. Group 705 now has 40 or 45 examiners. We will probably increase that number. All of those examiners that have come to our office either have computer science degrees, advanced degrees, or electrical engineering degrees.
Also, to put it in a slight perspective, last year we issued - out of Group 705 - 600 patents. That was up probably a 100 percent from the year before and this year we expect to issue maybe a thousand patents in Group 705. Last year, we issued 161,000 patents, so this is less than about a half of 1 percent. We have kept records for a long time of the allowance rate for our patents. Overall, our allowance rate has remained steady for about 25 years at around 67 percent - about 67 percent of applications eventually issued. In the business-method area only about 57 percent of patents eventually issue, so it's substantially less. But, earlier this year in response to a number of concerns that were raised and I think rightly so, we issued what was called the Business Method Patent Initiative and it had several parts. Let me just go through them very quickly.
First, one was to work with industries and technologies which were covered by these patents to make sure that we had the latest state of the art brought to the attention of our examiners. We made and have made direct outreach to effected technologists and effected industries. We've had the Securities Industry Association, the Insurance Association of America, the ITAA, and others now, we've entered to actually agreements with them and they've come in and worked with our examiners.
The second thing we've done was provide both training with them on the state of the art and an understanding of where we have databases and where we don't have databases that can be searched. We spend about $12 million a year on external databases and we have a very broad collection of our own, but we're also and always eager to get more. The second thing we did was what we called the Second Look. In this class we had now a primary level examiner or higher take a second look at all those patent applications before they went to issue and many of them have now been turned back. Ironically, I received a call today from a congressman, I won't say from where, who was complaining because a constituent of his had unfortunately made a fairly visible public comment on the fact that a patent was issuing on a particular business method and he wanted to know where that patent was because he had gotten a notice that it had been withdrawn from allowance and I said, "Well, I'll look into it, but my suspicion without having looked into it is that it probably got caught up in the second look process," and this congressman was not particularly pleased that his constituent's patent hadn't issued.
Third, we're requiring the examiners to use the automated search tools. This is the only area where we make that requirement. Most of them do, but our union has been negotiating this point for quite some time. And lastly, we had agreed to hold a round table and we held a daylong round table in our offices about a month ago, the end of July. I think that helped give a lot of voice to this issue.
Another thing that will be coming along that will be very interesting to see: the effect of the 18-month publication. The law was changed by Congress last year so that all patents, except those which are not going to be foreign filed and the applicant specifically requests that it not published, will be published at 18 months and we have in the rules, Rule 99, which allows for the circumstance under which art will be brought, will be sent into the office and will be brought to the examiner's attention. You won't be allowed to comment on it, you won't be allowed to argue it, you won't be allowed to oppose or protest it, but we understand that art will find its way to examiners and we're trying to make the system rational. Why don't we allow protests or opposition? Simple. Congress, last year, in a bill they passed in November, said very specifically in a provision of that bill, that the director shall make no provision whatsoever for pre-grant opposition or protest. And so Congress has told us they don't want pre-grant opposition of a pre-grant review by third parties and we're following what Congress tells us to do.