[Patents] More on why business methods are technical (fwd)

[phm@a2e.de (PILCH Hartmut)]

Some of Greg's reasoning on the technicity of business methods has
improved.  Indeed "technology" can be understood as "applied science", and
if that is so, business methods are "technology" in the sense of "applied
economics", the same way as violin techniques or political techniques are
applications of certain sciences such as musicology or politology.  In
fact anything useful is "technical"  in this sense.

German law dogmatics has solved this problem by its concept of
"controllable physical forces".  Economics does not deal with controllable
physical forces.  Nor does violin playing or political campaigning.

If Greg could appreciate this distinction, he might also be cured from the
error of worshipping "science" and calling his law philosophy "science".
It is precisely the "science of controllable physical forces" which has
achieved a cult status and which is cited as a replacement for lost
religious authorities of previous centuries.  But the "science of law",
however rigidly and conscientiously it may be pursued, is still not an
"science" in this cult sense but rather a normal discipline of thinking,
largely dependent on philosophical methods.  The same applies also to
economics, even if it has more "empirical" elements.  For reasons of
social status, economists tend to over-stress the importance of this
"empiry", which likens them to the "exact sciences", i.e. to those
concerned with "controllable physical forces".

I think that by reading Greg's texts you can become more aware than ever
that the distinction between philosophy as a whole and the sub area of
"exact science" is as valid and important today as it was 100 years ago,
and that this is where the key to solving the problem of patentability
lies.

> !20011101  More on why business methods are technical
>
>     Current European attitudes towards the a-priori non-patentability of
> business methods can be represented by combining parts of the European
> Patent Convention with the European Patent Office's Appeal Board's 9/2000
> Pension Benefits patent decision:
>
>           business methods, as such, are not patentable because
>           such methods don't produce technical effects
>
> However, in their own words, they have not defined most of these terms,
> prefering ambiguity to allow some business method patents to issue while
> having a political shield.  I argue this does a disservice to European
> scientists because there is a specific scientific question implicit in
> this phrase.  The EC should have European scientists research and try
> answering this question, and soon, to help guide discussions over EPC
52.2.
>
> To reveal this question, let's try to simplify and clarify this combine
> of the EPC and EPO Board decision. First, we ignore the phrase "as such",
> which is EC politicians' shorthand for the phrase "we don't know what we
> are talking about, so we will let the courts in the future do our thinking
> for us".
>
> Next, business is mostly considered to be applied economics, at least as
> assumed by the economics associations when they classify their
publications
> (i.e. economics is the theoretical study of money and resources, and
> business is the actual practice of using money and resources, using either
> empirical methods or methods based on formal models).
Technical/technology
> is mostly considered to be applied science, as defined in dictionaries and
> studies of science.  Thus the European attitude towards business method
> patentability reduces to:
>
>         applied economic methods don't produce applied science effects
>
> which cancelling out the mostly equivalent "applied/applied" and
> "methods/effects" reduces to
>
>                          ECONOMICS IS NOT A SCIENCE
>
> Thus the logical basis for the patentability of business methods in Europe
> reduces to a question in the philosophy of science, i.e., is economics a
> science?  Such a simple question (with not necessarily a simple answer)
> begs that the European Commission fund some European scientists to answer.
>
> Let me suggest at least one scientist to do such a study, Prof. Francesco
> Guala at the Centre for Philosophy of the Social Sciences at the Univ. of
> Exeter (f.guala@ex.ac.uk).  He recently published a paper which argues
> that some, if not all of, economics, is a science in the
science/technology
> sense.  What follows are quotes from various parts of the paper (and I can
> provide the EC with an extensive bibliography of publications from
European
> scientists, and names of the scientists, arguing/assuming much the same).
>
>                                       ====
>
>     Building economic machines: the FCC auctions
>     by Francesco Guala
>     Stud. Hist. Phil. Sci., v32 n3, 453-477, 2001
>     Abstract:
>         The auctions of the FCC, designed in 1994 to sell spectrum
>     licenses, are one of the few widely acclaimed and copied cases
>     of economic engineering to date.  This paper includes a detailed
>     narrative of the process of designing, testing and implementing
>     the FCC auctions, focusing in particular on the role played by
>     game theoretical modelling and laboratory experimentation. Some
>     general remarks about the scope, interpretation and use of
>     rational choice models open and conclude the paper.
>
> The paper starts out with two quotes from two scientists, one European,
> on how economics becomes a formal science with an engineering arm:
>
>     Just as chemical engineers are called upon not merely to understand
>     the principles which govern chemical plants, but to design them,
>     and just as physicians aim not merely to understand the biological
>     causes of a disease, but their treatment and prevention, a measure
>     of the success of microeconomics will be the extent to which it
>     becomes the source of practical advice, solidly grounded in well
>     tested theory, on designing the institutions through which we
>     interact with one another. [Roth, 1991, p.113]
>
> and
>
>     Experimentation, and especially laboratory experimentation, can be
>     used to provide experience with completely new modes of organisation
>     that have no 'natural' origin.  Such 'synthetic' processes cannot
>     be studied historically since none have ever existed. [Plott, 1981,
>     p. 133]
>
>                                       ====
>
>     ..... The argument stems from the assumption that we know best
>     what we have built ourselves, and therefore that, whenever possible,
>     interpretations of a scientific theory (in the natural AND in the
>     social sciences) should take applied science as their point of
>     departure.  Given that successful technological applications have
>     the power to drive entire research programmes at once, it is
>     particularly important to ask what kind of interpretation of
>     rational choice theory is warranted by its applied branches.
>
>     [.... A discussion of the history of the FCC spectrum auctions ....]
>
>     The FCC [auction] enterprise is a typical case of a "mechanism
>     design" problem.  The term "mechanism" is widely used in the social
>     sciences, in various and often inconsistent ways.  In this paper I
>     shall stick to the conventional usage in philosophy of science:
>     mechanisms are abstract or concrete structures endowed with their
>     own specific causal properties.  Putting mechanisms to work
>     generates "processes".  According to a widely shared view of
>     scientific knowledge, the main task of the theorist is to explain
>     spontaneously occurring and experimental processes, by designing
>     an appropriate model for each kind of mechanism and the phenomenon
>     it generates.  The FCC case belongs to an altogether different
>     kind of scientific activity, proceeding in the opposite direction,
>     from models to mechanisms and processes.
>
>         Designs are motivated by .... a mathematical model, a body
>         of theory ... that is perhaps completely devoid of operational
>         detail.  The task is to find a system of institutions - the
>         rules for individual expression, information transmittal, and
>         social choice - ... that mirrors the behavioural features of
>         the mechanism.  The theory suggest the existence of [mechanisms
>         and] processes that perform in certain (desirable) ways, and
>         the task is to find them.  This is a pure form of institutional
>         engineering. [Plott, 1981, p. 134]
>
>     Theory can be used to produce new technology, by shaping the social
>     world so as to mirror a model in all its essential aspects.
>
> [.....]
>
>     The mechanisms we shall be concerned with are market institutions.
>     Mechanism design is often motivated by the will to replace
>     centralised, expensive or inefficient systems of regulation with
>     'better' ones.   ....    Each system has advantages and drawbacks
>     in terms of cost, ambiguity of the rules, propensity to generate
>     confusion and mistakes, costs of enforcement, and so on.
>
> [.....]
>
>     The FCC auction was claimed to be 'the most dramatic example of
>     game theory's new power', 'a triumph not only for the FCC and
>     taxpayers, but also for game theory (and game theorists)', and
>     so on.  It would be mistaken, however, to think of the FCC auction's
>     design as entirely theory-driven.
>
> [.....]
>
>     For this reason, it is true that 'the auctions would not have
>     taken the shape they did were it not for the economic knowledge
>     brought to the design process' - but only if we extend the meaning
>     of 'economic knowledge' well beyond the theoretical realm. Indeed,
>     today 'much of what we know about multi-unit auctions with
>     interdependencies comes from experiments'.
>
> [.....]
>
>     Although its roots go back to the eighteenth century, experimental
>     economics as practised nowadays is entirely a post-Second World War
>     phenomenon.
>
> [.....]
>
>     More recently, it has become common to stress the non-theoretical,
>     practical, tacit character of much experimental knowledge.  In
>     economics, a 'correctly performed' experiment is one that the
>     experimenter is able to control and interpret properly.  A set of
>     precepts and rules have been devised which define the concept of
>     'good' experimental system.  These rules are partly independent
>     from the theories under test, and rely heavily on the
>     experimenter's judgement for their application.
>
> [.....]
>
>     The Caltech team made use of what they call 'testbed' experiments:
>     An experimental 'testbed' is a simple working prototype of a process
>     that is going to be employed in a complex environment.  The creation
>     of the prototype and the study of its operation provides a joining
>     of theory, observation and the practical aspects of implementation,
>     in order to create something that works. [Plott, 1996, p. 1]
>
> [.....]
>
>     Experimental methods must, of course, be designed in an appropriate
>     way.  They must, first of all, fulfil the requirements of 'Induced
>     Value Theory', an approach to experimentation originally due to the
>     economist Vernon Smith.  Induced Value Theory consists of 'five
>     precepts', 'a proposed set of sufficient conditions for a valid
>     controlled microeconomic experiment'.
>
> [.....]
>
>     To sum up, at the most abstract level, we have highly theoretical
>     concepts such as competitive equilibrium.  These are embedded in
>     a structure of deductive reasoning from a set of strict assumptions
>     identifying the conditions under which those concepts may be
>     deductively demonstrated.  It must be stressed that the description
>     of the sufficient structure for effects like efficient equilibria
>     to obtain is still abstract.  The 'real world' counterparts of
>     theoretical entities such as the rational economic men of our models
>     are instantiated only under further restrictive arrangements.
>     These arrangements define the bottom level of concreteness for
>     the applicability of economic models.  Economists are guided by
>     experimental, practical, as well as theoretical knowledge in
>     designing their experiments so that these background conditions
>     are satisfied.  The circumstances in which an economic system
>     maintains its own structural properties may, however, be quite
>     narrow and fragile.  This is, of course, of great concern to the
>     economic engineer, whose machines are supposed to work for several
>     years, in different contexts and without the constant supervision
>     of their manufacturer.
>
> [Greg note: substitute 'electronic' or 'chemical' for 'economic' above.]
>
> [.....]
>
>     Another important role of laboratory experiments consisted in helping
>     to develop the appropriate software.  Game theory, of course, does
>     not specify whether an auction should be run with mere pencil and
>     paper support, or with computers.  Electronic auctions are in
>     general privileged because they facilitate analysis of data and
>     enforcement of the rules: one can, for instance, design a software
>     which does not accept bidding below the highest standing bid of the
>     previous round, thus controlling automatically for errors and saving
>     precious time.  But no specific software for the continuous
>     ascending auction was available at the time, and a new one had to
>     be created ad hoc.  The data of testbed experiments, elaborated by
>     means of an independently designed programme, were used as inputs
>     into the final software to be used in the real FCC auctions.  By
>     means of such 'parallel checking', the consultants made sure that
>     the FCC software worked properly and delivered correct data in a
>     reliable fashion.
>
> [.....]
>
>     Laboratory tests with similar parameters to those supposed to be the
>     case in the real auction were run beforehand so that the results
>     could be compared after the event.  The experimental auctions had
>     been constructed so as to have the same number of players, the
>     same number of items auctioned, complementaries such as those
>     presumably existing in the 'real' market, a similar number of rounds,
>     similar (although fictional) values, and so on.  Then, a large
>     amount of data collected both in the lab and in the real auction
>     was systematically analysed and compared.  This data included
>     bidding patterns, pricing trajectories, the rise of 'bubbles', the
>     formation of sensible license aggregrations, the fact that similar
>     items sold for similar prices, the absence of post-auction resale,
>     and several other phenomena of interest.
>
> [.....]
>
>     The FCC auctions were a success.  They were successful not just
>     politically but also from a scientific viewpoint.  They provided
>     a solution to a complicated problem, and have inspired other
>     projects as a benchmark example of economic engineering. [n.31 -
>     See for example, the auctions for the third generation of mobile
>     telephony run in the UK in April 2000.  Nothing has been said in
>     this paper about the business aspects of mechanism design, but
>     there is certainly an interesting story to be told about game
>     theory turning into a profitable enterprise.  Several economists
>     involved in the FCC project later set up consultancy firms.]
>
>     This does not mean that the implemented institution was absolutely
>     flawless: it could be improved and some work is still being done
>     on rules, for example to prevent collusive bidding.  But the
>     solutions devised by the FCC consultants stood on firm ground,
>     probably as firm as our best science and technology can be.
>
> [.....]
>
>     One cannot just presume that buyers behave 'as if' they were
>     rational.  Bidders must react adequately to new situations and
>     sometimes be creative in devising new strategies, as opposed to
>     just relying on established routines.  The economic engineer
>     must design a mechanism keeping individuals' real capacities in
>     mind.  On the other hand, it is be designing and implementing an
>     adequate mechanism that the engineer ensures that rational choice
>     models can work.  Since it is partly in virtue of the structure
>     of the situation that economic agents can behave rationally, a
>     great part of economic engineering is devoted to ensuring that
>     the structure is 'right' (and experiments, as we have seen, are
>     invaluable for that).
>
> [.....]
>
>     The question is not merely one of choosing between accounts with
>     a general as against a limited domain of application, but rather
>     one of trading off between abstract and concrete models, which
>     need more or less filling out in order to be transformed into
>     useful and robust social technology.
>
>                               ====================
>
> Abstract/concrete.  Useful/robust[tangible].  Technology.  The language of
> economic engineering - and the language of the US' State Street decision,
> a decision which cited the dissent in a 1994 US decision (In re Schrader)
> about the method of doing business exception:
>
>         "is fuzzy; and since it is also an unwarranted encumbrance
>         to the definition of statutory subject matter in Section
>         101, my guidance is that it be discarded as error-prone,
>         redundant and obsolete."
> and
>         "Any historical distinctions between a method of 'doing'
>         business and the means of carrying it out blur in the
>         complexity of modern business systems."
>
> In light of Prof. Guala's paper, in light of similar papers written by
> European scientists, in light of this dissent from Judge Newman - to me
> at least, there is no scientific justification for an a-priori rejection
> of the patentability of business methods.  Science and technology demands
> that the "business method" exception in EPC 52.2 be dropped.  At least the
> EC could officially study the "economics as science" question before so
> deciding.  There is a large amount of published thinking on the subject.
>
> Enough business methods achieve a technical effect that the patentability
> of all business methods should be rejected on novelty grounds, inventive
> steps grounds, and/or enablement grounds - not because of 52.2.
>
>                                       ====
>
> Another person the EC could approach to study this issue is one of my
hosts
> during my recent trip to Europe, Prof. William Kingston of Trinity College
> in Dublin (wkngston@tcd.ie).  Here is an abstract to an interesting paper
> he recently published (he should have applied for a business method patent
> on his "Innovation Warrant" idea :-).
>
>     Innovation Needs Patents Reform
>     William Kingston
>     Research-Policy, vol. 30 (3), March 2001, pages 403-23.
>     ABSTRACT:
>         The international patent system demonstrates many failures to
>     adapt to new ways of producing information. The coming of antibiotics
>     finally forced it to take account of the shift from "individual" to
>     "corporate" invention by establishing new criteria for patentability.
>     However, these favour industries which can operate a "portfolio"
>     approach in their R&D, to the disadvantage of other industries and
>     smaller firms in all industries. In complex technologies, whose
>     economic importance has been growing rapidly, patents are now used
>     as much as a bargaining currency to prevent "lock-out" from use of
>     state-of-the-art components developed by competitors, as they are as
>     a stimulus to R&D.
>
>         Changes which have been proposed to deal with these problems,
>     including empirical supporting evidence, are discussed. These include
>     compulsory expert arbitration of disputes with legal aid for the
>     respondent party in the event of an appeal to the Courts, an
>     "Innovation Warrant" as a supplementary type of protection, and
>     "shared-risk" compulsory licensing as a practical way of changing from
>     time to money as the measure of a grant.  This would give multiple
>     innovators access to inventions as early as possible, while
maintaining
>     or even improving incentives to invest in invention and innovation.
>
>                                       ====
>
> And if business methods are technical, more so are business software
> methods, and even more so are software methods.  It is only pure politics,
> then, to retain the a-priori rejections for "computer programs" and
> "business methods" in EPC 52.2.  Good politics, maybe, but bad science,
> which I think is an immoral way to treat patent laws.  The EC should
> formally study this question of "economic engineering" before deciding
> its 52.2 policy next year.
>
> Greg Aharonian
> Internet Patent News Service
>
>
>