The European Parliament this month has given the Computer-Implemented Innovations (CII) Directive its second reading, the elected body addressing a range of apparently insurmountable concerns, including the controversial issue of software patenting.

The Directive, which sought to harmonise patent law across all member states of the European Union (EU), was thrown out by an overwhelming majority of 648 to 14.

This handed a major boost to critics, who feared its provisions would restrict innovation among small and medium-sized software companies and open source developers alike.

Critics' concerns have centred on the generalist nature of the patents typically allocated under similar legislation in the US, which can effectively make broad programming techniques the sole preserve of a single patent holder.

Indeed, in-house lawyers in the US have for years been patenting their business processes to prevent competitors using theirs idea for free – a trend that is taking root in the UK.

Others argue that repeated amendment and redrafting meant the Directive no longer offered the clarity that was hoped for.

Meanwhile, supporters say the effect of the aborted legislation would simply have been to preserve the status quo by harmonising patent law across member states.

While on a much smaller scale, the Directive's passage is reminiscent of the gargantuan battle the EU took on three decades ago to create a community patent.

Although a deal was putatively struck in 2003, much of the detail is yet to be decided upon – including the languages in which patents should be filed.

Either way, with the European Commission (EC) subsequently confirming that no further such attempt to harmonise patent legislation is planned, the controversy over patenting software – and business methods more broadly – seems set to continue.

In theory at least, European patent applications for business processes require a level of technical innovation unnecessary in the US – where a raft of companies, including the major financial institutions, now successfully file hundreds of such applications every year.

A common observation is that updating traditional business practices simply by using a computer should not constitute technical innovation.

One fiercely-contested example involved leading internet retailer Amazon which, in 1997, took the then-radical step of filing a patent application for its so-called 'one-click shopping' ordering system.

This was a mechanism similar to that now used for regular customers by a number of other retail websites, allowing existing Amazon customers to order a new product without re-entering their credit details for subsequent purchases.

Issued under the term 'a method and system used for placing a purchase order via a communications network', the contentious application was granted two years later.

It was put to the test almost immediately in a case brought against the similar, single-click 'express lane' method used on rival-bookseller Barnes & Noble's website.

An injunction was subsequently ordered banning the use of Barnes & Noble's mechanism.

It was a verdict one prominent critic labelled "an attack against the worldwide web and against e-commerce in general", demonstrating the depth of opposition to the practice in certain quarters.

Now the controversy is set to cross the Atlantic, with companies in a range of sectors looking to explore every possible avenue, including intellectual property (IP) rights, to maintain that crucial competitive edge.

"We will look at patenting opportunities in any field," says BP head of IP Mike Barlow, "from oilfields to business processes."

He adds: "If the criteria are met – whether we will benefit and if it can be patented – then yes, we will go for it. But we have patented only a couple [of business processes], which shows our focus is more on the technical side."

The issue is becoming increasingly prominent, in particular among the European banking and financial services communities, for whom the ability to patent software or innovative business mechanisms could come to represent a useful tool.

"Certainly the US has been taking the lead on protecting software in the financial sector," comments Bristows IP head Philip Westmacott, who attributes the increased interest in the UK banking and financial services communities to the heightened competition within the market.

He continues: "Keeping your competitors out of a particular market for a few months or a year can be immensely valuable. If you can attract clients by
finding a better way of doing business than your rivals then that [method] is well worth hanging on to."

Barlow agrees: "In the financial services sector, where they have some very sophisticated business models, patenting them might be easier."

While the tactic is far from commonplace in the UK, that may only be a matter of time.

Indeed, one IP partner based in the City says that global-finance giant Citibank alone has filed more than 300 separate patent families concerning software and business procedures in recent times.

"There has been a trend in the last five years of banks looking, not just at patents, but at all forms of IP to maximise other avenues of additional revenue, such as credit cards," comments Taylor Wessing corporate partner and financial services IP specialist Adrienne Seaman.

Lucrative potential licensing arrangements represent one area for banks to add to their coffers.

Yet such is the ferocity of competition between certain rival financial institutions, potential licensing arrangements often envisaged by partners – which could see considerable business advantages handed to rivals – appear unlikely in the extreme.

A more realistic option would be to license relevant technology to potential buyers in other sectors.

Yet much of the cutting-edge software in the sector is by its very nature highly bespoke, meaning genuinely profitable licensing opportunities could prove to be rare.

Concerns also persist over the enforceability of many of the applications to have been granted patents, with partners agreeing that current measures have yet to be fully put to the test.

Seaman adds: "There is a certain amount of suspicion about [software] patents in this way as not many have been tested in the courts. There are definitely lots of [existing patents] out there but what impact they will have is not yet clear."

One view is that banks and financial services businesses have adopted the practice largely as a defensive tactic, with an existing patent acting as a deterrent to ward off potential legal action by rivals.

Certainly, few such actions have been brought in the UK to date.

"Most patents [of this sort] are unlikely to withstand challenge in court," is the opinion of one City-based IP partner, although he admits it remains "early days" for assessing the value of the tactic in the UK.

Similarly, whether the use of patents to protect business processes extends as far as banks licensing out their bespoke software will depend largely on the individual business models of particular companies.

Westmacott acknowledges that interest in protecting IP through patenting has risen steadily over recent years.

But he cautions that obtaining patents for business processes and new software "might not always be the best way to go".

He believes that keeping the confidential status of new products or processes may often represent a more effective strategy for preserving a business advantage than patenting the technology, with the subsequent disclosure involved therein.

One partner points out that while obtaining patents for processes is not uncommon in certain sectors, such as telecoms, subsequent patent litigation is rare. "IP is critically important in the automotive sector, for instance," he suggests, "but there is very little patent litigation."

The willingness of major institutions to proceed to costly litigation is open to question.

One in-house lawyer suggests the patenting tide in Europe is already turning, with the authorities proving sensitive to criticism over a number of "trivial" patents to have been awarded.

There are even signs that the US – the spiritual home of the spurious patent – has been taking a firmer line with applicants in recent times, subjecting applications to an additional level of scrutiny before approval.

Similarly, the general counsel of one major UK-based asset management business says that while her company has considered – though not yet implemented – moves to patent business processes, she sees copyrighting as the more effective tool.

Yet one City partner expresses the caution that has seen financial institutions adopt a more proactive approach to risk management in general than may have historically been the case – an approach that means patenting business methods is likely to gain in popularity as a tactic.

"Nowadays, even if it is a small risk, it needs to be managed," concludes the partner, the veracity of his words patently obvious.