Can the patent system adjust to the digital age? A brief overview of the economic and
legal concerns created by business method patents.
Until recently the patent system did not allow abstract patents on business concepts,
an intangible area that was excepted from what was patentable.
The 1998 decision in State Street allowed the
previously forbidden patenting of business methods and mathematical processes and opened
a new frontier to the burgeoning Internet community. The fierce legal battle between
Amazon.com and Barnesandnoble.com is an illustration of how contested this new area is.
There is a danger that the limitless potential application of business method patents
to e-commerce could seriously impede Internet innovation.
But are the new patents economically justifiable?
Patents are a legal method of converting the commons of idea space into private
property. There are two fundamental reasons for the patent system: it provides
incentive to invent so that one could claim some of this idea space, and it allows
the inventor to profit from his hard work and ingenuity. However, when a patent
is issued the inventor takes away what others may also be trying to
invent. Thus, if two people are working on the
same idea the one who gets there first takes all the profit at the expense of the
late comer. This would make the business of research and development into a
rent-seeking endeavor. One party is spending resources to gain at the expense of
another, inefficiently wasting potentially massive amounts of resources in the
race for the patent.
The usual criteria for getting a patent protect against these issues. The novelty
and non-obvious requirements of innovations are present to keep things from being
over-invented and limit patents to only that which would not have been independently
invented, which should eliminate the rent-seeking problem. The last requirement of
new patents, usefulness, has economic justification as well, as it should improve
efficiency in the research by not allowing one to patent anything that has no known uses.
A big problem with business method patents, specifically with the critics' favorite
examples like Amazon.com, is that they seem to violate some of the very requirements
that should bind all patents. The novelty and non-obviousness of the one-click
checkout is certainly objectionable as it's difficult to argue that none of Amazon's
competitors would not have independently have come up with the same idea. This is the
exact type of inefficiency and rent-seeking that patent requirements are supposed to
combat. The fact that Amazon has so far been unable to hold its patent in court
further suggests that this particular example is economically as well as legally deficient.
While critics like Dr. Samuelson of the University of California at Berkeley doubt
the competence of patent examiners and dispute the constitutionality of business method
patents in general, most legal experts are advocates of the system. Dickinson, a former
head of the Patent and Trademark Office, claims that these patents encourage innovation
just as regular patents do. He says that patents have always been about ideas; e-commerce
software is not fundamentally different from the telegraph or telephone in that respect,
and both of these patents were surrounded by controversy at the time.
Both Congress and the Patent Office have passed new laws and procedures to deal with
this new area of patent law. Perhaps the greatest danger on the legal front is that
Congress will attempt to do too much in reaction to business method patents rather than
allowing the Patent Office to adjust. Our patent system has adjusted through all
previous economic and social revolutions and will undoubtedly get through this one,
if given enough time.
The new field of business method patents is not all that radically different, and can
be a safe and efficient addition to the whole of intellectual property. The crucial
point is to ensure that the requirements meant to keep bad patents from being licensed
continue to be adhered to, as this prevents the rent seeking and economic inefficiency
that is harmful to the market.
Extra Reading Links:
http://legal.edhec.com/Revue/Numero_1/Dossier/Dossier1_1.htm
http://newsforge.com/article.pl?sid=00/10/04/2035225
http://www.jmls.edu/ripl/vol2/issue1/wright.pdf
http://www.mail-archive.com/armchair@gmu.edu/msg00612.html
