[A2k] America's patent system- Methods and Madness

[Prabhu Ram]

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http://www.economist.com/business/PrinterFriendly.cfm?story_id=3D11332744*




America's patent system*

*Methods and madness*
May 8th 2008 | WASHINGTON, DC
>From The Economist print edition


*Patent reform may soon happen in the courts, if not on Capitol Hill*


ONLY those inventions "worth to the public the embarrassment of an exclusiv=
e
patent" should receive patent protection, declared Thomas Jefferson, himsel=
f
an inventor and America's first commissioner of patents. Since his day some
patents have proved to be more of an embarrassment than others. Most
notorious are "business methods" patents, such as the patent held by
Priceline <http://www.priceline.com/>, an online ticket agency, for the
Dutch-auction method of selling tickets. Thousands of these patents have
been issued since they were first recognised in 1998. But the federal court
charged with hearing patent appeals has hinted that it may use a case, in
which arguments were due to be heard on May 8th, to cut back the scope of
patent protection for business methods.

The patent application submitted by would-be inventors Bernard Bilski and
Rand Warsaw is startling in its breadth and simplicity: it claims exclusive
rights to the process of using transactions to hedge the risk that demand
for a commodity will change. The United States Patent and Trademark Office =
(
USPTO) rejected the application because it was not limited to the use of a
particular machine and did not describe any methods for working out which
transactions to perform. Any device or method could be used, or none at all=
.
As a result, the USPTO explained, the application amounted to an attempt to
patent an abstract idea=97the idea of hedging consumption risk using
contracts.

Mr Bilski appealed. But rather than hear the appeal in the normal fashion,
the court took the unusual step of calling for the parties, and anyone else
with an interest in the case, to address not only whether the patent should
be granted, but also whether the court should overturn the 1998 case in
which it first held that business-methods patents could be awarded. That
opened the door to a legal free-for-all by academics, industry, and
inventors. The American Civil Liberties Union, a free-speech advocacy group=
,
made its debut appearance in the field of patent law to argue that allowing
patents on mental processes would run afoul of the constitutional protectio=
n
for freedom of thought.

The outcome of the Bilski case could affect the validity of billions of
dollars worth of business-methods, software, and financial patents. The
firms that receive such patents are divided on their worth. Some companies
that own lots of patents, including many business-methods patents, such as =
IBM
and Microsoft, are nonetheless urging the court to cut back on "pure"
methods patents and allow only patents on inventions that use machines or
produce tangible, physical results. Other firms, such as Accenture and
American Express, warn that the court will distort inventors' incentives if
it restricts patents on useful methods for minimising risk or managing
information.

John Squires, the chief intellectual-property counsel at Goldman Sachs, an
investment bank, says business-methods patents are an important way to
safeguard the invention of innovative financial techniques. He says
reformers should focus on urging policymakers to improve the quality of
issued patents of all kinds.

Some other Wall Street firms are more wary. Patents protect intellectual
property, but they also breed lawsuits. Research by Josh Lerner of Harvard
Business School found that patents on financial innovations were 27 times
more likely than average to result in litigation. The defendants in these
suits tend to be big investment banks and other financial institutions. Mr
Lerner discovered that the most frequent plaintiffs in such lawsuits are
patent-holding companies whose only line of business is the litigation of
patent suits.

Given the stakes, this week's hearing is unlikely to be the last exchange o=
f
words on Mr Bilski's case. Whichever side ultimately loses will probably
appeal to the Supreme Court. While the arguments rage in the courts,
Congress seems content to do nothing at all about patent reform. On May 5th
the Senate removed the bipartisan Patent Reform Act from its calendar. Amon=
g
other sensible proposals, it would have switched the United States from a
"first to invent" to a "first to file" patent system, which the rest of the
world uses. But it is now back on the shelf, which is a pity. Courts can
twiddle with the edges of statutory language, but only Congress can rewrite
broken laws.