[Random-bits] Notes from Robert Merges talk on ecommerce patents

[James Love]

Here are notes from a 1999 presentation by Robert Merges, author
of "As Many as Six Impossible Patents Before Breakfast: Property
Rights for Business Concepts," 14 Berkeley Tech. L.J. ___ (1999).

http://e-conomy.berkeley.edu/pubs/summary/0399ecom.html

The Legal and Policy Framework for Global Electronic Commerce

March 5-6, 1999
Conference Summary and Report Prepared for the UC E-conomy[tm]
Project by John W. Cioffi*

conference organized by The Berkeley Center for Law and
Technology and The Berkeley Technology Law Journal, Boalt Hall
School of Law,  University of California, Berkeley**


Professor Robert Merges 
(U.C. Berkeley, Boalt Hall School of Law)

The growth of electronic commerce brings with it the relentless
disintermediation of commerce through the usurpation of the roles
played by middlemen.21 The new "middleman" in the digital economy
is the patentee, the holder of intellectual property rights in
key technologies. The questions that arise from this new context
is whether these patentee-middlemen have any economic value and
whether stronger patent rights adds value by inspiring more
innovation. The available evidence suggests that current
intellectual property rights have not resulted in a shortage of
innovation. The number of products, services, and business models
is exploding. Technology continues to develop rapidly. Thus,
there is little empirical support for strengthening patent
rights. Yet, this appears to be the trend in the U.S., both in
the legislatures and in the courts. 

As patent rights were expanded to cover software, the distinction
between products and businesses began to disintegrate in areas
where the business models and practices are driven by technology.
This has set off a steady expansion of patent rights until at
least one Court of Appeals has granted patent protection to a
business model. This is a dramatic experiment in economic
incentives without explicit legislative authorization and in
conflict with the traditional reluctance to grant monopolies in
easily replicable ideas. The results may be harmful to the
development of a vibrant marketplace. Business entities have an
incentive to foreclose competition in both technology and
business strategy through acquisition and enforcement of
patent rights. Electronic commerce may suffer from reduced
competitive pressures to improve products and services as broader
swaths of the digital economy are brought within the insulated
monopoly created by patent rights.

Once expanded, property rights cannot be contracted easily. The
recognition of patent rights creates entrenched, vested interests
and investment backed expectations that raise takings objections
to the ex post limitation of the property interest embodied in
the patent. In place of the dynamic and fluid innovation
characteristic of digital technologies and markets, expanded
intellectual property could slow development by freezing
technologies and business practices behind the edifice of
property rights. Merges quips: "All property is theft until I
have something to steal; business patentees now have property."
Even business model patents have their proper place in a world in
which the distinction between technology and business
practices is blurred.

Merges sees the solution to overly expansive patents as better
oversight and control over the patent granting process. He
believes the real problem is not the expansion of patent rights
per se, but the granting of patents that are invalid under
existing law. The incentives driving the U.S. patent office favor
granting patents and allow public input through litigation only
after the grant is made. This dynamic favors patentees by
shifting the legal burden against challengers and giving the
patentees an economically advantageous position to defend. The
excessive granting of patents also encourages inadvisable
expansions of patent law to justify the granting of "bad
patents." The solution to this problem requires disclosure of
patent applications and the ability of private parties to bring
pre-patent challenges. In this framework, opposing private
parties with the best information bring their knowledge of a
subject to the patent process. This knowledge eliminates the
advantage of the patent applicant over the civil servants in the
patent office. The incentive structure thus favors blocking
invalid patents before they go into effect.