Business Method Patents Marc GratacosMelinda Macauley Holly LiuPete Perlegos Strategic Computing and Communications Technology Fall 2002 In-class debate

2 Business Method Patents Background –Patents authorized by Constitution to “promote the progress of science and the useful arts.” –Limited term monopoly granted to the inventor of new, useful, and non-obvious innovations.

3 Business Method Patents Business Method Patents are a Recent Development –Until the 1998 State Street decision, business methods were deemed too abstract to be patentable. –Business method innovation occurred prior to 1998 despite the lack of patent protection. –What if we always had them? Ford assembly line

4 What changed? *Source: USPTO Website

5 Business Method Patents Why business method patents are flawed –Business methods are unsuitable for patents. –Patents are not needed as incentives to innovation in business methods. –Business method patents create technological and economic inefficiencies. –As a result, business method patents hamper innovation and economic development.

6 Business Method Patents Business methods are unsuitable for patent –Business methods are too vague and broad to patent. –Business methods are too difficult and expensive to validate. –As the foundation of commerce, business methods should not be subject to monopoly.

7 Business Method Patents Business methods are too vague and broad for patent. –Business processes are often conceptual and abstract. –Business process patents can apply to multiple markets and industries, creating overbroad protection that forecloses efficient innovation. –In the brief period since State Street, the Patent Office has issued overbroad patents.

8 Business Method Patents Business methods are difficult to validate. –Patent Office lacks the expertise and resources –USPTO limited by the lack of comprehensive, searchable databases of prior art –Determining non-obviousness is difficult in the fast-changing business environment –Examiner incentive system is skewed toward issuance –Substantial continuing risk of issuing overly broad or otherwise defective patents

9 Business Method Patents As the foundation of commerce, business methods should not be subject to monopoly. –Business processes are the foundation of modern commerce. –Monopolies on the business innovations are therefore particularly damaging economically, preventing the rapid spread of efficient innovations. –Business method patents can (and have been) used as anticompetitive weapons against competitors. Amazon “One Click”

10 Business Method Patents Patents are not needed as incentives to innovation in business methods. –Business methods carry their own rewards. –Past history indicates that business process innovations flourish without patent protection. –No evidence that newly available patent protection has encouraged greater innovation in business processes.

11 Business Method Patents Business method patents create technological and economic inefficiencies. –Business method patents cause economic inefficiencies by preventing the adoption of efficient practices, inflicting additional costs, and may cause price distortions –Business method patents cause technological inefficiencies by restricting the spread and enhancement of the innovation

12 Business Method Patents Business method patents create economic inefficiencies. –Limit the spread of the most efficient business processes –Impose costs on small and large competitors alike “Patent ‘thicket’ can be difficult and expensive to navigate” -David Messerschmitt –Monopoly pricing per component will create inefficiency for both producers and consumers

13 Business Method Patents Business method patents create technological inefficiencies. –Limit the spread of the new technologies –Force the adoption of less effective alternative technologies –Prevent the development of enhancements to the new process except by patent owner –Market leader can hijack new technology in favor of more profitable existing technology Airlines – find lowest price online

14 Business Method Patents Conclusion: As a result of the foregoing factors, business method patents hamper innovation and economic development.