Commentary: Why We Don't Need Patent Reform Yet

Every few years, it seems, the U.S. Patent & Trademark Office throws the business community into a complete panic. In 1993, for example, the PTO granted a sweeping multimedia software patent to Compton's NewMedia Inc., which immediately sought hefty licensing fees from competitors. There were dire warnings that the patent would retard the development of multimedia technology and the CD-ROM industry. The PTO "could decimate the very industry it seeks to protect," complained one software executive.

Just a couple of years before, a similar outcry arose when the PTO gave an Arizona ophthalmologist a patent on a new technique for stitchless cataract surgery. Critics worried that other doctors would start patenting their own innovations--and new medical techniques would no longer be freely shared. Before that, there were similar protests about the first patent awards in software, gene therapy, and biotechnology.

DIRE WARNINGS. This time, the scare is about patenting business processes. And the focal point for the outcry is Inc.'s September patent on a one-click system for online orders. The worry: Amazon will block other sites from using this seemingly obvious innovation and thereby render e-commerce less efficient.

Over the past three years, applications for business-process patents have tripled (chart). "It tends to happen every time there is a significant advance in technology," says PTO Commissioner Q. Todd Dickinson. Think Internet: Some of the hottest e-commerce stocks are propelled, at least in part, by the value of their patented business processes. Inc., for example, has a patent on so-called reverse auctions on the Internet and has sued Microsoft Corp. for adding a similar type of name-your-price bidding to the company's Expedia site. This suit and a similar one brought by against have various patent experts calling for a sweeping reevaluation of how intellectual-property law applies to the Internet.

The issue deserves to be taken seriously. But it's useful to keep in mind how other patent scares have played out. They tend to follow a pattern: First, an inventor lays claim to a broad swath of promising new technology. Because the PTO is unfamiliar with the area, it grants the patent, at least initially. Wild predictions of doom and gloom--usually from rivals--follow.

But ultimately, the legal system finds a way to manage the new technology, and the dire predictions never come true. Consider the Compton's patent. Bowing to industry concerns, the PTO reexamined the patent and revoked it. The problem of medical-technique patents was solved by a 1996 law making it nearly impossible for doctors to block other physicians from using their innovations. And despite early fears, owners of some key biotechnology and gene-therapy patents have been willing to license them freely, and innovation in both areas is thriving.

At this point, there's still ample reason to believe that the PTO and the courts will be able to cope with the problem of Internet business-method patents in the same way. Yes, the Web is unique. It tends to give first movers big rewards and therefore provides companies with a disproportionate incentive to patent everything in sight.

Still, traditional patent law provides adequate tools for weeding out bogus claims. For example, there's a basic requirement that patents can only be granted for innovations that aren't obvious. If patent examiners and courts apply this test stringently, they should be able to block applicants who are importing simple ideas from the outside world into the Net. This requirement, many experts believe, will eventually doom the disputed and patents.

It's possible that in spite of the best efforts of the PTO and the courts, business-process patents will wind up jeopardizing innovation on the Net. In that case, a fundamental revision of patent law may well be necessary. But it's early yet, and history gives plenty of reasons to be skeptical of the Chicken Littles.

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