At first glance, developments during the past month looked like they would calm fears that patents are threatening the Internet's future. The Patent & Trademark Office (PTO) announced a review of how it grants so-called business-method patents, raising hopes for fewer goofy judgments such as giving priceline.com exclusive rights to the "name your own price" system car dealers have used forever. Even CEO Jeffrey P. Bezos of Amazon.com, owner of a recent patent for "one-click shopping," conceded patents like his should be good for up to 85% less time and be granted less often.
Below the surface, the news is much less positive. Bezos still plans to enforce his patent, now being challenged by Barnesandnoble.com. Priceline is in court with rival Expedia Inc., and Broadvision Inc. just collected a $15 million patent-infringement settlement from Art Technology Group. On Mar. 21, the PTO gave MobShop Inc. notice of patent a on using the Web to form ad-hoc buying groups to seek discounts, not exactly a novel idea. That's not much of a sign that the PTO is serious about change.
STANDARDS. Indeed, more business-method patents are in our future. Fewer than 1,000 were granted in the past two years, but almost 4,000 applications came in. The PTO doesn't plan to review whether such patents should be granted at all, just how to make the process better. But this stops short of what's needed: The PTO and the courts must raise the standards for business-method patents. Only those that are truly innovative should win protection.
Why does this matter? Dubious patents threaten to limit competition on the Web. It has already happened in the case of priceline, where the threat of litigation helped delay Expedia's entry into the name-your-own-price travel arena. Stanford University law professor John H. Barton says patent challenges usually cost $3 million in legal fees--and three-fourths of challenged patents are modified. Entrepreneurs are fighting when they should be innovating, says Lise J. Buyer of Credit Suisse First Boston. "I'm not sure that's exactly where investors in these companies hoped their money would be spent," she says.
Patent law needs to be changed because how we innovate has changed. PTO Commissioner Q. Todd Dickinson says granting patents easily has made the U.S. a productivity machine. But the argument overlooks some New Economy facts. In the Industrial Revolution, developing products and bringing them to market was highly capital-intensive. Business-method patents existed but were rare.
In contrast, Web business models today are cheap and fluid. I often ask e-business executives how long their their ideas or related software took to develop. The answers: as little as a few minutes, a few weeks, or that a bunch of college kids built the software as a summer job. MobShop CEO Jim Rose says he filed for his patent before even creating the company. These companies will all hit nine-figure market values with little investment in intellectual property. How much protection do they need?
The Web's history offers a different model of innovation, built on industrywide cooperation. What ended the productivity stagnation of the 1970s was technology companies who partnered with others and let the industry run with their innovations. Tim Berners-Lee didn't patent the hyperlinking technology that makes the Web possible. That decision changed the world. Now, he's "aghast" at patents for baby-step innovations like Amazon's.
The PTO will give patents for business models if they are novel, not obvious, and deemed useful. That's the law. But the office needs to raise the bar. That takes more than PTO's current plans to address the issue by building databases and hiring patent examiners. It starts with reminding everyone that patents exist to make our world more creative and productive, not to reward companies or their lawyers for claiming possession of the obvious.