Business Method Patents and Patent Floods

Abstract:     
Technological breakthroughs occasionally set off floods of
inventions and associated patents. The decline of the business
method exception to patentability is likely to increase the
frequency of patent floods. Future technological breakthroughs
might now cause two different patent floods: a flood of patents covering the relevant technology, and a flood of patents
covering business methods in the new market opened by the
breakthrough. Furthermore, a technological breakthrough is no
longer a precondition for a patent flood. Any factor that opens a new market might cause a future flood of business method
patents.

A flood of related patents in a new market creates special
problems for competition in addition to the usual problems that arise from market power associated with individual patents.
Patent floods strain the resources of the Patent Office and
adversely affect the quality of issued patents. Of particular
concern, reduced patent quality increases uncertainty about the scope and validity of patents and increases the frequency of
patent litigation. The fragility of the many start-ups in new
markets makes them vulnerable to strategic patent litigation.
Furthermore, a thicket of patents may stultify development of
technology because of the cost of securing patent licenses from the large numbers of patent owners. Cross-license agreements
and patent pools mitigate problems caused by floods, but such
agreements could be difficult to reach in response to future
business method patent floods. The heightened risk of patent
floods is a problem unique to business method patents, and
justifies exceptional treatment of business method inventions.
It is probably socially desirable to use the subject matter and nonobviousness standards for patentability to restrict grants
of business method patents.

Number of Pages in PDF File: 34

Keywords: Patent, Business Method, Patent Pool

JEL Classification: K21, K39, L4, O34

Accepted Paper Series