Are Business Method Patents Bad for Business?

Abstract

This article examines business method patenting. After describing State Street Bank & Trust Co. v. Signature Financial Group, Inc., the Federal Circuit's 1998 decision recognizing business method patents, I discuss the problems arising from extending patent law to the business environment. First, I show why many invalid patents are likely to issue. Second, I review the rationales for intellectual property protection and demonstrate why none are relevant to business methods. Third, I argue that business model patenting can distort competition by insulating inefficient business operations. Because of network effects and lock in, these inefficiencies?and the resulting distortion?can persist even if the patent is later invalidated.

The last part of the article suggests that patents should be permitted on the software that implements business methods, but not cover business models themselves. Such an approach would better accord with core intellectual property doctrine, which permits protection for instantiations of principles (expression in the case of copyright; applications in the case of patents), but not protection for the principles themselves. This approach would also withhold protection from business methods that do not require the special incentives of patent protection and it would focus both the PTO and the courts on the inventiveness of the software rather than the clever idea of transferring real-world business models (such as the Dutch auction protected by the Priceline patent) into cyberspace. Most important, if patent protection were to run only to software and not to the model the software implements, then others would be able to utilize the model with different software (or without software). Thus, distortive impacts on the competitive marketplace would largely be eliminated.