IS PATENT LAW STIFLING INNOVATION?

A landmark U.S. Court of Appeals decision handed down five years ago is still spurring controversy between business people with opposing viewpoints on the nature of innovation. The decision, in “State Street v. Signature Financial,” bestowed court approval to the idea of granting business method patents. In 1997, the year before the ruling, the Patent Office received 927 applications under its main classification for business methods. In 2001, that number rose to 8,700, falling to 5,000 last year as many small companies went out of business.

Jay Walker, the e-commerce pioneer who founded Priceline.com, considers himself a champion of innovation. His business, Walker Digital LLC, has made a business of patenting just about any business method it can. The company owns more than 200 today, including patents for online dating and running slot machines. Patents are designed to encourage innovation by guaranteeing inventors some reward — generally exclusive rights for 20 years. The idea must be considered useful, new and “non-obvious.” In computers, the definition of “obvious” is blurry. That fuzziness has sparked concerns that too many “obvious” ideas are getting patented. “Too many small companies are spending their money on patent lawyers, not research,” says Tim O’Reilly, another e-commerce pioneer whose
company invented the Internet banner ad. “It’s not innovation. It’s a business model of ripping off the patent system.” (AP 26 Jul 2003)