Internet Patents: Giving Away the Store

If you're thinking about getting involved in e-commerce, you'd best be aware that you've missed your chance. Thanks to a 1996 U.S. Federal appeals court decision (State Street Bank & Trust vs. Signature Financial Group), it's now possible to obtain broadly phrased patents on Internet business processes. These patents enable a firm to obtain what amounts to a government-guaranteed monopoly on the abstract concept of how to carry out a certain type of business on the Internet. Since then, the U.S. Patent and Trademark Office (PTO) has awarded hundreds of patents for e-commerce business processes, including Amazon's patent on its one-click ordering technology. As the Amazon case illustrates, businesses that obtain such patents will not hesitate to use them against competitors—and Amazon would just love to get rid of that pesky upstart, Barnes & Noble, which wasn't quite as quick to realize the potential of selling books on the Internet. Within the next few months, savvy patent seekers are sure to win patents on every conceivable method of doing business by e-commerce. If you're not aware of such patents, and start making some money, you'll hear from their lawyers. Count on it.

Defenders of the U.S. patent system concede that some recent patents seem too broadly phrased. They point out that the courts may overturn some of the recently granted Internet patents. Of course, that's no consolation to those who may have to give up their businesses rather than face insolvency in prolonged patent litigation; the cost of contesting a patent infringement generally exceeds $500,000. But you should be aware of an even more chilling possibility: namely, that the courts may very well sustain such patents. That is precisely the conclusion reached by legal scholar Francisc Keeley-Domokos (1999), and other prominent legal scholars concur (Melges 1999). After tracing the long, tortuous line of legal reasoning that led the Federal Court to the State Street decision, these scholars conclude that the Court's reasoning was sound—and that many, if not most, Internet patents will withstand a court challenge.

How could sound legal reasoning lead to a patent policy that so obviously undermines competition, discourages innovation, and distorts market dynamics in an important, emerging industry? As you'll learn in this essay, you don't get the answer until you trace this reasoning back to the earliest decision that enabled patent seekers to win government-guaranteed monopolies for software algorithms—that is, the first U.S. Supreme Court decision concerning computer software (Gottschalk vs. Benson, 1972). In this decision, the computer-illiterate judges committed an error of monumental proportion in defining one of the basic concepts of computer science, the algorithm. Their error led directly to the lower court decisions and PTO policies that transformed virtually all software algorithms into patentable subject property—and in the end, as you'll see, to the concept of patents on abstract Internet business patents.

Legal scholars will say that the long chain of legal reasoning since the 1972 Benson decision is too well-established to be overturned. But this is tantamount to saying that, if the U.S. Supreme Court once ruled that the earth is flat, then all subsequent courts must proceed as if this is true. In the end, I believe Internet patents can be successfully challenged only by laying bare the erroneous thinking that underlies the very concept of software patents. Please read on; everyone who understands essential computer concepts bears an important responsibility to educate the public, as well as our lawmakers, about what's truly at stake. If you're reading this from outside the U.S., please be aware that these patents can be written so that the U.S. can compel foreign countries to honor them. That's true even if your country's laws haven't yet been fully molded in the image of the out-of-control U.S. intellectual property system. The points I'm about to make matter to everyone, everywhere, who's concerned in any way about the future of computing and electronic commerce.

Let's start with a bit of background. As you're probably aware, the U.S. Constitution authorizes Congress “to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” But what does this mean?

Judges and attorneys who favor software patents will argue that a literal reading of the Constitution discloses only that such rights should be limited in duration, but this is obviously false. The Constitution clearly states that that copyrights and patents should promote the progress of science and technology. It is also obvious that the Constitution means to distinguish intellectual property rights from the type of rights granted to owners of tangible property, such as real estate. In the “takings” clause, the Constitution plainly states that the government may not deprive citizens of their tangible property without paying fair compensation. However, no such compensation is owed when copyright and patent holders lose their protection. Therefore, the Constitution argues that Congress promotes science and technology not only by granting temporary monopolies to copyright and patent holders, but also by depriving them of these rights after a certain amount of time has expired. What the Constitution envisions, in short, is a thriving and growing public domain of ideas, knowledge, and techniques. In the public domain, no one person has a right to exclude others from using ideas, information, techniques, or knowledge in a particular way (Benkler 1999).

From the writings of the Framers and the earliest patent and copyright laws, as well as two centuries of jurisprudence, it is clear that the Constitution does not offer protection for “anything under the sun made by man”, as a more recent (and misguided) Congressional committee put it. Authors and inventors cannot seek protection for ideas, scientific truths, abstract concepts, and the mental steps that are the stock in trade of expertise in science and technology. These must always be part of the public domain. If intellectual property rights are expanded to the point that they reduce rather than enlarge the public domain, then they fail to measure up to the expressed constitutional standard, i.e., promoting the progress of science and technology. How effective would your college education have been if your professors had to pay licensing fees every time they taught you a fact or a mathematical formula?

Copyright law serves the constitutional purpose admirably. As you may be aware, copyright protects only the expression of an idea, not the idea itself. But patents are risky. A patent seeker may try to win a patent, not only on the practical implementation of an idea but also the idea itself. This is precisely what telegraph inventor Samuel Morse tried to do in 1853. After winning seven patents on telegraph-related devices, Morse sought an eighth patent on the abstract concept of using electromagnetism to produce printed characters at a distance. The U.S. Supreme Court refused to award the eighth patent to Morse, pointing out that it amounted to a patent on an abstract concept—that of electromagnetism. Such a patent could not serve to promote science and technology. It would do the opposite, because it would enable Morse to levy what amounts to a tax on any new method of electromagnetism for communication purposes. An inappropriately broad patent, in sum, fails to promote science and technology because it enables the patent holder to eliminate competitors who may very well have come up with better technology. For the same reasons, the courts have long refused to grant patents on abstract business concepts, such as a certain type of accounting system that is required in order to do business in a specific field. Such a patent is inimical to the public good because it enables the patent holder, in effect, to win a monopoly on a specific type of business.

In short, what is patentable is not the idea itself, but rather the practical application of an idea in a genuinely innovative way. As the U.S. Supreme Court has recently affirmed, Congress and the Patent Office may not enable patent seekers to obtain patents that, in effect, remove existing knowledge from the public domain. Such knowledge includes the truths of science, which are given by nature and, as such, cannot be discovered. An inventor may claim to have made a considerable investment in research that disclosed a new scientific truth, and seek to win patent protection for the truth itself, not just the practical application of this truth. But such actions would impede the progress of science. For this reason, the U.S. courts have long held that scientific truths, even if newly encountered, must be treated as if they are, in principle, prior art, and therefore not subject to patent protection.