Gathering the Foam: Are Business Method Patents a Deterrent to Software Innovation and Commercialization?

References

• Shulman , S . 2000 . 'Software patents tangle the Web' . Technology Review , March/April : 76 68 – 78 . US Supreme Court, Atlantic Works v. Brady, 1882, as cited in
   Google Scholar
• Merges , R P . 1999 . 'As many as six impossible patents before breakfast: property rights for business concepts and patent system reform' . Berkeley Technology Law Journal , 24 at http:// www.law.berkeley.edu/institutes/bclt/pubs/merges
   Google Scholar
• Acuña-Quiroga , C . 2001 . 'Predatory innovation: a step beyond? Understanding competition in high-technology markets' . International Review of Law Computers and Technology , 15 ( 1 ) : 7 – 33 .
   Google Scholar
• Calvani , T . 1985 . 'Non-price predation: a new antitrust horizon' . Antitrust Law Journal , 54 : 409 – 413 .
   Google Scholar
• Scherer , F M and Ross , D . 1990 . Industrial Market Structure and Economic Performance , 3rd edn , Boston : Houghton Mifflin . While this point could imply a discussion on achieving a balance between state-enforced property or monopoly rights and consumer welfare losses based on these rights, this article does not attempt to discuss consumer welfare losses, per se. After all, it is widely accepted that intellectual property rights are not costless from a societal point of view. We know that one person or firm's entitlement often results from the redistribution of wealth from another person or firm. This article also does not attempt to deal comprehensively with the economic impact of patents, although references inevitably will be made to it throughout the paper. It is already a truism that intellectual property is the principal asset in an economy, of which patents are an important component. For those interested in industrial organization and markets, see, particularly on the effects of monopoly, as patents are argued to bestow.
   Google Scholar
• Bork , R . 1978 . The Antitrust Paradox: A Policy at War with Itself , 7 New York : Basic Books . The term 'economic reality' is borrowed from
   Google Scholar
• Castells , M . 1996 . The Rise of the Network Society , Oxford : Blackwell Publishers . for instance, for a discussion on the significance of consumer choice in the development and acceptance of technologies. Technological acceptance can be viewed as an interactive process between technology and society
   Google Scholar
• Consider the case of VHS and Beta technologies for the videocassette recorder. The latter was acknowledged to be the superior technology; yet it was unable to become the standard that VHS became. The marketing of and acceptance, by consumers of the VHS largely helps to account for the success of VHS. See also National Research Council The Digital Dilemma: Intellectual Property in the Information Age , visited 5 May 2001, for a discussion on the other factors that constrain the market http://www.books.nap.edu/html/digital_dilemma/chl.html (http://www.books.nap.edu/html/digital_dilemma/chl.html)
   Google Scholar
• Merges , RP . 1995 . 'The economic impact of intellectual property rights: an overview and guide' . Journal of Cultural Economics , 19 : 107 – 117 . 110
   Google Scholar
• Mazzolini , R and Nelson , R R . 1998 . 'The benefits and costs of strong patent protection: a contribution to the current debate" . Research Policy , 27 : 273 – 284 . 274
   Web of Science ®Google Scholar
• Merges , R and Nelson , R . 1990 . On the complex economics of patent scope' . Columbia Law Review , 90 : 839 – 916 .
   Web of Science ®Google Scholar
• Hall , B and Ziedonis , R . “ 'The Effects of Strengthening Patent Rights in Firms Engaged in Cumulative Innovation: Insights from the Semiconductor Industry' ” . In Entrepreneurship, Innovation, and Economic Growth Edited by: Libecap , G . forthcoming http://elsa.berkeley.edu/bhhall/bhpapers.html, visited 17 July 2001
   Google Scholar
• Lemley , M A , Menell , P S , Merges , R P and Samuelson , P . 2000 . Software and Internet Law , 321 New York : Aspen Law and Business . Before State Street in 1998, which augured the granting of business methods, computer-dependent financial 'inventions' had already been granted. For instance, Merill Lynch's patent for 'Securities Brokerage-Cash Management System, M Lerner's 'Bookkeeping and Accounting System', US Patent No 4,642,767, and P Roberts et al US Patent No 4,648,038 on a 'Method and Apparatus for Restructuring Debt Obligations, Insuring and Funding of a Future Liability of Uncertain'. For other examples, see p 317. Also, it is useful to note that despite popular belief, the USPTO has been granting software patents for business methods although they did not call them business methods. Instead, they were referred to as processes or steps for doing something
   Google Scholar
• Dam , K W . 1995 . 'Some economic considerations in the intellectual property protection of software' . Journal of Legal Studies , 24 June : 321 – 377 . Dam focuses his discussion on copyright and patents. Copyright protects all original expressions and not ideas. Hence, copyright protects works with little differences among them. Patents protect inventions such as in technological advances that require substantial advances over the prior art and ideas, which have to be realized in some practical application
   Web of Science ®Google Scholar
• Tang , P , Adams , J and Pare , D . January 2001 . Patent Protection for Computer Software Programs January , Report prepared for the Directorate General Enterprise, European Commission
   Google Scholar
• Merges , R P . 1992 . 'Contracting into liability rules: intellectual property rights and collective rights organizations' . California Law Review , 84 ( 5 ) : 1293 – 1393 . 1294
   Google Scholar
• Grande , C . 2001 . 'Companies fail to reap rewards via the Internet' . Financial Times , 6 April : 3 A comprehensive study supported by the UK Chartered Institute of Purchasing and Supply, the Institute of Logistics and Transport and the Institute of Management reports that many organizations admit they have not yet seen the benefits of Internet technology, despite their large IT investments. The report 'E-Business 2001' was prepared by Professor Andrew Cox, University of Birmingham. See
   Google Scholar
• Mille , A . 2000 . 'Copyright in the Cyberspace era' . European Intellectual Property Review , 19 : 570 – 577 .
   Google Scholar
• Bolger , A . 2001 . 'Companies fear risk to reputations of e-trade ventures' . Financial Times , 4 June : 2 Finding from a survey conducted by the Birmingham-based Association of Insurance and Risk Managers. See, Another risk identified was fraud
   Google Scholar
• Merges , R P . 1995 . 'Intellectual property and the costs of commercial transaction' . Michigan Law Review , 93 : 1570 – 1615 .
   Web of Science ®Google Scholar
• Landwell 'Time for law and order' , visited 7 May 2001 http://www.landwellglobal.com (http://www.landwellglobal.com)
   Google Scholar
• Evans , P and Wurster , T S . 2000 . Blown to Bits: How the New Economics of Information Transforms Strategy , Boston , MA : Harvard Business School Press .
   Google Scholar
• Merges , R P . 1992 . Patent Law and Policy: Cases and Materials , Charlottesville , VA : Mitchie . During the reign of Queen Elizabeth 1, patents were used to lure skilled emigrants to the island and to transfer European technologies to the country. The Uruguay Round of GATT negotiations in 1993 eliminated several domestic favouritism measures, such as the US 'not invented here' syndrome. See, ch 4
   Google Scholar
• European Commission Innovation . 2000 . Policy in a Knowledge-Based Economy , 58 Luxembourg : Directorate General Enterprise .
   Google Scholar
• Grandstrand , O . 2000 . 'The shift toward intellectual capitalism-the role of infocom technologies' . Research Policy , 29 : 1061 – 1080 .
   Web of Science ®Google Scholar
• Kortum , S and Lerner , J . 1997 . “ 'Stronger protection or technological revolution: what is behind the recent surge in patenting?' ” . Working Paper 6204 National Bureau of Economic Research .
   Google Scholar
• Riordan , B . 2000 . 'What's driving patent and trade mark application filings?' . European Intellectual Property Review , 22 ( 8 ) : 349 – 352 .
   Google Scholar
• D L Hayes, 'What the general intellectual property practitioner should know about patenting business methods' , visited 13 October 2000 http://eon.law.harvard.edu/propertyOO/patents/Hayes.html (http://eon.law.harvard.edu/propertyOO/patents/Hayes.html)
   Google Scholar
• C Lewis 'Back-off State street" , visited 1 May 2001 http://www.lclark.edu/loren/cyberlaw… s99/ Cyberspace%20Project/statestreet.htm (http://www.lclark.edu/loren/cyberlaw… s99/ Cyberspace%20Project/statestreet.htm)
   Google Scholar
• Hansell , S . 11 December 1999 . “ 'Surging number of patents engulfs Internet commerce' ” . 11 December , http:// www.nytimes.com/library/tech99/12/biztech/articles/llweb.thm, visited 6 May 2001
   Google Scholar
• Glasner , J . 'Amazon loses patent suit round' . Wired News , http://www.wired.com/news/business/ 0,1367,41824.00html, visited 30 May 2001. In 2002, Barnesandnoble.com and Amazon.com settled the case with a licensing agreement
   Google Scholar
• Riordan , T . 1999 . 'It may be big, really big, but on-line airline ticket discounter is also being challenged' . New York Times , 18 January : C1 A patent interference is a proceeding to determine priority-who is the first inventor-among two or more rival inventions in the USA. This is conducted by the US Board of Patent Appeals and Interferences. For a brief discussion on this, see Tang et al, op cit, note 15
   Google Scholar
• R Poynder 'Method madness: the battle over e-commerce patents heats up' , visited 8 May 2001. To date, the company has not taken any legal action against apparent infringers http://www. ipmag.com/monthly/99-nov/poynder.html (http://www. ipmag.com/monthly/99-nov/poynder.html)
   Google Scholar
• Festa , P . 'Software download patent refuses to die" . Netvs.Com , http://www.cnet.com/news/01005-200-6582781.html, visited 20 July 2001
   Google Scholar
• 'Random bits: Gregory Aharonian: Walker Assets trivial/obnoxious business methods patents' , visited on 13 August 2000 http://lists.essential.org/pipermail/random-bits/2000-April/000143.html (http://lists.essential.org/pipermail/random-bits/2000-April/000143.html)
   Google Scholar
• Shapiro , C and Varian , H R . 1999 . Information Rules: A Strategic Guide to the Network Economy , Boston , MA : Harvard Business School Press .
   Google Scholar
• Bessen , J and Maskin , E . 1997 . “ 'Intellectual property on the Internet: what's wrong with conventional wisdom?' ” . MIT Department of Economic Working Paper 2
   Google Scholar
• Bessen , J and Maskin , E . January 2000 . “ 'Sequential innovation, patents and imitation' ” . Working Paper Series, Working Paper 00-01 January , MIT and Harvard University .
   Google Scholar
• ETAN Expert Working Group . June 1999 . Strategic dimensions of Intellectual Property Rights in the context of S&T Policy , June , X European Commission . Report prepared for the
   Google Scholar
• Graham , S and Mowery , D C . 1999 . 'Intellectual property protection in the software industry' . Haas School of Business, Berkeley, a paper based on presentations at the International Symposium on Innovation and Patents . 1999 , Tokyo , Japan. The authors used a base year of 1990 and a cut-off year of 1997, and found a sharp decline during 1992-1994, and 1995-1996. For more details, see
   Google Scholar
• 2000 . National Research Council's Conference on 'Intellectual Property Rights' . 2000 , Washington, D.C. . The authors, however, do not explain the reasons for the downtrend
   Google Scholar
• J Bessen and R M Hunt 'An empirical look at software patents', http://www. researchinnovation.org/swpat.pdf (http://www. researchinnovation.org/swpat.pdf)
   Google Scholar
• Berger , R . 1993 . “ 'Study on utilisation of patent protection in Europe' ” . Munich : Roland Berger Forschungs Institut, EPO . study conducted by This study provides an extensive data set on various aspects on the utilization of patent protection in Europe
   Google Scholar
• Ibid, pp 134, 175 and 178
   Google Scholar
• Ibid, pp 88 and 91.
   Google Scholar
• Jaffe , AB . August 1999 . “ 'The US patent system in transition: policy innovation and the innovation process' ” . Working Paper 7280 August , 1 – 47 . 1 – 2 . National Bureau of Economic Research .
   Google Scholar
• Ibid, p 319
   Google Scholar
• Griliches , Z . 1992 . 'The search for R&D spillovers' . Scandinavian Journal of Economics , 94 : 29 – 47 .
   Web of Science ®Google Scholar
• Salcakibara , M and Branstetter , L . 2001 . 'Do stronger patents induce more innovations? Evidence from the 1988 Japanese patent law reforms' . Rand Journal of Economics , 32 ( 1 ) : 77 – 100 .
   Web of Science ®Google Scholar
• Hall , B H and Ham , R M . March 1999 . “ 'The patent paradox revisited: determinants of patenting in the U.S. semiconductor industry, 1980-1994' ” . Working paper No 7062 March , National Bureau of Economic Research .
   Google Scholar
• Ibid.
   Google Scholar
• Wallerstein , M B , Mogee , M E and Schoen , R A , eds. 1993 . Global Dimensions of Intellectual Property Rights in Science and Technology , Washington, D.C. : National Academy Press . Cf with the arguments of Lemley et al, op cit, note. 13, for extended software protection. Also see
   Google Scholar
• P Heckel 'Debunking the software patent myths' for a vigorous defence of software patents. , visited 23 July 2001 http://www. swpat.ffii.org/vreji/doku/cd/doc/heckel/acmpaper.htm (http://www. swpat.ffii.org/vreji/doku/cd/doc/heckel/acmpaper.htm)
   Google Scholar
• Gadbaw , R M . 1989 . 'Intellectual property and international trade: merger or marriage of convenience' . Vanderbilt Journal of Transnational Law , 22 ( 2 ) : 223 – 242 .
   Google Scholar
• Michael , M R and Richards , T , eds. 1988 . Intellectual Property Rights: Global Consensus, Global Conflict? , Boulder , CO : Westview Press .
   Google Scholar
• Freeman , C . 1982 . Industrial Economics of Innovation , London : Frances Pinter Ltd. .
   Google Scholar
• Porter , M E . 1990 . The Competitive Advantage of Nations , New York : Free Press .
   Google Scholar
• Teece , D J , Pisano , G and Shuen , A . 1997 . 'Dynamic capabilities and strategic management' . Strategic Management Journal , 18 : 509 – 533 .
   Web of Science ®Google Scholar
• Ibid, p 525.
   Google Scholar
• Tang , P and von Tunzelmann , N . 2000 . 'Management, governance and intellectual property: electronic publishing in the UK' . Journal of Management and Governance , 4 : 299 – 318 .
   Google Scholar
• Kay , J . 1997 . Foundations of Corporate Success: How Business Strategies Add Value , Oxford : Oxford University Press . especially ch 7
   Google Scholar
• Hiltzik , M . 2000 . Dealers of Lightning Harper Collins , , Canada This book uncovers how Xerox PARC, despite its amazing inventions, was unable to profit from them. It explores how a great corporation 'fumbled the future'
   Google Scholar
• Waters , R . 2001 . 'Reinvention at the speed of light' . Financial Times , 4 June : 23 Lucent Technologies is a leading communications technology developer. Its focus, however, is on traditional circuit switching technology, instead of packet switching used in Internet networks. Lucent's easy access to advanced communications technologies is through its Bell Laboratories R8cD arm
   Google Scholar
• 2001 . 'Public roundtable on intellectual property aspects of a draft convention on jurisdiction and foreign judgements' . Federal Register , 66 ( 78 ) 23 April http://www.loc.gov/copyright/ fedreg/2001/66fr20482.html, visited 21 May 2001
   Google Scholar
• Ibid.
   Google Scholar
• “ 'The impact of granting patents on information innovation' ” . In Digital Dilemma , 192 – 207 . 192 National Research Council . Chapter on, http://www.books.nap.edu/html/digital_ dilemma/chl.html, visited 30 July 2001
   Google Scholar
• Vaver , D . 2000 . 'Patently absurd' . Oxford Today , 13 ( 1 ) : 21 – 22 .
   Google Scholar
• Thurow , L C . 1997 . 'Needed: a new system of intellectual property rights' . Harvard Business Review , September/October : 95 – 113 .
   Google Scholar
• Mowery , D C , Nelson , R , Sampat , B N and Ziedois , A A . 2001 . 'The growth of patenting and licensing by U.S. Universities: an assessment of the effects of the Bayh-Dole Act of 1980' . Research Policy , 30 : 99 – 119 .
   Web of Science ®Google Scholar
• Kahin , B . 2001 . 'The expansion of the patent system: patents and political economy' . First Monday , 6 ( 1 ) January http://www.firstmonday.or/issues/issue6_lkahin/index.html, visited 24 June 2001
   Google Scholar
• Samuelson , P . 1990 . 'Should program algorithms be patented?' . Communications ACM , August
   Web of Science ®Google Scholar
• Lessig , L . 2000 . 'Europe's me-too patent law' . FT.com , 11 July http://www.ft.com, visited 18 July 2000
   Google Scholar
• Ibid.
   Google Scholar
• Eurolinux "Eurolinux letter to European Commission against software patents' , visited 13 March 2001. http://www. eurolinux.orh/news/prprOlOl/dgltr/indexen.html (http://www. eurolinux.orh/news/prprOlOl/dgltr/indexen.html)
   Google Scholar
• Working Group on Libre Software . December 2000 . “ 'Free software/open source: information society opportunities for Europe?' ” . December , http://eu.conecta.it/, visited 9 October 2000. This working group was created at the initiative of the European Commission Information Society Directorate General
   Google Scholar
• Rivette , K G and Kline , D . 2000 . Rembrandt! in the Attic: Unlocking the Hidden Value of Patents , 177 Cambridge , MA : Harvard Business School Press .
   Google Scholar
• Ibid, p 193.
   Google Scholar
• Ibid, p 197.
   Google Scholar
• European Commission . 1998 . “ 'Green Paper on Innovation, and the First Action Plan for Innovation in Europe' ” .
   Google Scholar
• Likhovski , M , Spence , M and Molineaux , M . October 2000 . The First Mover Monopoly , October , Oxford : Intellectual Property Research Centre and Olswang Solicitors . Software patents with an application in the business field are granted in the EU when the requirements are met, such as for 'technical effect', novelty and non-obviousness. Between 1996 and 1999, US companies accounted for 52 per cent of business method patent applications filed with the EPO, compared with about 20 per cent from the UK, Germany and France (Germany and France with 7 per cent each, and the UK at with 5 per cent). Japan filed 10 per cent of the business method related applications. See
   Google Scholar
• European Commission . 1998 . “ 'Promoting innovation through patents: Follow up to the Green Paper on the Community Patent and the Patent System in Europe' ” . Communication from the Commission to the Council, the European Parliament and the Economic and Social Committee .
   Google Scholar
• S Kortum and J Lerner, 'Does venture capital spur innovation?' , visited 30 July 2001 http://www.papers.nber.org/ papers/w6846 (http://www.papers.nber.org/ papers/w6846)
   Google Scholar
• A R Krefft 'Looking at angels' , visited 30 July 2001. http://www.emoglen.law.columbia.edu/LIS/discuss/253.html (http://www.emoglen.law.columbia.edu/LIS/discuss/253.html)
   Google Scholar
• Cohen , L . 1999 . 'The patenting of software' . European Intellectual Property Review , 21 ( 12 ) December : 667 – 668 .
   Google Scholar
• Japanese Patent Office . “ 'Report on comparative study carried out under Trilateral Projects B3b' ” . 4 Appendix 6 at, http://www.european-patent-office.org/tws/appendix6.pdf, visited 2 August 2001
   Google Scholar
• Bolkestein , F . 2000 . 'The protection of industrial in Europe and its place in the world' . Conference of the Trade Mark Office . May 29 2000 , Alicante . Bolkestein is the Commissioner of DGIM
   Google Scholar
• Scotchmer , S . 1991 . 'Standing on the shoulders of giants: cumulative research and the patent law' . Journal of Economic Perspectives , 5 ( 1 ) Winter : 29 – 41 .
   Web of Science ®Google Scholar
• 'Semiconductor makers take patent battles to court' Findlaw Legal News, , visited 7 September 2000. http://news.findlaw. com/legalnews/2000831/n3156390.htm (http://news.findlaw. com/legalnews/2000831/n3156390.htm)
   Google Scholar
• C Shapiro 'Competition policy in the information economy' , visited 17 July 2001 httpi://www.haas.berkeley.edu/shapiro (httpi://www.haas.berkeley.edu/shapiro)
   Google Scholar
• White , L J . 1972 . 'A note on the influence of monopoly on product innovation' . Quarterly Journal of Economics , 86 ( 2 ) May : 342 – 345 .
   Web of Science ®Google Scholar
• Gilbert , R and Newbery , D . 1982 . 'Preemptive patenting and the persistence of monopoly' . American Economic Review , 72 ( 3 ) : 517 – 524 . Porter op cit, note 76 at pp 527-530;
   Google Scholar
• Scherer , F M . 1980 . Industrial, Market Structure and Economic Performance , 2nd edn , 407 – 438 . Boston : Houghton Mifflin .
   Google Scholar
• Crew , E . 1998 . 'Antitrust and the suppression of technology in the United States and Europe: is there a remedy?' . Antitrust Law Journal , 60 : 415 – 419 .
   Google Scholar
• 'Patently absurd' , visited 10 July 2001, p 3. http://www.economist.com/display/Story.cfm?Story_ID =6623748cemaf =1 (http://www.economist.com/display/Story.cfm?Story_ID =6623748cemaf =1)
   Google Scholar
• Grindley , P and Teece , D J . 1997 . 'Managing intellectual capital, licensing and cross-licensing in semiconductors and electronics' . California Management Review , 39 ( 2 ) : 8 – 41 . 11
   Web of Science ®Google Scholar
• Weber , T E . 2001 . 'Intangibles are tough to value, but the payoff matters in dot-com era' . Wall Street Journal , 14 May : B1
   Google Scholar
• Intellectual Property Initiative . 1999 . Research Programme on Intellectual Property London For more details, see, Tang et al, op cit, note 15 and the ESRC REGARD database, http:// www.esrc.ac.uk.
   Google Scholar
• Kitching , J and Blackburn , R . 'Intellectual property management in the small and medium enterpise (SME)' . Journal of Small Business and Enterprise Development , 5 ( 4 ) 333 This article is based on the Intellectual Property Initiative project conducted by Robert Blackburn on 'How SMEs see their intellectual property rights'. See also
   Google Scholar
• Rutter , N . 1997 . 'The great patent plague' . F'orbes ASAP , March 29 : 59 – 66 .
   Google Scholar
• Merges , R P . 1996 . “ 'A Comparative Look at Property Rights and the Software Industry' ” . In The International Computer Software Industry: A Comparative Study of Industry Evolution and Structure , Edited by: Mowery , D . 290 New York : Oxford University Press .
   Google Scholar
• Machlup , F . 1958 . 'the economic review of the patent system' . Testimony to US Congress . 1958 . http://www.ipmall.fplc.edu/ipcourses/jepson/unitl/aneconom.htm, visited 20 July 2001
   Google Scholar