Patent Office Stifles Innovation

An appeals court ruling favoring the U.S. Patent Office puts in jeopardy tech companies' ability to get protection for further software advances

By John Kheit

Information Age innovators need not apply. At least that's the implied message being stretched like police tape across the door of the U.S. Patent & Trademark Office (USPTO). The agency seems fixated on eliminating the last, true, sustainable American advantage: our capacity to innovate.

Recent moves by the USPTO have resulted in a precedent-setting legal victory that now threatens software patents with extinction, putting companies like Apple and Google at risk along with the U.S. economy.

Software is key to modern innovation. But more important, it's among the last strongholds in American economic might. Open the box on a new Apple (AAPL) product, and you'll see a note saying "Designed by Apple in California." It leaves out the implicit "made in China." That's what America does. It innovates. It designs. It conceives and invents. Today, America makes ideas. And then we outsource the manufacture of our ideas, and sell those to the world. Indeed, in just a few decades, the U.S. has gone from a country that largely produced tangible goods to one that produces blueprints for intellectual property. And one of the greatest areas of intellectual property production in the U.S., as noted by Apple CEO Steve Jobs, is software.

Notably, during Apple's recent quarterly report, Jobs commented about the iPhone: "The traditional game in the phone market has been to produce a voice phone in 100 different varieties.… [W]e approach it as a software platform company, which is pretty different from most of our competitors."

Left in Limbo

Now, it appears the USPTO is hell-bent on destroying such intellectual property rights. The most recent evidence came from an Oct. 30 ruling by an appeals court that could narrow what's patentable and make it much more costly to obtain patents, particularly for newer companies. Some fear the decision also leaves many innovative software technologies in limbo.

The decision came in response to a request by the USPTO for clarification of what is and isn't patentable. In so doing, the USPTO opted to retry principles that had been settled more than a decade ago, putting all patents protecting business-method software at risk.

The USPTO kicked the question to the appeals court because it wants the power to pick and choose what is patentable subject matter—rather than merely performing its well-established mandate to examine patent applications. At best, this is plain lazy. At worst, this push is economically stupefying. How can the USPTO recognize the next Google—particularly if it won't even examine the invention?

Admittedly, it's always been difficult to distinguish "abstract" ideas, which are not entitled to patent protection, from "applied" ideas, which are. In short, E=mc² is not patentable, but applying the formula within a machine (as software on a computer) to run a nuclear reactor more efficiently and safely is patentable.

Easier to Prejudge

Congress has long equipped the USPTO with legal tools to let the quality wheat advance ahead of the chaff. Legal doctrines known as "novelty" and "non-obviousness" help measure whether a purported advance is inventive. But examining patent claims to figure out if they are new and non-obvious is hard work. It's far easier for the USPTO to arbitrarily narrow or prejudge what it thinks should not be patentable subject matter, so it can ease or outright avoid doing its job.

That's exactly what the USPTO did in response to an application by Bernard Bilski for a financial-services "hedging" process. Bilski's patent application was chock full of hopes and dreams that amounted to the financial-services equivalent of the wheel. In other words, it was a poster child for bad patent claims.