Business Patent Methods

Should patents be granted for business methods?

Advocates of the business method patent argue that the exclusion of business methods “as such” from patentability is unjust. They claim that business innovators deserve reward for their labours no less great than that offered to other inventors. In addition, they argue that business method patents are economically desirable in that they spur innovation in important sectors of economic activity. They point to the growing phenomenon of patent incubators and licensing shops.

By contrast, proponents of the current exclusion argue that patents are principally a tool of economic policy and are less sanguine about the economic benefits of business method patents. The argument against business method patents tends to be made in the following four ways.

Business methods are too abstract to enable the law to limit the patent monopoly so as properly to balance rewards for innovation and the demands of free competition.

Business method patents have high social costs. They make products and services more expensive and scarcer than they would have been otherwise. They stifle competition by directly restraining the conduct of competitors, they create barriers to entry, and they may impose crippling royalty fees on businesses.

Patents are unnecessary as incentives for the development of business methods. The competitive advantage to be gained from improved business methods will usually provide ample incentive. They would aid improvements to business methods, constitute efficiency savings, increase brand loyalty and give first-mover and marketing advantages. Although economic theory suggests that property rights are justified as a way of restoring incentives to innovate, in this case there are already sufficient ways of recouping the costs of invention. The same economic theories indicate that where there is no market failure, property rights are not called for and imitation should be allowed.

Even in the marginal case in which competitive advantage may be insufficient to spur investment in improved business methods, proponents of the current exclusion question whether overall social welfare would be increased by patenting. Such activity produces many inventions that may have been produced anyway, albeit later in time. There was no shortage of innovation in the services (and in particular, the financial services) industries before the change in patent policy in the US. The question is whether the added welfare in the availability of a proprietary service a few years before it would be available for all to use is sufficient to counter the monopoly effect of the patent, or whether business method patents simply encourage a wasteful race to invent.

The real difficulty for policy-makers is that it is almost impossible to corroborate these various economic arguments with any hard data. This is partly because economists are still debating what causes innovation and what roles patents play in inducing invention. It is also because there is no accepted methodology for investigating empirically the effects of patents on social welfare. A cautious “wait-and-see” approach may be the most prudent way to proceed.

Unfortunately, however, the EU may not be able to afford the luxury of seeing how events unfold in the US. Despite the explicit exclusion of business methods “as such” from patentability, some protection for business methods may already be obtained in Europe by claiming a new, inventive technical method of implementing the business method. Many applications involving business methods are already being prosecuted in European patent offices.

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