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Toasters or Tollbooths?

For his part, PTO commissioner Dickinson says he too is curious to see whether the business methods patents will hold up in court. For now, he is confident that Wall Street wouldn’t be making the investment if the patents weren’t strong. Nonetheless, Dickinson notes that the courts always function as a check on the job the Patent Office is doing. As he puts it, “We are going to do the best job we can, just as we have with every technology that has blown onto the scene. If the courts tell us we need to make an adjustment, we don’t mind that a bit.”

Taking a long historical view, much of the current patent conundrum stems from the advent of a new and uncharted technological realm. The Patent Office has almost always had problems with dramatic technology shifts, and software and the Internet are no exceptions. In the highly legalistic and precedent-driven view of the patent system, the lack of clearly defined “prior art” in emerging technological environments makes almost anything seem like fair game for an ownership claim.

PTO commissioner Dickinson likens the situation to the advent of electricity. “Man was making toast for thousands of years before electricity came along,” Dickinson says. “But electricity opened the door for inventors to claim new methods for using a coiled wire of certain resistance to control the toasting of bread.”

The idea of patenting toasters seems reasonable enough, but unfortunately, Dickinson’s analogy falls short in the current climate. Put simply, the business method patents now being granted for e-commerce seem more akin to patents on the idea of toasting bread. The problem, critics say, is that the system is supposed to provide incentives to invent new toaster designs. But if someone owns the idea of making toast-or even the idea of making toast with electricity-the claim will clearly deter the emergence of new and varied toaster designs. Instead it will function like a needless tollbooth assessing royalty fees on everyone in an industry, or worse, like a roadblock that deters would-be competitors.

There’s ample historical evidence that overly broad patents have stifled innovation in emerging industries. A century ago, Henry Ford was held for ransom by George Selden’s “road engine” patent, granted to Selden even though he had never constructed an automobile. Ford prevailed in the courts, but only after a costly legal battle. In the early years of aviation in the United States, Orville and Wilbur Wright fought a largely successful nine-year campaign to enforce their broad patent on the airplane. While innovators helped aviation thrive in Europe, the Wright brothers’ patent crippled American industry until the outbreak of World War I, when the U.S. government forced the Wrights to license their technology so that planes could be built more expeditiously for the war effort.

To some, like Raymond Van Dyke, a patent attorney with the Dallas, Texas-based law firm Jenkens & Gilchrist, these and other examples are proof that the patent system is ultimately self-correcting. Historically, he says, “when there has been enough perceived inequity in the patent system, industry has revolted and other mechanisms have kicked in.” In the case of e-commerce patents, Van Dyke predicts “the courts will probably step in. Congress may have to step in. But you have to remember that all these forces, including broad societal forces, come together in a confluence that creates the law.”

In that view, it might behoove us all to park our electronic shopping carts for a moment and try to remember what the patent system is for-and what it’s not. The U.S. Supreme Court ruled wisely on the matter in a verdict issued more than 100 years ago. In the case, the court wrestled with the question of when a minor improvement-in this instance to a boat propeller-rose to the level of a bona fide new invention. The decision resonates with uncanny prescience throughout the current debate:

It was never the object of patent laws to grant a monopoly for every trifling device, every shadow of a shade of an idea, which would naturally and spontaneously occur to any skilled mechanic or operator in the ordinary progress of manufactures. Such an indiscriminate creation of exclusive privileges tends rather to obstruct than to stimulate invention. It creates a class of speculative schemers who make it their business to watch the advancing wave of improvement, and gather its foam in the form of patented monopolies, which enable them to lay a heavy tax on the industry of the country, without contributing anything to the real advancement of the arts. It embarrasses the honest pursuit of business with fears and apprehensions of unknown liability lawsuits and vexatious accounting for profits made in good faith.

-U.S. Supreme Court, Atlantic Works vs. Brady, 1882

Will Patents Rule Commerce on the Net?

A selection of broad e-commerce patents issued by the U.S. Patent and Trademark Office.

Company U.S. Patent
Number Subject Update Amazon.com 5,960,411 one-click purchasing Amazon.com has used its patent to force changes to Barnes & Noble’s Web site. CyberGold 5,794,210 attention brokerage Patent covers rewarding Web surfers for paying attention to online advertisements. E-Data 4,528,643 download-based sales A judge blocked E-data’s attempts to enforce this pre-Internet era patent. Netcentives 5,774,870 online incentives One of several recently issued patents covering reward systems for Internet purchasing. Open Market 5,715,314 electronic shopping carts This patent may be infringed by many e-commerce sites on the Internet. Priceline.com 5,794,207 buyer-driven sales Priceline has sued Microsoft and its Expedia travel site for copying its patented business method. Sightsound.com 5,191,573 music downloads Sightsound is demanding a 1% royalty from all online music sellers, and has sued Time Warner’s CDNow.com music site for infringing its patent.

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