Patent’s (Value) Pending

The CMO’s Guide to Driving Innovation
November 22, 2008
The LAB: Innovating a Fishing Pole with Multiplication (November 2008)
November 30, 2008

Patent’s (Value) Pending

The Front End of Innovation blog reports 70% of respondents to their recent survey believe eliminating business method patents will hurt innovation and its practices. The premise is that innovators and entrepreneurs are less likely to innovate if they know they cannot get patent protection. The result surprises me, and it make me wonder what the other 30% were thinking. The issue stems from whether an inventor can patent an abstract process, something that involves nothing more than thoughts. The courts are saying no. A recent ruling on a business method patent by the U.S. Court of Appeals for the Federal Circuit said that it was not tied to a machine or apparatus, nor did it transform a particular article into a different state or thing. It did meet the standards set by the U.S. Supreme Court for patentability. Many industries that are not "machine-based" like software makers, Internet companies, and investment houses, are concerned.

The Front End of Innovation blog reports 70% of respondents to their recent survey believe eliminating business method patents will hurt innovation and its practices.  The premise is that innovators and entrepreneurs are less likely to innovate if they know they cannot get patent protection.  The result surprises me, and it makes me wonder what the other 30% were thinking.

The issue stems from whether an inventor can patent an abstract process, something that involves nothing more than thoughts.  The courts are saying no.  A recent ruling on a business method patent by the U.S. Court of Appeals for the Federal Circuit said that it was not tied to a machine or apparatus, nor did it transform a particular article into a different state or thing.  It did meet the standards set by the U.S. Supreme Court for patentability.  Many industries that are not “machine-based” like software makers, Internet companies, and investment houses, are concerned.

For me, the more appropriate question is:  WHO will cut back on innovation because of a loss of patent protection?  My observation is that it depends which side of the patent “fence” you currently sitting on:  1. you have patent protection now; 2. you are about to lose patent protection;  or 3. you are blocked by someone else’s patent.  The lure of getting a patent can spur companies on to innovate.  However, once earned, patents seem to dull the senses. Companies rest on their laurels, satisfied with the revenues earned on current, patent-protected products.  It is the threat of LOSING the protection that motivates people to innovate.  Finally, if you are being blocked by someone else’s patent, my sense is that companies are especially motivated to innovate.  They have no choice.

Keith Sawyer blogged about this over at Creativity and Innovation.  He reports on a recent paper by James Bessen and Michael J. Meurer who conclude, “in most industries today, patents may actually discourage investment in innovation.”    

Most patents are granted in industries that demonstrate little innovation.  Through the 19th century, most inventions were not even patented (only 11% of British inventions displayed at the 1851 World’s Fair, for example).  A study of important innovations at the 1851 and 1876 world’s fairs found that countries with patent systems weren’t any more innovative than countries without.  Following changes in IP law, what happens historically?  Japan increased patent scope in 1988, and this has not resulted in greater innovation nor in increased R&D spending (beyond what would have been expected without that change).  The U.S. changed its treatment of software inventions in the 1990s, but this did not result in an increase in patents by software firms.  (Instead, patents went up in companies known for “stockpiling large arsenals of patents to use as bargaining chips”.)  Surveys of companies find that most inventions are not patented; instead, companies rely on trade secrets and on their first-to-market advantage, or on complementary products and services.

Bronwyn Hall surveyed the issue in a paper titled, “Business Method Patents, Innovation, and Policy” (May 4, 2003).  She concludes: 

“Broad evidence that the patent system encourages innovation always and everywhere is hard to come by. The patent system does encourage publication rather than secrecy; it is probably good at providing incentives for innovations with high development cost that are fairly easily imitated and for which a patent can be clearly defined (e.g., pharmaceuticals). When innovations are incremental and when many different innovations must be combined to make a useful product, it is less obvious that benefits of the patent system outweigh the costs. Business methods are more likely to fall into the second class than the first.”

For me, patents do not affect one’s ability to innovate given the success of innovation methods.  Rather, patents affect one’s motivation to innovate…both positively and negatively.  For long term success, companies should place more emphasis on innovating than protecting.