PublishedOctober 2, 2009

The Supreme Court Asked To Promote Innovation, Not Patents

The Computer & Communications Industry Association is filing an amicus brief Friday with the Supreme Court asking that the Court uphold the decision of the Court of Appeals for the Federal Circuit in the Bilski case, which denied a patent for a method of hedging on utility contracts.

Prior to the Federal Circuit’s State Street decision in 1998, it had always been understood that patents were for technology — not for all organized human activity. This principle was judicially recognized as the “business method exclusion.” State Street abolished the exclusion, and since then there have been no discernible limits to the patent system, leading to patents on such things as exercising cats, toilet reservation systems, one-click ordering, and dating methods. One notorious result has been dozens of patents on tax avoidance strategies.

As CCIA’s brief points out, “the explosive spread of the patent system in the wake of State Street has undermined the reliability of the patent system.”

In Bilski, the Federal Circuit corrected its course, not by overruling State Street but by resurrecting a longstanding Supreme Court test that limited process patents to physical transformations when no particular machine is involved.

“This is a useful line to draw,” said CCIA President and CEO Ed Black. “It’s not perfect, but it is easier to understand the principle behind it without consulting a lawyer.” CCIA’s brief supports the test but argues that State Street should have been directly overruled. As CCIA fellow Brian Kahin pointed out, “The case is an embarrassment to the American judicial system. A judge, who happens to be a patent lawyer, decided that the patent system should not be limited to technology, but should apply to all human activity. It’s like saying, ‘here, fellas, take the ball and run as far and fast as you can.’”

One problem is that the business and legal activity around process patents is not monitored, and patents are being used in ways that can undermine investments in developing products and services. Although the Federal Trade Commission has pointed out many of these problems, the Patent and Trademark Office has no way of knowing how patents are affecting business practices or the economy. One of the Federal Circuit judges said it plainly in his dissenting opinion arguing that State Street should be overruled: “The patent system has run amok.”

“The patent system works fine for specialists who get paid for generating patents and for engineering disputes, whether they win or lose,” Black added. “But it is imposing increasingly large costs and risks on the tech sector and others as patents move from protecting going businesses to serving as exotic financial instruments that are basically no more than options to litigate.”

Congress has been working on patent reform for years, but has stymied by differences in business perspective, many of which reflect industry differences. Economic research now shows that the patent system is actually having a negative effect on much of the economy, but the pharmaceutical and biotech industries are relatively happy with the system as it is, and have blocked major changes.

Black said that the underlying problem is that it is fundamentally a faith-based one-size-fits-all system. “Our faith has been undermined by experience and economic research, but policymakers haven’t figured out how to deal with entrenched interests and the legal straightjacket.”

The CCIA brief argues that boundaries of patentable subject matter must be drawn very conservatively. Patents are very powerful since they control any use of the patented subject matter without regard to whether infringement is innocent or not. But in IT, especially software, clearing thousands of functions against possible patents is prohibitively costly.

Read CCIA’s Full Amicus Brief


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