Taking the utilitarian basis for patent law seriously: The case for restricting patentable subject matter

Temple Law Review

Volumn 82, Issue 1, 2009, Pages 181-240

  Olson, David S ^a  

^a BOSTON COLLEGE   (United States)

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EID: 79251576819     PISSN: 08998086     EISSN: None     Source Type: Journal    
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References (379)

1. The utilitarian rationale for patent law is set forth explicitly in the Constitution, U.S. CONST. art. I,§8, cl. 8: "To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." Moreover, a survey of patent law casebooks shows that law students uniformly learn that our patent system exists to achieve explicitly utilitarian aims, incentivizing the production and distribution of innovation. See, e.g., ROCHELLE COOPER DREYFUSS & ROBERTA ROSENTHAL KWALL, INTELLECTUAL PROPERTY: TRADEMARK, COPYRIGHT AND PATENT LAW 553 (1996) (indicating that patents make costliness of inventing worthwhile); WILLIAM H. FRANCIS & ROBERT C. COLLINS, CASES AND MATERIALS ON PATENT LAW INCLUDING TRADE SECRETS-COPYRIGHTS-TRADEMARKS 70-73 (4th ed. 1995) (noting that patents promote ingenuity by creating temporary monopolies); ROBERT P. MERGES ET AL., INTELLECTUAL PROPERTY IN THE NEW TECHNOLOGICAL AGE 127 (rev. 4th ed. 2007) (explaining that patents provide incentives to inventors); ROBERT PATRICK MERGES & JOHN FITZGERALD DUFFY, PATENT LAW AND POLICY: CASES AND MATERIALS1-13 (4th ed. 2007) (discussing historical use of patents to encourage innovation and protect individual interests); Rebecca S. Eisenberg, Patents and the Progress of Science: Exclusive Rights and Experimental Use, in MARTIN J. ADELMAN ET AL., CASES AND MATERIALS ON PATENT LAW 33, 33-45 (1998) (describing patents' dual purposes of incentivizing inventiveness while contributing to public body of knowledge).
2. Julie E. Cohen & Mark A. Lemley, Patent Scope and Innovation in the Software Industry, 89 CAL. L. REV. 1, 50 (2001) (stating that "central task" of patent system is "ensuring sufficient rewards (and therefore sufficient incentives) to patentees while avoiding an unnecessary degree of deadweight loss to society as a whole").
3. WILLIAM D. NORDHAUS, INVENTION, GROWTH, AND WELFARE: A THEORETICAL TREATMENT OF TECHNOLOGICAL CHANGE 70-90 (1969) (analyzing tradeoff between patents' enhanced incentives and reduction in competition due to patent exclusivity); Kenneth W. Dam, The Economic Underpinnings of Patent Law, 23 J. LEGAL STUD. 247, 247 (1994) (discussing utilitarian basis for patent law); Edmund W. Kitch, The Nature and Function of the Patent System, 20 J.L. & ECON. 265, 265-71 (1977) (setting forth thoroughly utilitarian "prospect theory" of patents); Paul Klemperer, How Broad Should the Scope of Patent Protection Be?, 21 RAND J. ECON. 113, 114-15 (1990) (discussing optimal scope of patents to provide profit to inventors while minimizing societal loss);
4. Robert P. Merges, Commercial Success and Patent Standards: Economic Perspectives on Innovation, 76 CAL. L. REV. 803, 808-09 (1988) (laying out utilitarian motivation for patent protection); Robert P. Merges & Richard R. Nelson, On the Complex Economics of Patent Scope, 90 COLUM. L. REV. 839, 839, 871 (1990) (noting that " λhe economic significance of a patent depends on its scope: the broader the scope, the larger the number of competing products and processes that will infringe the patent" and that "proprietary control of technology tend[s] to cause 'dead weight' costs due to restrictions on use").
5. Alan Greenspan, Chairman, Fed. Reserve Bd., Remarks at the Stanford Institute for Economic Policy Research Economic Summit: Intellectual Property Rights (Feb. 27, 2004) (transcript available at http://www.federalreserve.gov/ boarddocs/speeches/2004/200402272/default.htm)(querying "[a]re the protections sufficiently broad to encourage innovation but not so broadas to shut down follow-on innovation?").
6. None of the recent cases on patentable subject matter explicitly address the utilitarian question of whether patents are needed for an efficient level of invention in the subject matter category at issue. See generally Metabolite Labs., Inc. v. Lab. Corp. of Am. Holdings, 370 F.3d 1354 (Fed. Cir. 2004).
7. In re Bilski, 545 F.3d 943, 956 (Fed. Cir. 2008), cert. granted sub nom. Bilski v. Doll, 129 S. Ct. 2735 (2009); In re Nuijten, 500 F.3d 1346 (Fed. Cir. 2007); In re Comiskey, 499 F.3d 1365 (Fed. Cir. 2007), superseded by 544 F.3d 967 (Fed. Cir. 2009); State St. Bank & Trust Co. v. Signature Fin. Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), abrogated by In re Bilski, 545 F.3d 943 (Fed. Cir. 2008). Moreover, recent literature regarding patentable subject matter also ignores the utilitarian question. See, e.g., Michael Risch, Everything Is Patentable, 75 TENN. L. REV. 591, 591-92 (2008) (arguing other "patentability criteria" operate to fulfill policy rationales underlying patentable subject matter).
8. See infra Part III.B for a discussion of tests and standards for patentability
9. In re Bilski, 545 F.3d at 956. The Federal Circuit began its rollback of patentable subject matter with In re Nuijten, 500 F.3d at 1346 and In re Comiskey, 499 F.3d at 1365.
10. See generally Gottschalk v. Benson, 409 U.S. 63, 67 (1972) (describing Court's long-standing refusal to allow patenting of abstract ideas, phenomena of nature, and laws of nature). See infra note 74 for a discussion of the historical exclusion of abstract ideas, phenomena of nature, and laws of nature from the realm of patentable subject matter.
11. See Benson, 409 U.S. at 67 (relying on nineteenth-century cases).
12. See infra Part III.B.1 for a discussion of the methods used by courts to determine patentability.
13. See Laura R. Ford, Alchemy and Patentability: Technology, "Useful Arts," and the Chimerical Mind-Machine, 42 CAL. W. L. REV. 49, 59 (2005) (describing Supreme Court's early focus on patent scope in making patentable subject matter determinations, and importance of written description requirement to cabining patent scope); Risch, supra note 4, at 591 ("The currently confused and inconsistent jurisprudence of patentable subject matter can be clarified by implementing a single rule: any invention that satisfies the Patent Act's requirements of category, utility, novelty, nonobviousness, and specification is patentable. In other words, if a discovery otherwise meets the requirements of patentability, then the discovery will be properly patentable without need to consider non-statutory subject matter restrictions such as the bars against mathematical algorithms, products of nature, or natural phenomena." (footnotes omitted)).
14. Peter M. Kohlhepp, Note, When the Invention Is an Inventor: Revitalizing Patentable Subject Matter to Exclude Unpredictable Processes, 93 MINN. L. REV. 779, 798-99 (2008) ("The currently confused and inconsistent jurisprudence of patentable subject matter can be clarified by implementing a single rule: any invention that satisfies the Patent Act's requirements of category, utility, novelty, nonobviousness, and specification is patentable. In other words, if a discovery otherwise meets the requirements of patentability, then the discovery will be properly patentable without need to consider non-statutory subject matter restrictions such as the bars against mathematical algorithms, products of nature, or natural phenomena" (footnotes omitted)).
15. Gottshalk, 409 U.S. at 67 (describing Court's long-standing refusal to allow patenting of abstract ideas, phenomena of nature, and laws of nature);
16. The Incandescent Lamp Patent, 159 U.S. 465, 472 (1895) (requiring patentees to confine their claim to particular material used in invention); The Tel. Cases, 126 U.S. 1, 533 (1887) (noting that only "the useful art, process, [or] method of doing a thing" may be patented);
17. O'Reilly v. Morse, 56 U.S. 62, 113 (1853) (determining that patent claim over yet-to-be-developed science is too broad).
18. E.g., The Incandescent Lamp Patent, 159 U.S. at 472. These days courts can reject such claims on the grounds of inadequate written description or enablement. 35 U.S.C.§112 (2006) (requiring specification in patent application).
19. Parker v. Flook, 437 U.S. 584 (1978) (noting that Patent Act does not allow applications of established principles to be patented). See infra notes 113-25 and accompanying text for a discussion of Parker v. Flook.
20. See Richard S. Gruner, Intangible Inventions: Patentable Subject Matter for an Information Age, 35 LOY. L.A. L. REV. 355, 355-57 (2002) (arguing that previous line drawn between intangible ideas that did not qualify as PSM and tangible innovations that warranted patent protection provided "troublingly narrow" arena of patent protection that denied patentability to valuable intangible innovation).
21. Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980) (quoting S. REP. NO. 82-1979, at 5 (1952)). 16. In re Bilski, 545 F.3d 943, 956 (Fed. Cir. 2008), cert. granted sub nom. Bilski v. Doll, 129 S. Ct. 2735 (2009).
22. E.g., U.S. Patent No. 5,960,411 (filed Sept. 12, 1997) (Amazon.com patent on 1-Click ordering).
23. E.g., U.S. Patent No. 6,292,788 (filed Dec. 3, 1998) (tax-deferred real estate transaction); U.S. Patent No. 6,567,790 (filed Dec. 1, 1999) (funding of Grantor Retained Annuity Trust with nonqualified stock options);
24. U.S. Patent No. 7,149,712 (filed Dec. 23. 2004) (purchase of annuity contract to fund charitable remainder trust).
25. U.S. Patent No. 7,177,829 (filed July 16, 1999) (H&R Block's Tax Refund System).
26. U.S. Patent No. 5,616,089 (filed Mar. 29, 1996) (method of putting).
27. 548 U.S. 124 (2006).
28. See Jason Rantanen, Slaying the Troll: Litigation as an Effective Strategy Against Patent Threats, 23 SANTA CLARA COMPUTER & HIGH TECH. L.J. 159, 160 (2006) ("Patent trolls - entities who neither develop new technologies nor participate directly in the market, but instead acquire patent rights solely for the purpose of obtaining a revenue stream - have become a major threat to market participants.").
29. Mark A. Lemley & Ragesh K. Tangri, Ending Patent Law's Willfulness Game, 18BERKELEY TECH. L.J. 1085, 1085 (2003).
30. Id.
31. Mark Lemley et al., What to Do About Bad Patents, IP L. & BUS., Jan. 2006, at 20, 20 (recognizing prevalence of ridiculous patents).
32. Kimberly A. Moore, Worthless Patents, 20 BERKELEY TECH. L.J. 1521, 1525-26 (2005) (identifying worthless patents based on patent expiration from lack of payment of maintenance fees); James Gleick, Patently Absurd, N.Y. TIMES, Mar. 12, 2000,§6, at 44 (claiming that historians will see turning point in breakdown of U.S. Patent system in Amazon.com's 1999 Patent for "1-Click" technology, which allows customers to make purchases online with one mouse click, bypassing the delay associated with entering billing information
33. Lawrence Lessig, The Problem with Patents, INDUSTRY STANDARD, Apr. 23, 1999, http://www.thestandard.com/article/0,1902,4296,00.html (explaining that patent system provides obstacles to challenging undeserving patents).
34. Some patents are simply absurd. See, e.g., U.S. Patent No. 5,443,036 (filed Nov. 2, 1993) (granting patent to method of exercising cat by inducing it to chase dot projected by laserpointer).
35. U.S. Patent No. 6,368,227, at [57] (filed Nov. 17, 2000) ("A method of swing[ing] on a swing is disclosed, in which a user positioned on a standard swing suspended by two chains from a substantially horizontal tree branch induces side to side motion by pulling alternately on one chain and then the other.").
36. Robin M. Davis, Failed Attempts to Dwarf the Patent Trolls: Permanent Injunctions in Patent Infringement Cases Under the Proposed Patent Reform Act of 2005 and Ebay v. MercExchange,17 CORNELL J.L. & PUB. POL'Y 431, 433-34 (2008) (discussing various reforms aimed at eliminating patent trolling).
37. Jay P. Kesan & Andres A. Gallo, Why "Bad" Patents Survive in the Market and How Should We Change?-The Private and Social Costs of Patents, 55 EMORY L.J. 61, 70-71 (2006) (supporting use of patent oppositions to streamline functioning of Patent Office);
38. Mark A. Lemley.
39. Kimberly A. Moore, Ending Abuse of Patent Continuations, 84 B.U. L. REV. 63, 106-18 (2004) (setting forth five ways to restrict abuse of patent continuations).
40. Kristen Osenga, Entrance Ramps, Tolls, and Express Lanes-Proposals for Decreasing Traffic Congestion in the Patent Office, 33 FLA. ST. U. L. REV. 119, 141-51 (2005) (proposing multitiered patent system to accelerate patent process).
41. MichaelRisch, The Failure of Public Notice in Patent Prosecution, 21 HARV. J.L. & TECH. 179, 204 (2007) (arguing that PTO should cease using "broadest reasonable construction rule" in prosecuting andreviewing patent grants).
42. Matthew Sag & Kurt Rohde, Patent Reform and Differential Impact, 8 MINN. J. L. SCI. & TECH. 1, 6 (2007) (suggesting differential impact approach to patent reform).
43. Jeffrey R. Kuester & Lawrence E. Thompson, Risks Associated with Restricting Business Method and E-Commerce Patents, 17 GA. ST. U. L. REV. 657, 681 (2001). Kuester and Thompson argue that the PTO will improve the patent process for new technologies: Every new technology presents the PTO with the challenges of creating a sufficient prior art database and channeling the expertise necessary to evaluate the prior art. Internet business method patents are similar, in this respect, to biotechnology and software. The PTO is designed to promote and incorporate new technologies; this, however, takes time. The PTO is taking steps to improve the prior art database and the expertise of the examining core. It is the authors' belief thatthe PTO will be able to improve the prior art database over time; thus, the costs associated with the challenges of business method patents will eventually be reduced.
44. Id.
45. also Kevin M. Baird, Business Method Patents: Chaos at the USPTO or Business as Usual, 2001 U. ILL. J.L. TECH. & POL'Y 347, 364 ("The lack of prior art references and examiner training has led tothe issuance of many invalid business method patents resulting in more patent litigation and greater uncertainty in the patent system.").
46. Jeffrey A. Berkowitz, Business Method Patents: Everybody Wantsto Be a Millionaire, 609 PRAC. L. INST. 7, 9 (2000) (explaining that prior art database will improve as result of influx of patent applications); Greg S. Fine, Note, To Issue or Not to Issue: Analysis of the Business Method Patent Controversy on the Internet, 42 B.C. L. REV. 1195, 1210 (2001) (noting that as quantity of prior art increases, bases for bad patents decrease).
47. Robert P. Merges, As Many as Six Impossible Patents Before Breakfast: Property Rights for Business Concepts and Patent System Reform, 14 BERKELEY TECH. L.J. 577, 589 (1999) ("There are persistent reports that patents in the software area, and perhaps especially, patents for 'business methods' implemented in software, are of extremely poor quality. People familiar with the technology involved and the history of various developments in it report that patents in this area are routinely issued which overlook clearly anticipating prior art.") see also NAT'L RESEARCH COUNCIL OF THE NAT'L ACADS., A PATENT SYSTEM FOR THE 21ST CENTURY 41-49 (Stephen A. Merill et al. eds., 2004) (noting that patents in fast-changing technological fields are increasingly issued without reference to traditional standards); Michael J. Meurer, Business Method Patents and Patent Floods, 8 WASH. U. J.L. & POL'Y 309, 323-24 (2002) ("Time pressure, lack of expertise, and lack of prior art yield low patent quality during floods.⋯And the technical breakthrough precipitating a flood might take a while to enter the prior art.");
48. Susan Walmsley Graf, Comment, Improving Patent Quality Through Identification of Relevant Prior Art: Approaches to Increase Information Flow to the Patent Office, 11 LEWIS & CLARK L. REV. 495, 504 (2007) ("[I]t is widely perceived that in the software and business method areas, where there is a short history of patenting and there is not a strongtradition of nonpatent literature publishing, much that is known will not be found in prior art searches.").
49. Lab. Corp. of Am. Holdings v. Metabolite Labs, Inc., 548 U.S. 124, 125 (2006) (Breyer, J., dissenting) (arguing that, in order to resolve subject matter patentability issue, writ o certiorari should not be dismissed);
50. In re Bilski, 545 F.3d 943, 956 (Fed. Cir. 2008) (holding that, to qualify as patentable subject matter, process claim must be connected to machine or cause physical transformation)cert. granted sub nom. Bilski v. Doll, 129 S. Ct. 2735 (2009).
51. 35 U.S.C.§101 (2006). The term "process" is defined by 35 U.S.C.§100(b): "The term 'process' means process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material."
52. Id.§101.
53. The bar for usefulness is set quite low, however. An applicant need merely show operational, beneficial, and specific utility. This means that an applicant's invention must work as intended (this is presumed), that it must be capable of some beneficial use (to be judged by the market), and that the inventor must know for what, specifically, the invention is useful. See In re Fisher 421 F.3d 1365, 1371 (Fed. Cir. 2005) (requiring specific and substantial utility).
54. Juicy Whip, Inc. v. Orange Bang, Inc., 185 F.3d 1364, 1366 (Fed. Cir. 1999) (noting that useful inventions provide identifiable benefit); United States Patent and Trademark Office Utility Examination Guidelines, 66 Fed. Reg. 1092, 1097-99 (Jan. 5, 2001) (describing specific and substantial utility requirements for patentability). If an application clears these low utility hurdles, it will be granted a patent. The extent of its usefulness is left to be decided by the market, as Judge Story explained: "[I]f the invention steers wide of these objections, whether it be more or less useful is a circumstance very material to the interests of the patentee, but of no importance to the public. If it be not extensively useful, it will silently sink into contempt and disregard." Lowell v. Lewis, 15 F. Cas. 1018, 1019 (C.C.D. Mass. 1817) (No. 8,568), abrogation recognized by In re Fisher, 421 F.3d 1365 (Fed. Cir. 2005
55. 35 U.S.C.§102.
56. Id.§103(a) ("A patent may not be obtained though the invention is not identically disclosed or described as set forth in section 102 of this title, if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains. Patentability shall not be negatived by the manner in which the invention was made.").
57. Id.§112 ("The specification shall contain a written description of the invention, and of the manner and process of making and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains, or with which it is most nearly connected, to make and use the same, and shall set forth the best mode contemplated by the inventor of carrying out his invention.").
58. Note that while there is wide agreement that the purpose of the patent laws is to encourage invention, e.g., Mark A. Lemley, Property, Intellectual Property, and Free Riding, 83 TEX. L. REV. 1031, 1031 (2005), this position is not without critics. For example, F. Scott Kieff disagrees that the purpose of this section of the Constitution, or at least of the patent laws as enacted, is to encourage invention and disclosure. Kieff argues that patents are not necessarily efficacious in encouraging invention and that the current patent laws were rather written "to facilitate commercialization of new goods and services." F. Scott Kieff, Property Rights and Property Rules for Commercializing Inventions, 85 MINN. L. REV. 697, 753 (2001). Kieff contends that "treatment of patents as property rights provides incentives for the investment and ordering of private activities necessary for such a complex commercialization process while at the same time providing a workable framework for deciding which inventive activities merit government intervention in the first instance." Id. Thisdebate is beyond the scope of this Article. Instead, in this Article I adopt the generally accepted view that the purpose of the Progress Clause of the Constitution, U.S. CONST. art. I,§8, cl. 8, is to encourage invention.
59. MERGES & DUFFY, supra note 1, at 178 (noting that increasing costs of creating financial services might require patentability to provide incentives to innovate).
60. Note that my use of the term "patent monopoly" or "monopoly rights" in this context is not meant to refer to a producer who has monopoly power in a certain market. Rather, I use the term in this section to signify that the patent right gives the holder exclusive control over the use of the patented technology to make products or practice methods covered by the patent. The Supreme Court has repeatedly referred to patents as "monopolies." E.g., Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 343 (1971) ("Although recognizing the patent system's desirable stimulus toinvention, we have also viewed the patent as a monopoly which, althoughsanctioned by law, has the economic consequences attending other monopolies.").
61. United States v.Line Material Co., 333 U.S. 287, 305 (1948); Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 816 (1945) ("[A] patent is an exception to the general rule against monopolies and to the right to access to a free and open market. The far-reaching social and economic consequences of a patent, therefore, give the public a paramount interest in seeing that patent monopolies spring from backgrounds free from fraud or other inequitable conduct and that such monopolies are kept within their legitimate scope.").
62. United States v. Masonite Corp., 316 U.S. 265, 277 (1942).
63. United States v.Univis Lens Co., 316 U.S. 241, 250 (1942).The Federal Circuit, on the other hand, has often derided the use of the term "patent monopoly." E.g., Inre Kaplan, 789 F.2d 1574, 1578 (Fed. Cir. 1986).
64. Jamesbury Corp. v. Litton Indus. Prods., Inc.,756 F.2d 1556, 1559 (Fed. Cir. 1985) ("Further, this court has disapproved of a challenger's characterization of a patentee by the term 'monopolist,' which is commonly regarded as pejorative.").
65. Schenck v. Nortron Corp., 713 F.2d 782, 786 n.3 (Fed. Cir. 1983) ("It is but an obfuscation to refer to a patent as 'the patent monopoly' or to describe a patent as an 'exception to the general rule against monopolies.'").
66. 35 U.S.C.§154(a)(2).
67. Cohen & Lemley, supra note 2, at 50; see also Peter Eckersley, Virtual Markets for Virtual Goods: The Mirror Image of Digital Copyright, 18 HARV. J.L. & TECH. 85, 118 n.111 (2004) (defining deadweight loss as "any cost to society which could be relieved without harming anyone").
68. 35 U.S.C.§271.
69. Id.§101-103, 112.
70. Robert Nozick argues that the patent monopoly should exist only for the period of time when no one else would have thought of the invention. ROBERT NOZICK, ANARCHY, STATE, AND UTOPIA, 178-82 (1974). Actually, the benefit may still exceed the cost of the patent even if someone else would have invented the same thing late in the patent's coverage. A cost-benefit analysis must be done weighing the incentive needed by the inventor against the benefit to the public of having the invention earlier than someone else would have invented it. But in any case, patent protection should not extend beyond the point at which the cost of protection equals the public benefit from the early invention. And in fact, the policy should be to try to give the minimum amount of protection needed to incentivize adequate levels of invention. Nozick also argues that, conceptually, patent protection should not apply to cases of independentinvention, but that difficulties of proving this, combined with the fact that few will try to invent something from scratch once it has been invented and made public, may make it reasonable to exclude all others after an invention is patented. Id. at 182.
71. Judge Posner explained the economics behind patent law in Roberts v. Sears, Roebuck & Co., 723 F.2d 1324, 1345 (7th Cir. 1983) (Posner, J., concurring and dissenting). Judge Posner asserted that patent protection should be granted only for inventions that would not otherwise be developed. Id. at 1345-46. Posner's view is that the nonobvious standard should serve the strictly economic purpose of awarding patent protection only when such protection is a necessary incentive to spur invention. Id. at 1346. Thus, for Posner, patent grants for inventions developed in a flash of inspiration are troubling, since the inventive process required no incentive to occur. Id. Posner rationalizes the fact that patent law grants protection in these cases by claiming that such protection encourages potential inventors to seek the training necessary for experiencing such flashes of creative brilliance. Id. While it may be that, historically, independent invention was rare once a patent had issued, if this was once so, it is no longer. In recent years numerous patents have been asserted against firms that began their allegedly infringing activity without any knowledge of the patent. E.g., IPXL Holdings, LLC v. Amazon.com, Inc., 430 F.3d 1377, 1381 (Fed. Cir. 2005). In fact, many firms discourage their engineers and researchers from reading patents so that they can avoid liability for willful infringement. Lemley & Tangri, supra note 22, at 1085. Multiple instances of independent invention are thus common in some fields.
72. The current patent regime requires that patent examiners thoroughly examine a patent and list all bases for rejection, rather than working in a piecemeal fashion as bases for rejection are discovered and overcome. This requirement obviously increases the amount of time that must be spent on even facially invalid patents, and consequently leads to less time overall for examining any patent. See FED. TRADE COMM'N, TO PROMOTE INNOVATION: THE PROPER BALANCE OF COMPETITION AND PATENT LAW AND POLICY, EXECUTIVE SUMMARY 10 (2003), available at http://www.ftc.gov/os/ 2003/10/innovationrptsummary.pdf ("Hearings participants estimated that patent examiners have from 8 to 25 hours to read and understand each application, search for prior art, evaluate patentability, communicate with the applicant, work out necessary revisions, andreach and write up conclusions. Many found these time constraints troubling.");
73. Bronwyn H. Hall & Dietmar Harhoff, Post-Grant Reviews in the U.S. Patent System - Design Choices and Expected Impact, 19 BERKELEY TECH. L.J. 989, 995-96 (2004) (noting that "patent grant rates have also risen, suggesting that time pressures have led to less scrutiny of each individual application"); Walmsley Graf, supra note 29, at 502 ("This more than tripling in the rate of utility application filings has resulted in overburdened examiners who have little time to devote to each patent application.").
74. MERGES & DUFFY, supra note 1, at 67 (arguing that patent eligibility, though distinct, is not entirely separate from requirements of novelty, utility, nonobviousness, and disclosure that patent must meet);
75. Risch, supra note 4, at 591 (arguing that policy concerns underlying patentable subject matter are addressed by other sections of Patent Act).
76. Courts and the PTO have not done an explicit efficiency analysis when determining unpatentable subject matter. For an argument that such analysis underlies their subject matter patentability determinations, see infra Part III.
77. See infra Part III.B for a discussion of tests that the Supreme Court has established and rejected in an attempt to strike a balance between incentivizing invention while avoiding societal deadweight loss.
78. infra Part II.B.2 for an argument in favor of using subject matter patentability screenings to determine entire classes of unpatentable inventions.
79. Because the cost to society due to patent monopolies is a crucial component of this Article, I set out in this section a brief explanation of the economics of competitive and monopoly markets. It is well known that monopolies are costly to society. Economists call the loss to society caused by monopolies "deadweight loss." Cohen & Lemley, supra note 2, at 50. This subsection sets out the basic economic explanation for why monopolies cause deadweight loss. Readers familiar with basic economics, as well as those who accept that monopolies cause loss to society but who are not interested in walking through the economics of patent monopolies, may want to skip this subsection and proceed directly to the model set out in the next subsection52. E.g., David W. Barnes, Trademark Externalities, 10 YALE J. L. & TECH. 1, 4 (2007). Barnes explains the relationship between public goods and patent protection: Public goods are characterized by non-rivalry in consumption and non-excludability. Consumption of information is non-rivalrous because one person's use does not diminish the ability of another to benefit from the information. Information is non-excludable because, once the information has been disclosed, it is difficult to prevent people who have not paid for the information from exploiting it. The policy implication of characterizing a good as a public good is that private markets may not efficiently allocate and encourage the production of public goods. Copyright and patent laws are ways of addressing these market failures. Id. (internal citations omitted).
80. Inventors often develop means to overcome the nonexcludable nature of their invention, such as requiring employees to contract not to reveal company trade secrets. See Gideon Parchomovsky & Peter Siegelman, Towards an Integrated Theory of Intellectual Property, 88 VA. L. REV. 1455, 1494 (2002) (noting that businesses can choose either patent or trade secret protection, but not both). This may provide effective protection from competition and thus delay the emergence of a competitive market. When trade secret protection is available to inventors, no patent is needed. In other cases, however, such as when the invention is sold publicly, keeping the invention a trade secret is not an option. In cases where both patent protection and trade secret protection is available, a rational inventor will elect whichever regime gives greater protection.
81. Dan L. Burk, Legal Constraint of Genetic Use Restriction Technologies, 6 MINN. J. L. SCI. & TECH. 335, 348 (2004) ("[T]he inventor's choice is an election between twenty years of certain patent protection or perpetual, but less certain, trade secret protection⋯."). Thus, if an inventor feels confident that she can keep her invention secret for more than twenty years, she will elect trade secrecy over patenting. Note, Patent Preemption of Trade Secret Protection of Inventions Meeting Judicial Standards of Patentability, 87 HARV. L. REV. 807, 821-22 (1974) ("Although there are thus several factors which indicate that patentable inventions will ordinarily be patented, there are situations in which an inventor with a clearly patentable innovation may prefer to rely on trade secret protection rather than to apply for a patent."). Note that an inventor is not allowed to elect trade secrecy and then patentability serially. See Ellen Lauver Weber, Note, Patenting Inventions That Embody Computer Programs Held as Trade Secrets-White Consolidated Industries v. Vega Servo-Control, 713 F.2d 788 (Fed. Cir. 1983), 59 WASH. L. REV. 601, 604-05 (1984) ("Thus, the secrecy essential to trade secret protection is incompatible with patent protection. This policy conflict requires an inventor to choose between trade secret protection and patent protection.")
82. Barnes, supra note 52, at 4 (explaining interplay between public goods and free-riders). 55. The primary characteristics of a monopoly are (1) a single seller who is (2) a price maker in (3) a market with blocked entry, and (4) who sells a good with no close substitutes. HAL R. VARIAN, INTERMEDIATE MICROECONOMICS (5th ed. 1999). Patent holders are single sellers, at least if they choose not to license others. They sell in a market with blocked entry because the patent allows them to legally block others from making, using, or selling their invention. Whether the patented invention has close substitutes such that the patent holder can be a trueprice maker is another question. In reality, many patented goods may have close substitutes inthe market. In such situations the inventor's ability to extract monopoly rents is diminished accordingly. If patents are effective, however, they must either confer some pricing power, orat least lead inventors to believe that they will confer pricing power sufficient to compensate the inventor for investing the cost of invention, or the inventor would not be incentivized to produce the invention in the first place.
83. But note that the shift in money from consumer to producer may raise fairness, equality, or distributional concerns.
84. HERBERT HOVENKAMP, THE ANTITRUST ENTERPRISE: PRINCIPLE AND EXECUTION 15-20 (2005).
85. this analysis I make the reasonable assumption that amount of innovation (I) increases as patent protection increases but that the increase is at a decreasing rate. I assume that the deadweight loss from patent protection increases at a constant rate.
86. reality, the term of a patent, the breadth of claims, the strength of equivalents protection, etc., may be functions of patent protection that are somewhat discontinuous. For the sake of simplicity, however, and because an aggregation effect is likely to smooth out the discontinuity somewhat, for purposes of this model everything that may increase a patent's strength is modeled simply as amount of patent protection (p).
87. other words, dI/dp is a decreasing function of p.
88. Of course, there may be individual cases in which this assumption does not hold. For instance, if a patentee thinks that his patented invention will only develop a significant market after several years of marketing, in such a case the marginal value of an additional three years of patent protection will be greater at the end of the patent term than at the beginning.Likewise, a small increase in the subject matter covered by the law of equivalents may induce relatively little additional invention, but once the equivalents coverage increases to a certain level a large jump in invention may occur as inventors imagine being able to apply their patents to vastly wider areas. In such a case the amount of invention, I, would not be a smoothly increasing function of p (amount of patent protection), but would instead discontinuously jump upwards at the point that inventors saw great potential for additional coverage and profits. Notwithstanding that there are likely numerous examples in which amount of invention, I, is not a continuously increasing variable of p, it seems reasonable to assume for the sake of this model that in the aggregate such factors will balance out such that I can be modeled as a continuously increasing function of p. For instance, for each patent that takes a few years to establish a market, there may be other patents in fields where the technology has changed to such an extent after three years that the patent is virtually worthless.
89. In other words, dL/dp = k.
90. Because the deadweight loss from monopoly is assumed to be the same each year the patent is in effect, the total deadweight loss from a patent will increase at a constant rate. If aone-year monopoly yields total deadweight loss = L, a two-year monopoly will yield twice that amount of deadweight loss (2 a three-year monopoly will yield thrice the deadweight loss 3).
91. Of course, for the same reasons discussed in modeling the variable for amount of increased invention (I), for individual patents the deadweight loss may not be a smoothly increasing function of patent protection (p). For instance, in fields where technology is rapidly changing, a patent may become obsolete after ten years such that the deadweight loss is zero after that point. In other cases, in which it takes some time to establish a market, the deadweight loss may not be significant until after a few years. As with modeling amount of increased invention (I), however, it seems likely that in the aggregate these individual differences should even out such that it is reasonable to model deadweight loss (L) as a smoothly increasing function of patent protection. In the aggregate, it is indeed unlikely that deadweight loss (L) is a concave curve (i.e., that dL/dp is a decreasing function of p). This is because it is unlikely that on aggregate the fifth year of a monopoly should yield a smaller amount of deadweight loss than the fourth year.
92. Even in the case of a natural monopoly patent protection would not produce constantly greater invention (I). The additional patent protection would produce no difference in market structure, but instead would simply substitute the inventor for an alternate natural monopolist.
93. A lack of patent protection for abstract ideas may yield a less than optimal production of such ideas. Cf. 3 STEPHEN P. LADAS, PATENTS, TRADEMARKS, AND RELATED RIGHTS: NATIONAL AND INTERNATIONAL PROTECTION 1850-75 (1975) (detailing proposals to award patent-like rights to researchers who discover basic scientific principles in order to incentivize adequate level of investigation and discovery); Robert P. Merges, Property Rights Theory and the Commons: The Case of Scientific Research, 13 SOC. PHIL. & POL'Y 145, 152-55 (describing proposals to grant property rights for findings of basic scientific researchers). However, allowing patents on such ideas would produce problems of defining the breadth of an idea and determining what constitutes "use" of the idea. See infra Part III for a discussion of this difficulty.
94. Recognition of this seems to have occurred. See Diamond v. Chakrabarty, 447 U.S. 303, 310 (1980) (granting patent on man-made bacterium); Metabolite Labs., Inc. v. Lab. Corp. of Am.Holdings, 370 F.3d 1354, 1358-59, 1366-68 (Fed. Cir. 2004) (allowing patent claim on process that used amino acid levels to test for vitamin deficiency).
95. Indeed, determining whether a proposed invention is novel is alone often too time-intensive a task for the PTO to complete accurately. See Mandy Barbara Seuffert, Comment, Soft-Science Examiners at the USPTO: A Non-Obvious Solution to Reduce Erroneous Patent Grants, 10 MARQ.INTELL. PROP. L. REV. 111, 111-12 (2006) (suggesting that time and resource constraints imposed on patent examiners lead to issuance of invalid patents).
96. 35 U.S.C.§102-103, 112 (2006).
97. Id.§101.
98. Not that this stops some from enthusiastically endorsing patents on such things as storylines. E.g., Knight and Associates - Storyline Patents & Plot Patents, http://www.plotpatents.com/ (last visited Sept. 12, 2009). But see Note, Pure Fiction: The Attempt to Patent Plot, 19 HARV. J.L. & TECH. 231, 234-42 (2005) (arguing that fictional plots should not qualify as patentable subject matter).
99. I am not suggesting that historically Congress and the courts went through this formal modeling when determining the patentability of various types of inventions. But as explained infra, such analysis seems to have occurred implicitly. The model set forth in this Article is an attempt to formalize the analysis of what should and should not be patentable subject matter. 72. Cf. Peter S. Menell, A Method for Reforming the Patent System, 13 MICH. TELECOMM. & TECH. L. REV. 487, 501-02 (2007) (advocating comprehensive framework for reformation of patent system based on both categorical and systemic reforms).
100. Note that patent claims are given more or less coverage during the application process when the patentee typically negotiates with the patent examiner on the breadth of the claims that will be allowed and, therefore, implicitly, on the equivalents that will be covered by the patent. 74. See, for example, Diamond v. Diehr, 450 U.S. 175 (1981), in which the Court stated that it "has undoubtedly recognized limits to§101 and every discovery is not embraced within the statutory terms. Excluded from such patent protection are laws of nature, natural phenomena, and abstract ideas." Id. at 185 (citations omitted). The Court went on to explain that "[a] principle, in the abstract, is a fundamental truth; an original cause; a motive; these cannot be patented, as no one can claim in either of them an exclusive right." Id. (citation omitted). The Court further explained that a new mineral discovered in the earth or a new plant found in the wild is not patentable subject matter. Likewise, Einstein could not patent his celebrated law that E = mc2; nor could Newton have patented the law of gravity. Such discoveries are "manifestations of &mellip; nature, free to all men and reserved exclusively to none." Id. (alteration in original) (quoting Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980)). Note that wrapped up in the Court's holdings that these areas are not properly subject to patent protection under§101 may be practical problems regarding deciding the novelty of discoveries in such areas, addressed by§102, or in describing or enabling discoveries in these areas, addressed by§112. achine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.").
101. S. REP. NO. 82-1979, at 5 (1952), reprinted in 1952 U.S.C.C.A.N. 2394, 2398-99 (explaining purpose of modifications was to reconcile statute and judicial decisions). The Senate Report explained: The present law states that any person who has invented or discovered any "new and useful art, machine, manufacture, or composition of matter⋯may obtain a patent." That language has been preserved except that the word "art"⋯has been changed to the word "process." "Art" in this place in the present statute has a different meaning than the words "useful art" in the Constitution, and a different meaning than the use of the word "art" in other places in the statutes, and it is interpreted by the courts to be practically synonymous with process or method. The word "process" has been used to avoid the necessity of explanation that the word "art" as used in this place means "process or method"&mellip; . The definition of "process" has been added in section 100 to make it clear that "process or method" is meant, and also to clarify the present law as to the patentability of certain types of processes or methods as to which some insubstantial doubts have been expressed. Id. (emphasis added).
102. Diehr, 450 U.S. at 182-84 (noting that change from 1793 Patent Act's use of term "art" to use of term "process" in 1952 Patent Act did not change scope of subject matter patentability for processes because "'[i]n the language of the patent law, [a process] is an art'" (quoting Cochrane v. Deener, 94 U.S. 780, 787-88 (1877)))
103. The physical transformation test overlaps with and may in many instances be identical to the mental steps doctrine, which traditionally held that processes involving mental steps are not patentable. See, e.g., In Re Heritage, 150 F.2d 554, 556-58 (C.C.P.A. 1945) (finding invalid claims drawn to process of testing optimal amount of coating to be applied to porous boards because process is "purely mental").
104. The Supreme Court began to sketch out the physical transformation test in The Telephone Cases, 126 U.S. 1 (1888). There the Court was confronted with Alexander Graham Bell's claim for the use of electric current to transmit vocal or other sounds. Id. at 531-32. In upholding the patent, the Court stressed that the patent did not cover "the use of electricity distinct from the particular process with which it is connected in his patent." Id. at 535. The Court distinguished between the idea of using electricity as a motive power-which idea was not patentable-and claims for particular processes using electricity to accomplish specified physical objectives. Id. at 534-35.
105. Robert E. Thomas, Debugging Software Patents: Increasing Innovation and Reducing Uncertainty in the Judicial Reform of Software Patent Law, 25 SANTA CLARA COMPUTER & HIGH TECH. L.J. 191, 195 (2008) (noting that " λhis physical transformation requirement (physicaltransformation test) lasted over one hundred years and the Supreme Court has never rejected it" and further noting that " λhe physical-transformation test provided a clear delineation between patentable and non-patentable subject matter. It provided, perhaps, as objective a test as exists in patent law.").
106. Merges, supra note 29, at 581-82.
107. Kuester & Thompson, supra note 28, at 683; Merges, supra note 29, at 581-82.
108. Thus, the Court allowed the patenting of processes that accomplished physical transformations of materials, but did not allow patents on processes that did not achieve physical transformations. See, e.g., Cochrane v. Deener, 94 U.S. 780, 788 (1876) ("A process is a mode of treatment of certain materials to produce a given result. It is an act, or a series of acts, performed upon the subject-matter to be transformed and reduced to a different state or thing.").
109. Gottschalk v. Benson, 409 U.S. 63, 69 (1972). The Benson Court observed that, In Corning v. Burden, [56 U.S.] (15 How.) 252, 267-68 (1853), the Court said, "One may discover a new and useful improvement in the process of tanning, dyeing, etc., irrespective of any particular form of machinery or mechanical device." The examples given were the "arts of tanning, dyeing, making waterproof cloth, vulcanizing India rubber, smelting ores." Id., at 267. Those are instances, however, where the use of chemical substances or physical acts, such as temperature control, changes articles or materials. The chemical process or the physical acts which transform the raw material are, however, sufficiently definite to confine the patent monopoly within rather definite bounds. Id.
110. Thus, an inventor who discovered a new method of refining flour was not allowed to patent the use of currents of air to remove impurities, but rather was forced to claim the use of air currents as part of an overall process for refining flour. Cochrane, 94 U.S. at 785-86. This left the abstract process open for incorporation and use by others, yet gave enough protection to the inventor to incentivize his invention and disclosure in the form of a patent. The inventor in such a case gained protection from others who might wish to appropriate the processin the iron smelting industry, but did not achieve monopoly over all potential adaptations andincorporations of his process. Of course, an inventor might have been able to claim his invention more broadly (depending on the prior art), such that he could have claimed a process for refining a metal, or perhaps even a process for refining a substance. Even such broad claims still serve to cabin the patent right, however, because they still tie the use of the process torefining something. Thus, for instance, a novel adaptation of the process to more homogenouslymix materials would not be prohibited by the patent grant.
111. See In re Musgrave, 431 F.2d 882, 892-93 (C.C.P.A. 1970) (reversing rejection of claim based on 35 U.S.C.§101 and finding that process that can be performed in human mind is not necessarily unpatentable subject matter); In re Prater, 415 F.2d 1378, 1387-89 (C.C.P.A. 1968) (finding process claims to be patentable subject matter where process concerns mathematical calculations performed by computer, and distinguishing similar case where calculations were performed mentally), superseded by 415 F.2d 1393 (C.C.P.A. 1969); In re Tarczy-Hornoch, 397 F.2d 856, 866-67 (C.C.P.A. 1968) (overruling cases holding that process claims are invalid when they merely cite new function of claimed apparatus); Ford, supra note 10, at 63-70 (discussing erosion and then elimination of physical transformation requirement and mental steps doctrine); Thomas, supra note 80, at 195-96 (noting that "[p]rior to the twentieth century, it was inconceivable that an inventive process would produce a result that was not a physical transformation of matter," but observing that, with the advent of computers, "[a]ttacks on the physical-transformation test began in earnest" and continued until courts rejected the physical transformation, mental steps, and technological arts requirements). It is important to note that this problem arose from increasing difficulty in drawing lines as to physical transformation, rather than from a sense that software or information-based processes were not being adequately incentivized without patent protection. The physical transformation test began to unravel once the PTO was faced with patent applications for machines that included software that controlled the machine's manufacturing processes. In these cases, the software was given patent protection as part of the machine, even though software on its own still resided outside the boundary of patentable subject matter. New problems arose when patent applications began claiming software that merely affected the inside of a computer. In such cases it was harder to distinguish a physical transformation of the abstract ideas and processes embodied in the software. This problem worried courts throughout the 1960s and 1970s. Any position taken by the Court other than one in favor of the patentability of software was problematic, since the same functionality often could be achieved by changing a system's hardware, which was unarguably patentable under the law of the day. Thus it seemed that disallowing software patents would cause a senseless division in the kinds of computer innovation that received patent protection. Chisum et al. describe the problem this way: "If a mechanical device is patentable subject matter, then why not an electronic device like computer hardware? And if hardware is patentable subject matter, then why not a general purpose piece of hardware programmed for a specific purpose? And for that matter, why not software?" DONALD S. CHISUM ET AL., PRINCIPLES OF PATENT LAW 754 (1998).
112. THE PRESIDENT'S COMM. ON THE PATENT SYSTEM, "TO PROMOTE THE PROGRESS OF &mellip; USEFUL ARTS" IN AN AGE OF EXPLODING TECHNOLOGY 13 (1966).
113. Id.
114. The Commission stated: Uncertainty now exists as to whether the statute permits a valid patent to be granted on programs. Direct attempts to patent programs have been rejected on the ground of nonstatutory subject matter. Indirect attempts to obtain patents and avoid the rejection, by drafting claims as a process, or a machine or components thereof programmed in a given manner, rather than as a program itself, have confused the issue further and should not be permitted. Id. The Commission also pointed out and predicted the problems with adequately examining software patents given the lack of prior art files and the prodigious amounts of new software being created all the time: The Patent Office now cannot examine applications for programs because of the lack of a classification technique and the requisite search files. Even if these were available, reliable searches would not be feasible or economic because of the tremendous volume of prior art being generated. Without this search, the patenting of programs would be tantamount to mere registration and the presumption of validity would be all but nonexistent. Id. Note that the problems the Commission warned about with regard to the inadequacy of prior art search capability at the PTO for software appear to have been well founded and apply with at least equal force to business method patents.
115. 829 Off. Gaz. Pat. Office 865 (Aug. 16, 1966).
116. These guidelines were based on the mental steps doctrine and on the definition of "process" given in Cochrane v. Deener, 94 U.S. 780, 788 (1876). Examination of Patent Applications on Computer Programs, 33 Fed. Reg. 15,609, 15,610 (Oct. 22, 1968).
117. Examination of Patent Applications on Computer Programs, 33 Fed. Reg. at 15,610.
118. In re Shao Wen Yuan, 188 F.2d 377, 380 (C.C.P.A. 1951) (denying patentability of calculation method for creation of airfoils where method is "purely mental"); In re Heritage, 150 F.2d 554, 556-58 (C.C.P.A. 1945) (denying patentability of mental process to determine optimal application of coating material); In re Bolongaro, 62 F.2d 1059, 1059-60 (C.C.P.A. 1933) (denying patentability of method of producing printed publications from manuscripts, even though method presents novel formula for calculating length of publication).
119. A patent on a formula itself might have costs in terms of deadweight loss far in excess of the incentive it provided to derive such formulas.
120. For example, a person could not patent a known method of catalyzation simply by adding a computer program that used an algorithm to continuously update the alarm limits for the process. Parker v. Flook, 437 U.S. 584, 594-95 (1978).
121. The CCPA was the predecessor court to the Federal Circuit Court of Appeals. The CCPA was given jurisdiction over appeals of patentability from the Patent and Trademark Office. Act of Mar. 2, 1929, ch. 488, 45 Stat. 1475, 1475-76 (repealed 1982). In 1982 the Court of Appeals for the Federal Circuit was created with jurisdiction over all appeals from the PTO and also from all patent claims raised by plaintiffs in any district court. Federal Courts Improvement Act of 1982, Pub. L. No. 97-164,§127(a), 96 Stat. 25, 37-39 (codified as amended at 28 U.S.C.§1295 (2006)). The Federal Circuit does not have jurisdiction over patent claims raised as defenses. 28 U.S.C.§1338(a); Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 808-09 (1988).
122. 415 F.2d 1378 (C.C.P.A. 1968), superseded by 415 F.2d 1393 (C.C.P.A. 1969). In Prater, the claim was for an improved process for analyzing spectrographic data. In re Prater, 415 F.2d at 1379. The claimant used an analog computer to calculate mathematical formulas that he hadcome up with in order to obtain the best results. Id. at 1380. The patent application gave an analog computer as the preferred embodiment, but stated that a programmed digital computer would also work. Id. The Patent Office previously had rejected the process claims based on the mental steps doctrine. Id. at 1381. It found that the only novel part of the process was the discovery of an unpatentable mathematical principle. Id. It also rejected the apparatus claim, holding that once the mathematical formula was held to be within the prior art, there was no patentable part of the apparatus. In re Prater, 415 F.2d at 1379-81.
123. Id. at 1387-89.
124. Id.
125. Id. at 1386.
126. Id. at 1389.
127. 431 F.2d 882 (C.C.P.A. 1970).
128. In re Musgrave, 431 F.2d at 893. Note that the majority opinion in Musgrave used the term "technological arts" without ever defining it. Judge Baldwin, in a concurring opinion, criticized this new and indefinite test for patentability. Id. at 895 (Baldwin, J., concurring) ("First and foremost will be the problem of interpreting the meaning of 'technological arts': Is this term intended to be synonymous with the 'industrial technology'- mentioned by Judge Smith? It sounds broader to me. Necessarily, this will have to be considered a question of law and decided on a case-by-case basis. Promulgation of any all-encompassing definition has to be impossible.")
129. 441 F.2d 682 (C.C.P.A. 1971), rev'd sub nom. Gottschalk v. Benson, 409 U.S. 63 (1972).
130. In re Benson, 441 F.2d at 688. Note that patent protection has been broadened even further subsequently due to the PTO's complete rejection of the "technological arts" limitation for patentability. See, e.g., Ex parte Lundgren, 76 U.S.P.Q.2d 1385, 1388 (B.P.A.I. 2005) (stating that courts do not recognize technological arts test).
131. Gottschalk v. Benson, 409 U.S. 63, 64, 71-73 (1972).
132. Id. at 65-67.
133. The Supreme Court, unlike the CCPA, did not engage in a formalistic interpretation of the bare patent statute. Rather, the Court implicitly analyzed the monopoly cost of the patent by examining the breadth and preclusive effect the patent would have. Id. at 68, 71. The Court noted that the patentee claimed his method of numeric conversion without limiting it "to any particular art or technology, to any particular apparatus or machinery, or to any particular end use." Id. at 64. The claims "purported to cover any use of the claimed method in a general-purpose digital computer of any type." Id. In other words, the claims were tied to no physical transformation. Nor were they tied to a particular use within a program or computer. The patentee sought rights over the numeric conversion method generally.
134. Benson, 409 U.S. at 68.
135. For an in-depth discussion of the shift from a focus on mental steps to algorithms, see Pamela Samuelson, Benson Revisited: The Case Against Patent Protection for Algorithms and Other Computer Program-Related Inventions, 39 EMORY L.J. 1025, 1042-43 (1990). For an argument that Benson "stemmed from an antipatent judicial bias" and that there are strong policy reasons for computer algorithms to be patentable, see Donald S. Chisum, The Patentability of Algorithms, 47 U. PITT. L. REV. 959, 961 (1986).
136. The Court stated its holding "in a nutshell" as the following: It is conceded that one may not patent an idea. But in practical effect that would be the result if the formula for converting BCD numerals to pure binary numerals were patented in this case. The mathematical formula involved here has no substantial practical application except in connection with a digital computer, which means that if the judgment below isaffirmed, the patent would wholly pre-empt the mathematical formula and in practical effect would be a patent on the algorithm itself. Benson, 409 U.S. at 71-72. The Court here may have been conflating claim scope with patentable subject matter, at least to some extent. But allowing excessively broad ranges of patentable subject matter necessarily allows broader claim scope. If, for instance, patents on processes not linked to any physical apparatus or transformation are allowed as patentable subject matter, then the scope of such patents' claims will obviously be very broad. Further, even if the scope of the claim here were limited somehow, such as to computers, the increased incentive to innovate that this would give would likely be dwarfed by the deadweight lossthat would occur if the discoverer could claim ownership of all uses of the algorithm itself, even if the uses are limited to computers. As the Court said, this seems the only practical medium in which to utilize the formula anyway. But note that claim 8 of the patent in Benson discusses "shift register[s]," which seems to at least tie this claim to a particular way of implementing the process on a computer. Id. at 73-74 (app.). Claim 13, however, was not limited to shift registers. Id. at 74.
137. Id. at 71.
138. 437 U.S. 584 (1978).
139. Flook, 437 U.S. at 585.
140. Id. at 586.
141. Id. at 588-89.
142. Id. at 589 (alteration in original) (quoting Tilghman v. Proctor, 102 U.S. 707, 728 (1880)).
143. Id. at 585 n.1 (internal citations omitted) (quoting Gottschalk v. Benson, 409 U.S. 63, 65 (1972)).
144. Flook, 437 U.S. at 589.
145. Id. at 593. The Court declared that whether claims were drafted as process claims or machine claims was not determinative, because if it were, clever drafting could determine patentability. The Court instead held that claims that were novel only because of inclusion of an algorithm could not be patented. Id. at 593-94. In its description of algorithms the Court equated algorithms directly to laws of nature: First, respondent incorrectly assumes that if a process application implements a principle in some specific fashion, it automatically falls within the patentable subject matter of§101 and the substantive patentability of the particular process can then be determined by the conditions of§102 and 103. This assumption is based on respondent's narrow reading of Benson, and is as untenable in the context of§101 as it is in the context of that case. It would make the determination of patentable subject matter depend simply on the draftsman's art and would ill serve the principles underlying the prohibition against patents for "ideas" or phenomena of nature. The rule that the discovery of a law of nature cannot be patented rests, not on the notion that natural phenomena are not processes, but rather on the more fundamental understanding that they are not the kind of "discoveries" that the statute was enacted to protect. The obligation to determine what type of discovery is sought to be patented must precede the determination of whether that discovery is, in fact, new or obvious. Id. at 593. Here the Court discusses the efficiency of conducting a first screen to exclude certain inefficient classes of inventions before engaging in the more time- and labor-intensive tasks of examining novelty and nonobviousness of the intention.
146. Id. at 591-92. The Court claimed that its prior precedents led to the two-part test: Mackay Radio and Funk Bros. point to the proper analysis for this case: The process itself, not merely the mathematical algorithm, must be new and useful. Indeed, the novelty of the mathematical algorithm is not a determining factor at all. Whether the algorithm was in fact known or unknown at the time of the claimed invention, as one of the "basic tools of scientific and technological work," see Gottschalk v. Benson, 409 U.S., at 67⋯, it is treated as though it were a familiar part of the prior art. Flook, 437 U.S. at 591-92. Here again the Court is asserting that the discovery of the algorithm is not the sort of thing to be incentivized by the patent system. Rather, it is inventive uses of algorithms that should be incentivized by the patent grant. Discovery of algorithms, the Court is therefore saying, is not the sort of thing for which the gain to invention of allowing patents is likely to exceed the deadweight loss of the patent monopoly.
147. The Court held: Respondent's process is unpatentable under§101, not because it contains a mathematical algorithm as one component, but because once that algorithm is assumed to be within the prior art, the application, considered as a whole, contains no patentable invention. Even though a phenomenon of nature or mathematical formula may be well known, an inventive application of the principle may be patented. Conversely, the discovery of such a phenomenon cannot support a patent unless there is some other inventive concept in its application.
148. Id. at 594.
149. Id.
150. 35 U.S.C.§102-103 (2006); Flook, 437 U.S. at 594.
151. Flook, 437 U.S. at 600 (Stewart, J., dissenting). Justice Stewart wrote: Indeed, I suppose that thousands of processes and combinations have been patented that contained one or more steps or elements that themselves would have been unpatentable subject matter. Eibel Process Co. v. Minnesota & Ontario Paper Co., 261 U.S. 45, is a case in point. There the Court upheld the validity of an improvement patent that made use of the law of gravity, which by itself was clearly unpatentable.
152. Id. at 599-600 (footnote omitted) (parallel citation omitted).
153. 447 U.S. 303 (1980).
154. See Chakrabarty, 447 U.S. at 305 & n.1, 309-10 (describing Chakrabarty's substantial research efforts in developing "genetically engineered bacterium" and contrasting with nonpatentable natural phenomenon).
155. The Court recognized this difference between engineered and discovered organisms and held that "the patentee has produced a new bacterium with markedly different characteristics from any found in nature and one having the potential for significant utility. His discovery is not nature's handiwork, but his own; accordingly it is patentable subject matter under§101." Id. at 310. The Court was careful to distinguish the labor- and capital-intensive human-engineered bacteria from those organisms that are merely discovered: This is not to suggest that§101 has no limits or that it embraces every discovery. The laws of nature, physical phenomena, and abstract ideas have been held not patentable. Thus, a new mineral discovered in the earth or a new plant found in the wild is not patentable subject matter.
156. Id. at 309.
157. Id. at 307 (characterizing decision as "a narrow one of statutory interpretation requiring us to construe 35 U.S.C.§101").
158. Id. at 308 (quoting United States v. Dubilier Condenser Corp., 289 U.S. 178, 199 (1933)).
159. Chakrabarty, 447 U.S. at 309 (citing S. REP. NO. 82-1979, at 5 (1952); H.R. REP. NO. 82-1923, at 6 (1952)).
160. See 35 U.S.C.§101 (2006) ("Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title."). Under this bare text, there is no reason to exclude new and useful discoveries or inventions of abstract ideas, laws of nature, or natural phenomenon from patentability. An abstract idea can surely be a new and usefulprocess, just as a law of nature can be. And a natural phenomenon can surely be a composition of matter.
161. 450 U.S. 175 (1981).
162. Diehr, 450 U.S. at 177-78 & n.2.
163. Justice Stevens pointed out that the Patent and Trademark Office Board of Appeals expressly found that the only difference between the claimed method and traditional methods of rubber curing was the constant recalculating of the time the mold should be closed. Id. at 208 (Stevens, J., dissenting). These findings were not disturbed by the CCPA.
164. Id. at 186 (majority opinion) (citing Parker v. Flook, 437 U.S. 584, 586 (1978)).
165. Id. at 187.
166. Congress created the Court of Appeals for the Federal Circuit in 1982. Federal Courts Improvement Act of 1982, Pub. L. No. 97-164, 96 Stat. 25 (codified as amended in scattered sections of 28 U.S.C.). The formation of the Federal Circuit did not change the path the federal courts were on towards an abandonment of the patentable subject matter gatekeeper role, but Congress's concurrent consolidation and assignment of patent appeals to the Federal Circuit, 28 U.S.C.§127(a) (2006), likely sped the abandonment of the gatekeeper role because there were no longer a number of circuit courts to debate and disagree about the patentability of various subject matter. Once the Federal Circuit embraced ever-expanding subject matter patentability there were no other circuit courts to disagree and stir debate. In addition, the Federal Circuit has often been accused of a pro-patent bias. See, e.g., Mark D. Janis, Reforming Patent Validity Litigation: The "Dubious Preponderance," 19 BERKELEY TECH. L.J. 923, 928 (2004) ("[T]he generally received wisdom [is] that the Federal Circuit adopted a pro-patent bias early in its tenure."); Glynn S. Lunney, Jr., E-Obviousness, 7 MICH. TELECOMM. & TECH. L. REV. 363, 380 (2001) ("[T]he Federal Circuit has taken its role as defender of the patent system seriously.");
167. Merges, supra note 3, at 822 (noting that "the Federal Circuit appears to be apro-patent' court"). Moreover, until lately the Supreme Court has not often granted certiorari to patent cases. The Supreme Court has not been required to decide patent law issuesarising from circuit splits, but instead only seems to accept certiorari of patent cases if itthinks that changes may need to be made to the Federal Circuit's case law.
168. 958 F.2d 1053 (Fed. Cir. 1992).
169. Arrhythmia Research, 958 F.2d at 1059-60.
170. Id. at 1055.
171. Id. at 1064 (Rader, J., concurring) ("Indeed Congress has never stated that section 101's term 'process' excludes certain types of algorithms. Therefore, as Diehr commands, this court should refrain from employing judicially-created tests to limit section 101.").
172. Id. at 1059 (majority opinion) (quoting In re Taner, 681 F.2d 787, 790 (C.C.P.A. 1982)) (internal quotation marks omitted).
173. The concurrence described the new test as follows: First, the claim is analyzed to determine whether a mathematical algorithm is directly or indirectly recited. Next, if a mathematical algorithm is found, the claim as a whole is further analyzed to determine whether the algorithm is "applied in any manner to physical elements or process steps," and, if it is, it "passes muster under§101." Id. at 1063 (Rader, J., concurring) (quoting In re Pardo, 684 F.2d 912, 915 (C.C.P.A. 1982)).
174. 33 F.3d 1526 (Fed. Cir. 1994) (en banc), abrogated by In re Bilski, 545 F.3d 943 (Fed. Cir. 2008).
175. For further discussion of Alappat and algorithms, see John A. Burtis, Comment, Towards a Rational Jurisprudence of Computer-Related Patentability in Light of In re Alappat, 79 MINN. L. REV. 1129, 1150-53 (1995) (noting erosion effect of Alappat on patentable subject matter restrictions and corresponding instability of patentable subject matter jurisprudence).
176. In re Alappat, 33 F.3d at 1544 (emphasis in original).
177. Chief Judge Archer stated: The dispositive issue is whether the invention or discovery for which an award of patent is sought is more than just a discovery in abstract mathematics. Where the invention or discovery is only of mathematics, the invention or discovery is not the "kind" of discovery the patent law was designed to protect and even the most narrowly drawn claim must fail. To come within the purview of§101 and the patent law, a mathematical formula or operation must be "applied in an invention of a type set forth in 35 U.S.C.§101." Id. at 1557 (Archer, C.J., concurring in part and dissenting in part) (citation omitted) (quoting In re Meyer, 688 F.2d 789, 795 (C.C.P.A. 1982)).
178. Id. at 1583 (Rader, J., concurring). Judge Rader's concurring opinion was even more expansive of patentability: In the wake of Diehr and Chakrabarty, the Supreme Court only denies patentable subject matter status to algorithms which are, in fact, simply laws of nature. &mellip; . The limits on patentable subject matter within section 101 do not depend on whether an invention can be expressed as a mathematical relationship or algorithm. Mathematics is simply a form of expression-a language.
179. Id. at 1582-83.
180. The phrases "business method exception" and "business method patents" raise the questions of what, exactly, is a business method, and how is it distinguished from other processes. Unfortunately, there is not a clear answer to the question, especially when it comes to software related to conducting business, like the software at issue in State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), abrogated by In re Bilski, 545 F.3d 943 (Fed. Cir. 2008). The United States Patent and Trademark Office sets out Class 705 for patents that claim "machines and their corresponding methods for performing data processing or calculation operations⋯utilized in the 1) practice, administration, or management of an enterprise, or 2) processing of financial data, or 3) determination of the charge for goods or services." U.S. PATENT & TRADEMARK OFFICE, A USPTO WHITE PAPER: AUTOMATED FINANCIAL OR MANAGEMENT DATA PROCESSING METHODS (BUSINESS METHODS) 8 (2000), available at http://www.uspto.gov/web/menu/busmethp/whitepaper.pdf [hereinafter PTO BUSINESS METHODS WHITE PAPER]. Drawing the line between business methods on the one hand and software processes on the other can be particularly difficult when it comes to online businesses or processes. For example, Amazon's 1-Click patent describes a method of allowing customers to place orders for merchandise over the Internet. U.S. Patent No. 5,960,411 (filed Sept. 12, 1997).
181. 160 F. 467 (2d Cir. 1908).
182. Rinaldo Del Gallo, III, Are "Methods of Doing Business" Finally Out of Business as a Statutory Rejection?, 38 IDEA 403, 408-09 (1998) (citing Hotel Security for proposition that "all business systems were per se unpatentable," and stating that courts have followed this interpretation).
183. Hotel Sec., 160 F. at 467. The method involved assigning each waiter a number, and having the head waiter keep track of the food each waiter took from the kitchen. The waiters were also given slips of paper with their numbers on the paper, and they returned these, along with the payment for each meal, to the head cashier when the customer paid for his meal. By comparing the head waiter's list of food each waiter took from the kitchen with the slips and amounts each waiter gave to the head cashier, the hotel could discern when a waiter failed to pay the hotel the cost of all the meals he served to dining room customers. Id. at 467-68.
184. Id. at 469 (holding that "[i]t cannot be maintained that the physical means described by [the inventor],-the sheet and the slips,-apart from the manner of their use, present any new and useful feature").
185. Id.
186. Id. at 472.
187. Hotel Sec., 160 F. at 469 (quoting Fowler v. City of N.Y., 121 F. 747, 748 (2d Cir. 1903)).
188. Lowe's Drive-In Theatres Inc. v. Park-In Theaters, Inc., 174 F.2d 547, 552 (1st Cir. 1949) (holding invalid a patent on drive-in theaters as obvious, but stating in dicta that "a system for the transaction of business, such, for example, as the cafeteria system for transacting the restaurant business,⋯however novel, useful, or commercially successful is not patentable apart from the means for making the system practically useful"). Likewise, close scrutiny reveals that other cases cited as holding business methods unpatentable largely made their statements about the patentability of business methods in dicta. See, e.g., U.S. Credit Sys. Co. v. Am. Credit Indem. Co., 59 F. 139, 140, 142- 43 (2d Cir. 1893) (noting that patentability of business systems is not at issue in current suit, and only holding that business recording sheets claimed as invention by would-be patentee lacked patentable novelty); In re Patton, 127 F.2d 324, 327-28 (C.C.P.A. 1942) (addressing issue of business method patentability merely in relation to particular statute rather than holding business methods unpatentable per se). For an excellent discussion of the inconclusiveness of the precedent supposedly holding business methods unpatentable subject matter per se, see Judge Newman's dissent in In re Schrader, 22 F.3d 290, 296-99 (Fed. Cir. 1994). Her analysis is supported by the work of several scholars, who note that the business method exception seems only to have appeared in dicta. See E. Robert Yoches & Howard G. Pollack, Is the "Method of Doing Business" Rejection Bankrupt?, 3 FED. CIR. B.J. 73, 76-80 (1993) (describing development of supposed "business method exception" and commenting that other cases supporting exception actually tend to address obviousness or novelty rather than subject matter patentability); George E. Tew, Method of Doing Business, 16 J. PAT. OFF. SOC'Y 607, 607 (1934) ("It is probably settled by long practice and many precedents that 'methods of doing business,' as these words are generally understood, are unpatentable, notwithstanding the absence in decided cases of any logical or statutory reason or rule why they are unpatentable.").
189. generally Del Gallo, supra note 152, at 405-11.
190. 149 F.3d 1368 (Fed. Cir. 1998), abrogated by In re Bilski, 545 F.3d 943 (Fed. Cir. 2008).
191. State St. Bank, 149 F.3d at 1370-71.
192. State St. Bank & Trust Co. v. Signature Fin. Group, Inc., 927 F. Supp. 502 (D. Mass. 1996).
193. Id. at 516.
194. Id.
195. See In re Alappat, 33 F.3d 1526, 1536, 1545 (Fed. Cir. 1994) (allowing patent on claim for producing smooth waveform display on screen and stating that general purpose computer programmed to carry out this function "in effect becomes a special purpose [machine] once it is programmed"), abrogated by In re Bilski, 545 F.3d 943 (Fed. Cir. 2008); Arrhythmia Research Tech., Inc. v. Corazonix Corp. 958 F.2d 1053, 1059-60 (Fed. Cir. 1992) (holding patentable claim for converting analog electrocardiograph signals to digital and stating that " λhese claimed steps of 'converting', 'applying', 'determining', and 'comparing' are physical process steps that transform one physical, electrical signal into another"); Ford, supra note 10, at 78 (discussing Federal Circuit's "move away from physicality as the key to patentability").
196. State St. Bank, 927 F. Supp. at 509. The district court said that the process in Diehr "'involve[d] the transformation of an article⋯into a different state or thing.' This element of physical transformation, hinted at in Benson and Flook, was made explicit in Diehr." Id. (first alteration in original) (quoting Diamond v. Diehr, 450 U.S. 175, 184 (1981)). This is not to say that the court's position was without support in contemporary academic writing. See, e.g., Jur Strobos, Stalking the Elusive Patentable Software: Are There Still Diehr or Was It Just a Flook?, 6 HARV. J.L. & TECH. 363, 387 (1993) (interpreting Diehr to require "preemption" and "transformation" inquiries when determining patentability of software); Lawrence Kass, Comment, Computer Software Patentability and the Role of Means-Plus-Function Format in Computer Software Claims, 15 PACE L. REV. 787, 801 (1995) ("The Supreme Court elaborated on the Benson proscription against patenting pure mathematical algorithms in Parker v. Flook and Diamond v. Diehr, which collectively circumscribed what may be termed a 'physicality requirement' for processes that contain mathematical algorithms.").
197. State St. Bank & Trust Co. v. Signature Fin. Group, Inc., 149 F.3d 1368, 1369 (Fed. Cir. 1998), abrogated by In re Bilski, 545 F.3d 943 (Fed. Cir. 2008).
198. Id. at 1375, 1377.
199. Id. at 1373.
200. Id. at 1374.
201. Id. at 1375.
202. See State St. Bank, 149 F.3d at 1375 (stating that business method exception was result of "some general, but no longer applicable legal principle," without much elaboration).
203. Id. at 1375-76.
204. Id. at 1375.
205. Id. at 1377.
206. Some argue that when Congress enacted the defense of prior user rights in business methods in 35 U.S.C.§273 the year after the State Street Bank decision, it ratified business method patents. E.g., Risch, supra note 4, at 610 n.130. But this argument proves too much, especially given the concurrent congressional attempts to pass legislation limiting or banning business method patents. See, e.g., Business Method Patent Improvement Act of 2000, H.R. 5364, 106th Cong.§3(a) (detailing procedures to be followed upon determination that patent application is for "business method invention"); 146 CONG. REC. 20,655 (2000) (statement of Rep. Boucher) ("[F]ew issues in the 107th Congress will be more important than deciding whether, and under what conditions, the government should be issuing 'business method' patents.").
207. 172 F.3d 1352 (Fed. Cir. 1999), abrogated by In re Bilski, 545 F.3d 943 (Fed. Cir. 2008).
208. The Federal Circuit reiterated that, "[b]ecause§101 includes processes as a category of patentable subject matter, the judicially-defined proscription against patenting of a 'mathematical algorithm,' to the extent such a proscription still exists, is narrowly limited to mathematical algorithms in the abstract." AT&T Corp., 172 F.3d at 1356. The invention at issue claimed a process for adding a data field to call billing records used by long distance carriers, which allowed the identification of the long distance carrier with whom each call originated. Id. at 1352-54.
209. The Court emphasized that "physical transformation" is not "an invariable requirement, but merely one example of how a mathematical algorithm may bring about a useful application." Id. at 1358.
210. Id. at 1359 (quoting State St. Bank & Trust Co. v. Signature Fin. Group, Inc., 149 F.3d 1368, 1374 (Fed. Cir. 1998)). Of course the Federal Circuit noted that the three exceptions to subject matter patentability set out by the Supreme Court in Diehr still apply-"laws of nature, natural phenomena, and abstract ideas." Id. at 1355. The Court also noted that the patent at issue did not preempt all uses of the mathematical principle it made use of and therefore did not run afoul of another problem that the supposed mathematical algorithm exception sought to prevent-the patenting of all uses of an algorithm, which would in effect be the patenting of an abstract idea. AT&T Corp., 172 F.3d at 1357-58.
211. 76 U.S.P.Q.2d 1385 (B.P.A.I. 2005) (per curiam).
212. For a discussion of the technological arts test, see supra notes 102-05 and accompanying text.
213. Ex parte Lundgren, 76 U.S.P.Q.2d at 1386.
214. Id. at 1385. Note that no firm in the oligopolistic market would want to use such a method, because if it worked it would eliminate potential oligopoly profits. Rather, the method would have to be imposed on the firms by some outsider, likely a government regulator. Thus, Lundgren (an economist working for the federal government) was attempting to patent a theory of economic regulation of oligopoly markets. Steve Seidenberg, The Lundgren Method, INSIDECOUNSEL, Jan. 2006, at 24, 24, available at http://www.insidecounsel.com/ Issues/2006/January%202006/Pages/The-Lundgren-Method.aspx. Lundgren filed an amicus brief in the Microsoft Antitrust remedy hearings arguing that he should be allowed to participate in the remedy hearings in order to demonstrate that his patent pending method would be the best remedy for Microsoft's antitrust violations. As Lundgren adroitly noted in his reply brief, "Carl Lundgren would be prepared to argue that use of his invention would provide a better remedy in this case than would any other remedy. If Carl Lundgren should prevail in a fair contest to select the best remedy, he could earn a fortune." Reply by Carl Lundgren to the Parties' Responses to Motions Regarding Amicus Participation at 3, United States v. Microsoft Corp., No. 00-5212 (D.C. Cir. Oct. 30, 2000), available at http://www.usdoj.gov/atr/cases/f223500/223523b.htm. Lundgren's attempt to patent theories of regulation and then have them imposed by court order suggests its own host of problems that space constraints prohibit investigating in this Article.
215. Ex parte Lundgren, 76 U.S.P.Q.2d at 1385-86.
216. Id. at 1386 (stating that invention was "an economic theory expressed as a mathematical algorithm without the disclosure or suggestion of computer, automated means, apparatus of any kind" (internal quotation marks omitted)).
217. Id. at 1387.
218. Id.
219. 370 F.3d 1354 (Fed. Cir. 2004).
220. Metabolite, 370 F.3d at 1358-59, 1366-68. The patent claim states in full: "A method for detecting a deficiency of cobalamin or folate in warm-blooded animals comprising the steps of: assaying a body fluid for an elevated level of total homocysteine; and correlating an elevated level of total homocysteine in said body fluid with a deficiency of cobalamin or folate." U.S. Patent No. 4,940,658 col.41 l.58 (filed Nov. 20, 1986).
221. Metabolite, 370 F.3d at 1363.
222. Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc., 548 U.S. 124, 130 (2006) (Breyer, J., dissenting).
223. Id. at 131 (quoting Corrected Brief for Appellant Lab. Corp. of Am. Holdings at 41, Metabolite Labs., Inc. v. Lab. Corp. of Am. Holdings, No. 03-1120 (Fed. Cir. Feb. 10, 2003)).
224. Id.
225. Metabolite, 370 F.3d at 1365.
226. Metabolite, 548 U.S. at 124-25 (per curiam).
227. Id. at 134 (Breyer, J., dissenting).
228. Id. at 132, 137.
229. Id. at 134.
230. Id. at 135.
231. Metabolite, 548 U.S. at 135 (Breyer, J., dissenting).
232. Cf. id. at 126 (noting one reason for rejecting patent protections for such correlations is that it may impede progress
233. The incentive is particularly outsized in the case of discoveries in the fields of science and medicine because much of the research is already incentivized by government grants, as, indeed, was the research underlying the discovery in the Metabolite patent. See U.S. Patent No. 4,940,658 col.1 l.7 (filed Nov. 20, 1986) ("The research leading to this invention was partially funded by grants from the U.S. government.").
234. State St. Bank & Trust Co. v. Signature Fin. Group, Inc., 149 F.3d 1368, 1373 (Fed. Cir. 1998), abrogated by In re Bilski, 545 F.3d 943 (Fed. Cir. 2008).
235. See Metabolite, 548 U.S. at 131-32 (Breyer, J., dissenting) (presenting LabCorp's appellatelevel argument).
236. In re Bilski, 545 F.3d 943, 956 (Fed. Cir. 2008), cert. granted sub nom. Bilski v. Doll, 129 S. Ct. 2735 (2009). The Federal Circuit began signaling its willingness to call some inventions beyond the limits of patentable subject matter in In re Nuijten, 500 F.3d 1346 (Fed. Cir. 2007). There the invention was a new method of "watermarking" signals. Id. at 1351. These signals might carry audio or any other type of information. Id. at 1348. Nuijten was granted claims for (1) the process of watermarking the signals, (2) structural means and machinery for encoding the signals, and (3) encoded signals stored in a storage medium. Id. at 1351. The PTO rejected Claim 14 (and dependent claims), which covered the encoded signal on its own, without reference to any storage medium. Id. The Federal Circuit held that Claim 14 was properly rejected as unpatentable subject matter. In re Nuijten, 500 F.3d at 1357. The Court held that a signal, being transitory and intangible, complies with none of the four categories for patentable subject matter under§101 (process, machine, manufacture, or composition of matter). Id. Likewise, in In re Comiskey, 499 F.3d 1365 (Fed. Cir. 2007), superseded by 544 F.3d 967 (Fed. Cir. 2009), the Court rejected claims to a method of arbitration that were not tied to any implementing system or machine. Id. at 1379. The Court held that claims tied to software were patentable subject matter. Id. at 1379-80.
237. In re Beauregard, the PTO dropped its opposition to a claim for software contained on a floppy disk. 53 F.3d 1583, 1583-84 (Fed. Cir. 1995). Thereafter, the PTO issued new guidelines for examining computer-related inventions in which it held that claims to software on a disk or tied to a processor are patentable subject matter so long as the patent specification contains adequate written description and enablement and the invention is useful. Examination Guidelines for Computer- Related Inventions, 61 Fed. Reg. 7478, 7481 (Feb. 28, 1996). In Ex parte Bo Li, Appeal 2008-1213 (B.P.A.I. 2008), the Board of Patent Appeals and Interferences held that Beauregard claims remain valid even after Bilski. But cf. Ex parte Becker, Appeal 2008-2064 (B.P.A.I. 2009) (holding claim for "method for maintaining a user profile" unpatentable for not tying invention to particular machine and thus not meeting Bilski machine or transformation test).
238. Bilski v. Doll, 129 S. Ct. 2735 (2009).
239. U.S. CONST. art. I,§8, cl. 8.
240. 370 F.3d 1354 (Fed. Cir. 2004).
241. 545 F.3d 943, 956 (Fed. Cir. 2008), cert. granted sub nom. Bilski v. Doll, 129 S. Ct. 2735 (2009).
242. For the relevant diagrams, see supra Part II.B.
243. Cf. FED. TRADE COMM'N, supra note 46, ch. 3, at 1 (2003) (citing evidence that "issues of fixed cost recovery, alternative appropriability mechanisms, and relationships between initial and follow-on innovation" differ by industry);
244. Dan L. Burk & Mark A. Lemley, Policy Levers in Patent Law, 89 VA. L. REV. 1575, 1577-89 (2003) ("Recent evidence has demonstrated that this complex relationship [between patents and increased innovation] is⋯industry-specific at each stage of the patent process⋯.");
245. Jay Dratler, Jr., Does Lord Darcy Yet Live? The Case Against Software and Business-Method Patents, 43 SANTA CLARA L. REV. 823, 840 (2003) (arguing that because there is market risk but not technological risk associated with implementing business methods, and market risk is not typically avoided by monopoly, patenting business methods is inefficient).
246. See Rochelle Cooper Dreyfuss, Are Business Method Patents Bad for Business?, 16 SANTA CLARA COMPUTER & HIGH TECH. L.J. 263, 275 (2000) (arguing that "lead time (the first mover advantage) goes a long way to assuring returns adequate to recoup costs and earn substantial profit").
247. Richard C. Levin et al., Appropriating the Returns for Industrial Research and Development, 3 BROOKINGS PAPERS ON ECON. ACTIVITY 783, 794-95 (1987) (presenting results of survey indicating trade secrecy was considered "more effective than patents in protecting [business] processes").
248. Actually, a firm must merely take the appropriate steps to keep its methods secret, and then courts will protect against and give remedies for unauthorized distribution of the methods in many cases. Of course, a competitor is always free to reverse engineer the trade secret method, if it can.
249. Note that the level of trade secret protection varies from state to state, and is fairly weak in some states, like California, where a higher premium is placed on employee mobility and the free flow of information. See Christopher Rebel J. Pace, The Case for a Federal Trade Secrets Act, 8 HARV. J.L. & TECH. 427, 443-44 (1995) ("[D]espite this universal recognition and near-universal origin of trade secrets protection, states vary widely in their treatment of trade secret misappropriation.⋯For example, a number of states have not adopted the [Uniform Trade Secrets Act]'s central definition of 'trade secret.' California dropped the UTSA requirement that a trade secret not be 'readily ascertainable by proper means.'" (quoting CAL. CIV. CODE§3426.1(d)(1) (West Supp. 1995))); Adam Gill, Note, The Inevitable Disclosure Doctrine: Inequitable Results Are Threatened But Not Inevitable, 24 HASTINGS COMM. & ENT. L.J. 403, 416 (2002) ("[T]he codification of [California Business and Professions Code 16600] and the related case law leave no doubt that California places a high value on and has a strong tradition of protecting employee mobility.").
250. Some business methods may not be able to be kept secret if they are used. Amazon's 1-Click method of selling products, for instance, has to be publicized to be used. Amazon can, of course, both keep secret and copyright the underlying code, but the method of selling must be revealed to be utilized. On the other hand, in some instances the monopoly protection can be strong and long lasting. Coca-Cola has kept the formula for Coke a trade secret for over a century. David S. Levine, Secrecy and Unaccountability: Trade Secrets in Our Public Infrastructure, 59 FLA. L. REV. 135, 156 (2007) ("[T]he formula for Coca-Cola, which is not patented, is the most famous example of a trade secret and has existed as a trade secret for over 100 years.").
251. See Jonathan R. Chally, Note, The Law of Trade Secrets: Toward a More Efficient Approach, 57 VAND. L. REV. 1269, 1279 (2004) (observing that " λrade secret protection leads to more efficient results [than patent law] because it allows market forces to limit the law's protection").
252. Id. at 1270-71.
253. Id.
254. For instance, courts will give more protection to secrets when precautions are taken to strictly limit knowledge of them to those with a need to know, when physical security features are put in place, or when all materials having to do with the trade secret are clearly marked "confidential" or "top secret." See, e.g., Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174, 179-80 (7th Cir. 1991) (noting that more money spent to protect secrets indicates that secrets have value worthy of legal protection).
255. Firms will not automatically seek maximum trade secret protection. Employees do not like contract provisions that limit their ability to work for a competitor in the future, or that threaten to penalize them if they reveal secrets. The employer will have to raise wages to compensate employees for this inconvenience. Thus, the employer will choose the level of trade secret protection for which increased revenues outweigh increased wages and other costs.
256. The resources the second firm spends inventing the same business method are economic waste. Therefore if business methods are expensive to invent, patent protection might be a less costly alternative than the regime of trade secret protection, because patent holders must disclose their inventions. Additionally, if some business methods are sufficiently nonobvious that other firms will not be able to invent them, then a twenty-year patent protection accompanied by disclosure would be less costly to society than allowing the inventing firm to have a perpetual monopoly. It should be noted, however, that even though patent protection may be cheaper than trade secret protection for some inventions, allowing a firm to choose between the two options is likely the least efficient alternative. This is because firms will choose the option that has maximum anticompetitive effect each time, that is, the firm will opt for whichever option will provide the longest period of monopoly.
257. Dreyfuss, supra note 214, at 275.
258. However, some literature suggests that there is a general decrease in innovation within firms compared to without. See, e.g., RICHARD N. FOSTER & SARAH KAPLAN, CREATIVE DESTRUCTION: WHY COMPANIES THAT ARE BUILT TO LAST UNDERPERFORM THE MARKET-AND HOW TO SUCCESSFULLY TRANSFORM THEM 106 (2001) (noting that "[i]ndustries are more innovative than thecompanies in them"); Kim B. Clark, The Interaction of Design Hierarchies and Market Concepts in Technological Evolution, 14 RES. POL'Y 235, 238 (1985) (noting that, while corporate introspection can lead to innovation, competition among producers is required in order to explore customer preferences and desires). The literature argues that several factors converge to decrease innovation within a firm. First, while innovators generally do not capture the full benefit of their innovations, they may face the full brunt of the punishment for a risk gone bad. Second, managers often do not really know what potential innovators do and so do not do well in giving innovators resources and incentives to innovate. Third, Professor Clayton Christensen maintains that market players do especially poorly in coming up with innovation in the form of "disruptive technologies"-i.e., innovation that leads to disruption in the market or in the way a firm does business. CLAYTON M. CHRISTENSEN, THE INNOVATOR'S DILEMMA: WHEN NEW TECHNOLOGIES CAUSE GREAT FIRMS TO FAIL xv (1997). According to Professor Christensen, while leading firms outperform others in perfecting existing technology in the market, they consistently miss identifying and developing disruptive technologies. Id. at xii. The reason for this, according to Christensen, is that firms see it as rational to pursue continued revenue from providing customers with marginally improved technology, but see great risk in betting on a new and disruptive technology, and consistently decline to take that risk. Id. at xvii. According to Professor Christensen's study of the issue, it is outside firms that consistently are willing to bet their firms to enter the market and pursue the disruptive technologies. Id. at 209-10. Even taking the above arguments at face value, however, there is reason to believe that while innovation may be a problem within certain market-leading firms, it is not a problem within the market as a whole. For while innovators within a firm may not reap the full benefit of their innovations, while reaping the full costs of mistakes, entrepreneurs outside the firms can generally receive the full benefit of their innovation upon entering a market. Indeed, Professor Christensen's work shows that outside innovators consistently enter the market to make innovative leaps forward. And note that Professor Christensen's study found this level of innovation before the advent of business method patents. On the other hand, James Bessen and Michael J. Meurer argue that the most important innovation does occur within firms: [S]ome people claim that almost all "breakthrough" inventions come from small inventors, and their interests should be paramount in debates about patent reform.⋯There are good reasons to think that small inventors make important inventions. This is not true of all types of small inventors, of course; many small inventors patent games, simple machines, and other low-tech inventions. Nevertheless, many small inventors do make important high-tech inventions. But there is no evidence to suggest that most breakthrough inventions come from small inventors. What limited evidence exists-for example, the characteristics of inventors nominated to the National Inventors Hall of Fame-suggests that most recent major
259. Id. at 88-89.
260. 609 F.2d 481 (C.C.P.A. 1979).
261. In re Maucorps, 609 F.2d at 482.
262. Id. There is, of course, some cost savings to optimizing sales structures and efforts. Thus, some allocative efficiency may be created as firms optimize sales and free up resources.
263. Id. at 485; see also State St. Bank & Trust Co. v. Signature Fin. Group, Inc., 149 F.3d 1368, 1376 (Fed. Cir. 1998) (reading In re Maucorps as rejecting patent claim under "mathematical algorithm exception, not the business method exception"), abrogated by In re Bilski, 545 F.3d 943 (Fed. Cir. 2008).
264. Louis Kaplow, The Patent-Antitrust Intersection: A Reappraisal, 97 HARV. L. REV. 1813, 1824-25 (1984).
265. Id. at 1860.
266. Id. at 1860-61.
267. Nevertheless, as Professor Merges notes, some commentators ignore the cost-benefit analysis of patentability of business methods and instead simply argue that business methods should be patentable because everything else is. Merges, supra note 29, at 587.
268. Indeed, it is arguable that the four largest groupings of business method patent filings (Class 705) are for functions that firms are incentivized to constantly improve on their own simply by virtue of operating in competitive markets. The PTO White Paper on Business Methods sets out the following as the four largest groups for patent filings within Class 705: 1. Determining Who Your Customers Are, and The Products/Services They Need/Want Operations Research - Market Analysis 2. Informing Customers You Exist, Showing Them Your Products & Services, and Getting Them to Purchase Advertising Management Catalog Systems Incentive Programs Redemption of Coupon 3. Exchanging Money and Credit Before, During, and After the Business Transaction Credit and Loan Processing Point of Sale Systems Billing Funds Transfer Banking Clearinghouses Tax Processing Investment Planning 4. Tracking Resources, Money, And Products Human Resource Management Scheduling Accounting Inventory Monitoring U.S. PATENT & TRADEMARK OFFICE, USPTO WHITE PAPER - AUTOMATED BUSINESS METHODS - SECTION III CLASS 705, http://www.uspto.gov/patents/resources/methods/afmdpm/class705.jsp (last visited Oct. 26, 2009); PTO BUSINESS METHODS WHITE PAPER, supra note 150, at 5. While arguments may exist as to whether firms are adequately incentivized to improve in all four of the above groups, it seems inarguable that prior to patent protection, firms are already incentivized to continually improve their business practices in groups one and two even in the absence of any patent protection.
269. Imagine the loss in utility if Federal Express's "hub and spoke" delivery method had been patented. Or the utility loss that would have occurred if Wal-Mart had exclusive rights to its "just-intime" warehousing and shipping method. Or consider the more severe losses to society if Adam Smith had been able to patent the division of labor method he instituted at his pen factory.
270. See Examination Guidelines for Computer-Related Inventions, 61 Fed. Reg. 7478, 7479 (Feb. 28, 1996) (noting that "[o]ffice personnel have had difficulty in properly treating claims directed to methods of doing business"). See generally Robert P. Merges, The Uninvited Guest: Patents on Wall Street, 88 FED. RES. BANK ATLANTA ECON. REV. 1 (2003) (discussing previous difficulties with line drawing and present needs of patent system).
271. See, e.g., Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 584-85 (1994) (recognizing difficulty in fair use determinations but deciding issue nonetheless); Nichols v. Universal Pictures Corp., 45 F.2d 119, 121 (2d Cir. 1930) (deciding copyright infringement issue even though with regard to idea/expression dichotomy "[n]obody has ever been able to fix that boundary, and nobody ever can").
272. See supra Part III.B.2 for a discussion of courts analyzing business methods and patentable process.
273. Instead, in State Street Bank & Trust Co. v. Signature Financial Group, Inc., the Federal Circuit simply abandoned any gatekeeping role or efficiency analysis and ruled that textually there is no statutory basis to exclude business methods from patentability. 149 F.3d 1368, 1375 (Fed. Cir. 1998), abrogated by In re Bilski, 545 F.3d 943 (Fed. Cir. 2008). Thus there has never been a congressional or judicial finding that the line would be more difficult to draw than the many difficult lines courts must draw in all areas of the law.
274. Some business method patents will be obvious. See, e.g., In re Bilski, 545 F.3d 943, 949 (Fed. Cir. 2008) (describing "method of hedging risk in the field of commodities trading"), cert. granted sub nom. Bilski v. Doll, 129 S. Ct. 2735 (2009); Ex Parte Lundgren, 76 U.S.P.Q.2d 1385, 1388 (B.P.A.I. 2004) (describing patent for "method of compensating a manager"). Other business method patents that are implemented via computer may be hard to distinguish from software patents. See, e.g., State St. Bank, 149 F.3d at 1375 (examining important addition of business method to distinguish from software patent, despite reliance on software in business process).
275. John R. Allison & Starling D. Hunter, On the Feasibility of Improving Patent Quality One Technology at a Time: The Case of Business Methods, 21 BERKELEY TECH. L.J. 729, 736 (2006) (noting that some patent applicants have avoided PTO business method review policies by filing their patents under classifications not subject to second-pair-of-eyes review program).
276. In In re Bilski, the Federal Circuit did not declare business methods unpatentable, but it did revise its patentable subject matter jurisprudence to require that all process patents be tied to a particular machine or cause transformation of a particular article. 545 F.3d at 956. While this ruling reduces somewhat the scope of business method patents, it leaves many business methods patentable, thus decreasing net welfare. The Supreme Court is currently considering Bilski. Bilski v. Doll, 129 S. Ct. 2735 (2009).
277. Indeed, patentable subject matter jurisprudence in the ten years since State Street Bank shows that allowing business method patents did nothing to make drawing the line between patentable and unpatentable subject matter easier. See generally In re Bilski, 545 F.3d 943; In re Comiskey, 499 F.3d 1365 (Fed. Cir. 2007), superseded by 544 F.3d 967 (Fed. Cir. 2009); In re Nuijten, 500 F.3d 1346 (Fed. Cir. 2007); Metabolite Labs., Inc. v. Lab. Corp. of Am. Holdings, 370 F.3d 1354 (Fed. Cir. 2004).
278. In addition, problems with determining patent boundaries may lead to even greater deterrence of innovation in fields subject to patenting. According to Bessen and Meurer: [T]he hard fact is, innovators cannot quickly and easily obtain a reliable judgment on whether prospective technology infringes on others' patents. Perhaps in an earlier time, when technology was simpler, this was not such a serious problem because the ambiguity of patent claims was not so great. But⋯there are reasons to think that this ambiguity has been increasing substantially in recent years. In addition, changes made during the 1990s in the legal methods used to determine the boundaries of patents appear to have made the uncertainty even greater. BESSEN & MEURER, supra note 226, at 56.
279. Cf. Peter S. Menell, A Method for Reforming the Patent System, 13 MICH. TELECOMM. & TECH. L. REV. 487, 502 (2007) (advocating reform of patent system based on both categorical and systemic reforms).
280. See Anna Lumelsky, Diamond v. Chakrabarty: Gauging Congress's Response to Dynamic Statutory Interpretation by the Supreme Court, 39 U.S.F. L. REV. 641, 641-43 (2005) (arguing that U.S. Supreme Court has power to update meaning of§101 of Patent Act).
281. See Andrew E. Jankowich, Property and Democracy in Virtual Worlds, 11 B.U. J. SCI. & TECH. L. 173, 200 (2005) ("Congress has a poor history of crafting statutes to deal with technological and intellectual property issues and is likely to focus only on issues that are controversial or are raised by large organized lobbies."); Vincent R. Johnson, Regulating Lobbyists: Law, Ethics, and Public Policy, 16 CORNELL J.L. & PUB. POL'Y 1, 12 (2006) (commenting that distorted facts, favoritism, and unfair advantage associated with lobbying threaten proper government operation).
282. An agency could also take into account the amount and likelihood of other invention incentives for a particular subject matter in making a determination of whether that subject matter should be patentable. For instance, an agency tasked with determining whether scientific correlations should be patentable subject matter could analyze how much of the research that leads to the discovery of such correlations is already incentivized by other means, such as the government grant that underwrote some of the research in the Metabolite patent. See U.S. Patent No. 4,940,658 col.1 l.7 (filed Nov. 20, 1986) ("The research leading to this invention was partially funded by grants from the U.S. government.").
283. That the amount and forms of legal protection needed to incentivize innovation seem to vary by industry is an additional factor that points to the appropriateness of having an administrative agency determine patentable subject matter. See FED. TRADE COMM'N, supra note 46, ch. 3, at 1 (finding that "issues of fixed cost recovery, alternative appropriability mechanisms, and relationships between initial and follow-on innovation" differ by industry); Burk & Lemley, supra note 212, at 1588-89 (noting that "[e]ach distinct technology displays an idiosyncratic profile of technical and economic determinants for research, development, and return on investment" and arguing that legal incentives for innovation must therefore be adjusted accordingly).
284. This idea is not new. In 2000, Jeff Bezos, CEO of Amazon.com, suggested that patents on Internet methods be limited to three to five years. Matt Richtel, Chairman of Amazon Urges Reduction of Patent Terms, N.Y. TIMES, Mar. 11, 2000 at C4. This might make sense for patents on business methods or software because for these subject matters costs of invention may be quite low, but not so low that a small amount of patent protection is inappropriate. Giving these subject matters, patent protection for a short duration may have a positive effect on the amount of invention that is not outweighed by the deadweight loss to monopoly. Thus, some small amount of patent protection-like a three to five year patent term-might give businesses an additional small incentive to invent without causing an equal or greater deadweight loss. Deadweight loss might in turn become greater than additional invention after three to five years, if the amount of invention does not increase much with the additional patent protection.
285. This is exemplified by the fitful course of current patent reform legislation in Congress. See Charlene Carter, Conflicting Views Mire Patent Reform, ROLL CALL, June 19, 2008, at 19, available at http://www.rollcall.com/ issues/53-155/news/26052-1.html; New BIO Study Concludes Patent 'Reform' Legislation Would Impose Significant Costs on Patent System and Could Undermine U.S. Innovation and Economic Growth, LIFE SCI. WKLY, Feb. 14, 2008, at 3894, 3894; Robert Pear, Patent Bill Is Bonanza to Lobbyists, N.Y. TIMES, Apr. 30, 2008, at C1; Sheila Riley, Proposed Bill to Stop 'Patent Trolls' Supported by Big Tech Companies, INV. BUS. DAILY, May 29, 2008; Seth Stern, Economic Worries and Manufacturing Interests Threaten Patent Overhaul, CONG. Q. TODAY, April 4, 2008; Nuala Moran, U.S. Patent Reforms Might Force Firms to Rely on Trade Secrets, BIOWORLD TODAY, June 23, 2008, http://www.tmcnet.com/usubmit/2008/06/ 20/3509949.htm.
286. Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, Legal Instruments- Results of the Uruguay Round, 33 I.L.M. 1197 (1994) [hereinafter TRIPS].
287. Id. art. 27(1); see also id. art. 27(1) n.5 ("For the purposes of this Article, the terms 'inventive step' and 'capable of industrial application' may be deemed by a Member to be synonymous with the terms 'non-obvious' and 'useful' respectively.").
288. See id. art. 27(1) ("[P]atents shall be available and patent rights enjoyable without discrimination as to⋯the field of technology⋯. ").
289. While the EU and Japan have refused to pass legislation allowing business method patents, their respective patent offices have issued patents that might seem to fall into the business method category. Even so, both countries approach business methods much more restrictively than the United States: In practice, the European Patent Office (EPO) has followed a much more difficult, perhaps even tortured, path in distinguishing between patentable, innovative computer-implemented inventions and unpatentable software and business methods. The Japanese Patent Office's (JPO) path to increased recognition of the patentability of business method and software patents has been far less contentious. However, in neither case is there indication that these countries will duplicate the extremely liberal recognition of business method and software patents that exists in the U.S. Robert E. Thomas & Larry A. DiMatteo, Harmonizing the International Law of Business Method and Software Patents: Following Europe's Lead, 16 TEX. INTELL. PROP. L.J. 1, 13-14 (2007).
290. TRIPS, supra note 254, art. 33 ("The term of protection available shall not end before the expiration of a period of twenty years counted from the filing date.").
291. Id. at 1374.
292. Id. at 1375.
293. See State St. Bank, 149 F.3d at 1375 (stating that business method exception was result of "some general, but no longer applicable legal principle," without much elaboration).
294. Id. at 1375-76.
295. Id. at 1375.
296. Id. at 1377.
297. Some argue that when Congress enacted the defense of prior user rights in business methods in 35 U.S.C.§273 the year after the State Street Bank decision, it ratified business method patents. E.g., Risch, supra note 4, at 610 n.130. But this argument proves too much, especially given the concurrent congressional attempts to pass legislation limiting or banning business method patents. See, e.g., Business Method Patent Improvement Act of 2000, H.R. 5364, 106th Cong.§3(a) (detailing procedures to be followed upon determination that patent application is for "business method invention"); 146 CONG. REC. 20,655 (2000) (statement of Rep. Boucher) ("[F]ew issues in the 107th Congress will be more important than deciding whether, and under what conditions, the government should be issuing 'business method' patents.").
298. 172 F.3d 1352 (Fed. Cir. 1999), abrogated by In re Bilski, 545 F.3d 943 (Fed. Cir. 2008).
299. The Federal Circuit reiterated that, "[b]ecause§101 includes processes as a category of patentable subject matter, the judicially-defined proscription against patenting of a 'mathematical algorithm,' to the extent such a proscription still exists, is narrowly limited to mathematical algorithms in the abstract." AT&T Corp., 172 F.3d at 1356. The invention at issue claimed a process for adding a data field to call billing records used by long distance carriers, which allowed the identification of the long distance carrier with whom each call originated. Id. at 1352-54.
300. The Court emphasized that "physical transformation" is not "an invariable requirement, but merely one example of how a mathematical algorithm may bring about a useful application." Id. at 1358.
301. Id. at 1359 (quoting State St. Bank & Trust Co. v. Signature Fin. Group, Inc., 149 F.3d 1368, 1374 (Fed. Cir. 1998)). Of course the Federal Circuit noted that the three exceptions to subject matter patentability set out by the Supreme Court in Diehr still apply-"laws of nature, natural phenomena, and abstract ideas." Id. at 1355. The Court also noted that the patent at issue did not preempt all uses of the mathematical principle it made use of and therefore did not run afoul of another problem that the supposed mathematical algorithm exception sought to prevent-the patenting of all uses of an algorithm, which would in effect be the patenting of an abstract idea. AT&T Corp., 172 F.3d at 1357-58.
302. 76 U.S.P.Q.2d 1385 (B.P.A.I. 2005) (per curiam).
303. For a discussion of the technological arts test, see supra notes 102-05 and accompanying text.
304. Ex parte Lundgren, 76 U.S.P.Q.2d at 1386.
305. Id. at 1385. Note that no firm in the oligopolistic market would want to use such a method, because if it worked it would eliminate potential oligopoly profits. Rather, the method would have to be imposed on the firms by some outsider, likely a government regulator. Thus, Lundgren (an economist working for the federal government) was attempting to patent a theory of economic regulation of oligopoly markets. Steve Seidenberg, The Lundgren Method, INSIDECOUNSEL, Jan. 2006, at 24, 24, available at http://www.insidecounsel.com/ Issues/2006/January%202006/Pages/The-Lundgren-Method.aspx. Lundgren filed an amicus brief in the Microsoft Antitrust remedy hearings arguing that he should be allowed to participate in the remedy hearings in order to demonstrate that his patent pending method would be the best remedy for Microsoft's antitrust violations. As Lundgren adroitly noted in his reply brief, "Carl Lundgren would be prepared to argue that use of his invention would provide a better remedy in this case than would any other remedy. If Carl Lundgren should prevail in a fair contest to select the best remedy, he could earn a fortune." Reply by Carl Lundgren to the Parties' Responses to Motions Regarding Amicus Participation at 3, United States v. Microsoft Corp., No. 00-5212 (D.C. Cir. Oct. 30, 2000), available at http://www.usdoj.gov/atr/cases/f223500/223523b.htm. Lundgren's attempt to patent theories of regulation and then have them imposed by court order suggests its own host of problems that space constraints prohibit investigating in this Article.
306. Ex parte Lundgren, 76 U.S.P.Q.2d at 1385-86.
307. Id. at 1386 (stating that invention was "an economic theory expressed as a mathematical algorithm without the disclosure or suggestion of computer, automated means, apparatus of any kind" (internal quotation marks omitted)).
308. Id. at 1387.
309. Id.
310. 370 F.3d 1354 (Fed. Cir. 2004).
311. Metabolite, 370 F.3d at 1358-59, 1366-68. The patent claim states in full: "A method for detecting a deficiency of cobalamin or folate in warm-blooded animals comprising the steps of: assaying a body fluid for an elevated level of total homocysteine; and correlating an elevated level of total homocysteine in said body fluid with a deficiency of cobalamin or folate." U.S. Patent No. 4,940,658 col.41 l.58 (filed Nov. 20, 1986).
312. Metabolite, 370 F.3d at 1363.
313. Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc., 548 U.S. 124, 130 (2006) (Breyer, J., dissenting).
314. Id. at 131 (quoting Corrected Brief for Appellant Lab. Corp. of Am. Holdings at 41, Metabolite Labs., Inc. v. Lab. Corp. of Am. Holdings, No. 03-1120 (Fed. Cir. Feb. 10, 2003)).
315. Id.
316. Metabolite, 370 F.3d at 1365.
317. Metabolite, 548 U.S. at 124-25 (per curiam).
318. Id. at 134 (Breyer, J., dissenting).
319. Id. at 132, 137.
320. Id. at 134.
321. Id. at 135.
322. Metabolite, 548 U.S. at 135 (Breyer, J., dissenting).
323. Cf. id. at 126 (noting one reason for rejecting patent protections for such correlations is that it may impede progress).
324. The incentive is particularly outsized in the case of discoveries in the fields of science and medicine because much of the research is already incentivized by government grants, as, indeed, was the research underlying the discovery in the Metabolite patent. See U.S. Patent No. 4,940,658 col.1 l.7 (filed Nov. 20, 1986) ("The research leading to this invention was partially funded by grants from the U.S. government.").
325. State St. Bank & Trust Co. v. Signature Fin. Group, Inc., 149 F.3d 1368, 1373 (Fed. Cir. 1998), abrogated by In re Bilski, 545 F.3d 943 (Fed. Cir. 2008).
326. See Metabolite, 548 U.S. at 131-32 (Breyer, J., dissenting) (presenting LabCorp's appellatelevel argument).
327. In re Bilski, 545 F.3d 943, 956 (Fed. Cir. 2008), cert. granted sub nom. Bilski v. Doll, 129 S. Ct. 2735 (2009). The Federal Circuit began signaling its willingness to call some inventions beyond the limits of patentable subject matter in In re Nuijten, 500 F.3d 1346 (Fed. Cir. 2007). There the invention was a new method of "watermarking" signals. Id. at 1351. These signals might carry audio or any other type of information. Id. at 1348. Nuijten was granted claims for (1) the process of watermarking the signals, (2) structural means and machinery for encoding the signals, and (3) encoded signals stored in a storage medium. Id. at 1351. The PTO rejected Claim 14 (and dependent claims), which covered the encoded signal on its own, without reference to any storage medium. Id. The Federal Circuit held that Claim 14 was properly rejected as unpatentable subject matter. In re Nuijten, 500 F.3d at 1357. The Court held that a signal, being transitory and intangible, complies with none of the four categories for patentable subject matter under§101 (process, machine, manufacture, or composition of matter). Id. Likewise, in In re Comiskey, 499 F.3d 1365 (Fed. Cir. 2007), superseded by 544 F.3d 967 (Fed. Cir. 2009), the Court rejected claims to a method of arbitration that were not tied to any implementing system or machine. Id. at 1379. The Court held that claims tied to software were patentable subject matter. Id. at 1379-80.
328. In In re Beauregard, the PTO dropped its opposition to a claim for software contained on a floppy disk. 53 F.3d 1583, 1583-84 (Fed. Cir. 1995). Thereafter, the PTO issued new guidelines for examining computer-related inventions in which it held that claims to software on a disk or tied to a processor are patentable subject matter so long as the patent specification contains adequate written description and enablement and the invention is useful. Examination Guidelines for Computer- Related Inventions, 61 Fed. Reg. 7478, 7481 (Feb. 28, 1996). In Ex parte Bo Li, Appeal 2008-1213 (B.P.A.I. 2008), the Board of Patent Appeals and Interferences held that Beauregard claims remain valid even after Bilski. But cf. Ex parte Becker, Appeal 2008-2064 (B.P.A.I. 2009) (holding claim for "method for maintaining a user profile" unpatentable for not tying invention to particular machine and thus not meeting Bilski machine or transformation test).
329. Bilski v. Doll, 129 S. Ct. 2735 (2009).
330. U.S. CONST. art. I,§8, cl. 8.
331. 370 F.3d 1354 (Fed. Cir. 2004).
332. 545 F.3d 943, 956 (Fed. Cir. 2008), cert. granted sub nom. Bilski v. Doll, 129 S. Ct. 2735 (2009).
333. For the relevant diagrams, see supra Part II.B.
334. Cf. FED. TRADE COMM'N, supra note 46, ch. 3, at 1 (2003) (citing evidence that "issues of fixed cost recovery, alternative appropriability mechanisms, and relationships between initial and follow-on innovation" differ by industry); Dan L. Burk & Mark A. Lemley, Policy Levers in Patent Law, 89 VA. L. REV. 1575, 1577-89 (2003) ("Recent evidence has demonstrated that this complex relationship [between patents and increased innovation] is ⋯ industry-specific at each stage of the patent process ⋯ ."); Jay Dratler, Jr., Does Lord Darcy Yet Live? The Case Against Software and Business-Method Patents, 43 SANTA CLARA L. REV. 823, 840 (2003) (arguing that because there is market risk but not technological risk associated with implementing business methods, and market risk is not typically avoided by monopoly, patenting business methods is inefficient).
335. See Rochelle Cooper Dreyfuss, Are Business Method Patents Bad for Business?, 16 SANTA CLARA COMPUTER & HIGH TECH. L.J. 263, 275 (2000) (arguing that "lead time (the first mover advantage) goes a long way to assuring returns adequate to recoup costs and earn substantial profit").
336. Richard C. Levin et al., Appropriating the Returns for Industrial Research and Development, 3 BROOKINGS PAPERS ON ECON. ACTIVITY 783, 794-795 (1987) (presenting results of survey indicating trade secrecy was considered "more effective than patents in protecting [business] processes").
337. Actually, a firm must merely take the appropriate steps to keep its methods secret, and then courts will protect against and give remedies for unauthorized distribution of the methods in many cases. Of course, a competitor is always free to reverse engineer the trade secret method, if it can.
338. Note that the level of trade secret protection varies from state to state, and is fairly weak in some states, like California, where a higher premium is placed on employee mobility and the free flow of information. See Christopher Rebel J. Pace, The Case for a Federal Trade Secrets Act, 8 HARV. J.L. & TECH. 427, 443-44 (1995) ("[D]espite this universal recognition and near-universal origin of trade secrets protection, states vary widely in their treatment of trade secret misappropriation.⋯For example, a number of states have not adopted the [Uniform Trade Secrets Act]'s central definition of 'trade secret.' California dropped the UTSA requirement that a trade secret not be 'readily ascertainable by proper means.'" (quoting CAL. CIV. CODE§3426.1(d)(1) (West Supp. 1995))); Adam Gill, Note, The Inevitable Disclosure Doctrine: Inequitable Results Are Threatened But Not Inevitable, 24 HASTINGS COMM. & ENT. L.J. 403, 416 (2002) ("[T]he codification of [California Business and Professions Code 16600] and the related case law leave no doubt that California places a high value on and has a strong tradition of protecting employee mobility.").
339. Some business methods may not be able to be kept secret if they are used. Amazon's 1-Click method of selling products, for instance, has to be publicized to be used. Amazon can, of course, both keep secret and copyright the underlying code, but the method of selling must be revealed to be utilized. On the other hand, in some instances the monopoly protection can be strong and long lasting. Coca-Cola has kept the formula for Coke a trade secret for over a century. David S. Levine, Secrecy and Unaccountability: Trade Secrets in Our Public Infrastructure, 59 FLA. L. REV. 135, 156 (2007) ("[T]he formula for Coca-Cola, which is not patented, is the most famous example of a trade secret and has existed as a trade secret for over 100 years.").
340. See Jonathan R. Chally, Note, The Law of Trade Secrets: Toward a More Efficient Approach, 57 VAND. L. REV. 1269, 1279 (2004) (observing that " λrade secret protection leads to more efficient results [than patent law] because it allows market forces to limit the law's protection").
341. Id. at 1270-71.
342. Id.
343. For instance, courts will give more protection to secrets when precautions are taken to strictly limit knowledge of them to those with a need to know, when physical security features are put in place, or when all materials having to do with the trade secret are clearly marked "confidential" or "top secret." See, e.g., Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174, 179-80 (7th Cir. 1991) (noting that more money spent to protect secrets indicates that secrets have value worthy of legal protection).
344. Firms will not automatically seek maximum trade secret protection. Employees do not like contract provisions that limit their ability to work for a competitor in the future, or that threaten to penalize them if they reveal secrets. The employer will have to raise wages to compensate employees for this inconvenience. Thus, the employer will choose the level of trade secret protection for which increased revenues outweigh increased wages and other costs.
345. The resources the second firm spends inventing the same business method are economic waste. Therefore if business methods are expensive to invent, patent protection might be a less costly alternative than the regime of trade secret protection, because patent holders must disclose their inventions. Additionally, if some business methods are sufficiently nonobvious that other firms will not be able to invent them, then a twenty-year patent protection accompanied by disclosure would be less costly to society than allowing the inventing firm to have a perpetual monopoly. It should be noted, however, that even though patent protection may be cheaper than trade secret protection for some inventions, allowing a firm to choose between the two options is likely the least efficient alternative. This is because firms will choose the option that has maximum anticompetitive effect each time, that is, the firm will opt for whichever option will provide the longest period of monopoly.
346. Dreyfuss, supra note 214, at 275.
347. However, some literature suggests that there is a general decrease in innovation within firms compared to without. See, e.g., RICHARD N. FOSTER & SARAH KAPLAN, CREATIVE DESTRUCTION: WHY COMPANIES THAT ARE BUILT TO LAST UNDERPERFORM THE MARKET-AND HOW TO SUCCESSFULLY TRANSFORM THEM 106 (2001) (noting that "[i]ndustries are more innovative than thecompanies in them"); Kim B. Clark, The Interaction of Design Hierarchies and Market Concepts in Technological Evolution, 14 RES. POL'Y 235, 238 (1985) (noting that, while corporate introspection can lead to innovation, competition among producers is required in order to explore customer preferences and desires). The literature argues that several factors converge to decrease innovation within a firm. First, while innovators generally do not capture the full benefit of their innovations, they may face the full brunt of the punishment for a risk gone bad. Second, managers often do not really know what potential innovators do and so do not do well in giving innovators resources and incentives to innovate. Third, Professor Clayton Christensen maintains that market players do especially poorly in coming up with innovation in the form of "disruptive technologies"-i.e., innovation that leads to disruption in the market or in the way a firm does business. CLAYTON M. CHRISTENSEN, THE INNOVATOR'S DILEMMA: WHEN NEW TECHNOLOGIES CAUSE GREAT FIRMS TO FAIL xv (1997). According to Professor Christensen, while leading firms outperform others in perfecting existing technology in the market, they consistently miss identifying and developing disruptive technologies. Id. at xii. The reason for this, according to Christensen, is that firms see it as rational to pursue continued revenue from providing customers with marginally improved technology, but see great risk in betting on a new and disruptive technology, and consistently decline to take that risk. Id. at xvii. According to Professor Christensen's study of the issue, it is outside firms that consistently are willing to bet their firms to enter the market and pursue the disruptive technologies. Id. at 209-10. Even taking the above arguments at face value, however, there is reason to believe that while innovation may be a problem within certain market-leading firms, it is not a problem within the market as a whole. For while innovators within a firm may not reap the full benefit of their innovations, while reaping the full costs of mistakes, entrepreneurs outside the firms can generally receive the full benefit of their innovation upon entering a market. Indeed, Professor Christensen's work shows that outside innovators consistently enter the market to make innovative leaps forward. And note that Professor Christensen's study found this level of innovation before the advent of business method patents. On the other hand, James Bessen and Michael J. Meurer argue that the most important innovation does occur within firms: [S]ome people claim that almost all "breakthrough" inventions come from small inventors, and their interests should be paramount in debates about patent reform.⋯There are good reasons to think that small inventors make important inventions. This is not true of all types of small inventors, of course; many small inventors patent games, simple machines, and other low-tech inventions. Nevertheless, many small inventors do make important high-tech inventions. But there is no evidence to suggest that most breakthrough inventions come from small inventors. What limited evidence exists-for example, the characteristics of inventors nominated to the National Inventors Hall of Fame-suggests that most recent major inventions originated in large organizations, although a significant minority of important inventions are developed by independent inventors or inventors working in small firms. JAMES BESSEN & MICHAEL J. MEURER, PATENT FAILURE: HOW JUDGES, BUREAUCRATS, AND LAWYERS PUT INNOVATORS AT RISK 19-20 (2008).
348. Id. at 88-89.
349. 609 F.2d 481 (C.C.P.A. 1979).
350. In re Maucorps, 609 F.2d at 482.
351. Id. There is, of course, some cost savings to optimizing sales structures and efforts. Thus, some allocative efficiency may be created as firms optimize sales and free up resources.
352. Id. at 485; see also State St. Bank & Trust Co. v. Signature Fin. Group, Inc., 149 F.3d 1368, 1376 (Fed. Cir. 1998) (reading In re Maucorps as rejecting patent claim under "mathematical algorithm exception, not the business method exception"), abrogated by In re Bilski, 545 F.3d 943 (Fed. Cir. 2008).
353. Louis Kaplow, The Patent-Antitrust Intersection: A Reappraisal, 97 HARV. L. REV. 1813, 1824-25 (1984).
354. Id. at 1860.
355. Id. at 1860-61.
356. Nevertheless, as Professor Merges notes, some commentators ignore the cost-benefit analysis of patentability of business methods and instead simply argue that business methods should be patentable because everything else is. Merges, supra note 29, at 587.
357. Indeed, it is arguable that the four largest groupings of business method patent filings (Class 705) are for functions that firms are incentivized to constantly improve on their own simply by virtue of operating in competitive markets. The PTO White Paper on Business Methods sets out the following as the four largest groups for patent filings within Class 705: 1. Determining Who Your Customers Are, and The Products/Services They Need/Want Operations Research - Market Analysis 2. Informing Customers You Exist, Showing Them Your Products & Services, and Getting Them to Purchase Advertising Management Catalog Systems Incentive Programs Redemption of Coupon 3. Exchanging Money and Credit Before, During, and After the Business Transaction Credit and Loan Processing Point of Sale Systems Billing Funds Transfer Banking Clearinghouses Tax Processing Investment Planning 4. Tracking Resources, Money, And Products Human Resource Management Scheduling Accounting Inventory Monitoring U.S. PATENT & TRADEMARK OFFICE, USPTO WHITE PAPER - AUTOMATED BUSINESS METHODS - SECTION III CLASS 705, http://www.uspto.gov/patents/resources/methods/afmdpm/class705.jsp (last visited Oct. 26, 2009); PTO BUSINESS METHODS WHITE PAPER, supra note 150, at 5. While arguments may exist as to whether firms are adequately incentivized to improve in all four of the above groups, it seems inarguable that prior to patent protection, firms are already incentivized to continually improve their business practices in groups one and two even in the absence of any patent protection.
358. Imagine the loss in utility if Federal Express's "hub and spoke" delivery method had been patented. Or the utility loss that would have occurred if Wal-Mart had exclusive rights to its "just-intime" warehousing and shipping method. Or consider the more severe losses to society if Adam Smith had been able to patent the division of labor method he instituted at his pen factory.
359. See Examination Guidelines for Computer-Related Inventions, 61 Fed. Reg. 7478, 7479 (Feb. 28, 1996) (noting that "[o]ffice personnel have had difficulty in properly treating claims directed to methods of doing business"). See generally Robert P. Merges, The Uninvited Guest: Patents on Wall Street, 88 FED. RES. BANK ATLANTA ECON. REV. 1 (2003) (discussing previous difficulties with line drawing and present needs of patent system).
360. See, e.g., Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 584-85 (1994) (recognizing difficulty in fair use determinations but deciding issue nonetheless); Nichols v. Universal Pictures Corp., 45 F.2d 119, 121 (2d Cir. 1930) (deciding copyright infringement issue even though with regard to idea/expression dichotomy "[n]obody has ever been able to fix that boundary, and nobody ever can").
361. See supra Part III.B.2 for a discussion of courts analyzing business methods and patentable process.
362. Instead, in State Street Bank & Trust Co. v. Signature Financial Group, Inc., the Federal Circuit simply abandoned any gatekeeping role or efficiency analysis and ruled that textually there is no statutory basis to exclude business methods from patentability. 149 F.3d 1368, 1375 (Fed. Cir. 1998), abrogated by In re Bilski, 545 F.3d 943 (Fed. Cir. 2008). Thus there has never been a congressional or judicial finding that the line would be more difficult to draw than the many difficult lines courts must draw in all areas of the law.
363. Some business method patents will be obvious. See, e.g., In re Bilski, 545 F.3d 943, 949 (Fed. Cir. 2008) (describing "method of hedging risk in the field of commodities trading"), cert. granted sub nom. Bilski v. Doll, 129 S. Ct. 2735 (2009); Ex Parte Lundgren, 76 U.S.P.Q.2d 1385, 1388 (B.P.A.I. 2004) (describing patent for "method of compensating a manager"). Other business method patents that are implemented via computer may be hard to distinguish from software patents. See, e.g., State St. Bank, 149 F.3d at 1375 (examining important addition of business method to distinguish from software patent, despite reliance on software in business process).
364. John R. Allison & Starling D. Hunter, On the Feasibility of Improving Patent Quality One Technology at a Time: The Case of Business Methods, 21 BERKELEY TECH. L.J. 729, 736 (2006) (noting that some patent applicants have avoided PTO business method review policies by filing their patents under classifications not subject to second-pair-of-eyes review program).
365. In In re Bilski, the Federal Circuit did not declare business methods unpatentable, but it did revise its patentable subject matter jurisprudence to require that all process patents be tied to a particular machine or cause transformation of a particular article. 545 F.3d at 956. While this ruling reduces somewhat the scope of business method patents, it leaves many business methods patentable, thus decreasing net welfare. The Supreme Court is currently considering Bilski. Bilski v. Doll, 129 S. Ct. 2735 (2009).
366. Indeed, patentable subject matter jurisprudence in the ten years since State Street Bank shows that allowing business method patents did nothing to make drawing the line between patentable and unpatentable subject matter easier. See generally In re Bilski, 545 F.3d 943; In re Comiskey, 499 F.3d 1365 (Fed. Cir. 2007), superseded by 544 F.3d 967 (Fed. Cir. 2009); In re Nuijten, 500 F.3d 1346 (Fed. Cir. 2007); Metabolite Labs., Inc. v. Lab. Corp. of Am. Holdings, 370 F.3d 1354 (Fed. Cir. 2004).
367. In addition, problems with determining patent boundaries may lead to even greater deterrence of innovation in fields subject to patenting. According to Bessen and Meurer: [T]he hard fact is, innovators cannot quickly and easily obtain a reliable judgment on whether prospective technology infringes on others' patents. Perhaps in an earlier time, when technology was simpler, this was not such a serious problem because the ambiguity of patent claims was not so great. But⋯there are reasons to think that this ambiguity has been increasing substantially in recent years. In addition, changes made during the 1990s in the legal methods used to determine the boundaries of patents appear to have made the uncertainty even greater. BESSEN & MEURER, supra note 226, at 56.
368. Cf. Peter S. Menell, A Method for Reforming the Patent System, 13 MICH. TELECOMM. & TECH. L. REV. 487, 502 (2007) (advocating reform of patent system based on both categorical and systemic reforms).
369. See Anna Lumelsky, Diamond v. Chakrabarty: Gauging Congress's Response to Dynamic Statutory Interpretation by the Supreme Court, 39 U.S.F. L. REV. 641, 641-43 (2005) (arguing that U.S. Supreme Court has power to update meaning of§101 of Patent Act).
370. See Andrew E. Jankowich, Property and Democracy in Virtual Worlds, 11 B.U. J. SCI. & TECH. L. 173, 200 (2005) ("Congress has a poor history of crafting statutes to deal with technological and intellectual property issues and is likely to focus only on issues that are controversial or are raised by large organized lobbies."); Vincent R. Johnson, Regulating Lobbyists: Law, Ethics, and Public Policy, 16 CORNELL J.L. & PUB. POL'Y 1, 12 (2006) (commenting that distorted facts, favoritism, and unfair advantage associated with lobbying threaten proper government operation).
371. An agency could also take into account the amount and likelihood of other invention incentives for a particular subject matter in making a determination of whether that subject matter should be patentable. For instance, an agency tasked with determining whether scientific correlations should be patentable subject matter could analyze how much of the research that leads to the discovery of such correlations is already incentivized by other means, such as the government grant that underwrote some of the research in the Metabolite patent. See U.S. Patent No. 4,940,658 col.1 l.7 (filed Nov. 20, 1986) ("The research leading to this invention was partially funded by grants from the U.S. government.").
372. That the amount and forms of legal protection needed to incentivize innovation seem to vary by industry is an additional factor that points to the appropriateness of having an administrative agency determine patentable subject matter. See FED. TRADE COMM'N, supra note 46, ch. 3, at 1 (finding that "issues of fixed cost recovery, alternative appropriability mechanisms, and relationships between initial and follow-on innovation" differ by industry); Burk & Lemley, supra note 212, at 1588-89 (noting that "[e]ach distinct technology displays an idiosyncratic profile of technical and economic determinants for research, development, and return on investment" and arguing that legal incentives for innovation must therefore be adjusted accordingly).
373. This idea is not new. In 2000, Jeff Bezos, CEO of Amazon.com, suggested that patents on Internet methods be limited to three to five years. Matt Richtel, Chairman of Amazon Urges Reduction of Patent Terms, N.Y. TIMES, Mar. 11, 2000 at C4. This might make sense for patents on business methods or software because for these subject matters costs of invention may be quite low, but not so low that a small amount of patent protection is inappropriate. Giving these subject matters, patent protection for a short duration may have a positive effect on the amount of invention that is not outweighed by the deadweight loss to monopoly. Thus, some small amount of patent protection-like a three to five year patent term-might give businesses an additional small incentive to invent without causing an equal or greater deadweight loss. Deadweight loss might in turn become greater than additional invention after three to five years, if the amount of invention does not increase much with the additional patent protection.
374. This is exemplified by the fitful course of current patent reform legislation in Congress. See Charlene Carter, Conflicting Views Mire Patent Reform, ROLL CALL, June 19, 2008, at 19, available at http://www.rollcall.com/ issues/53-155/news/26052-1.html; New BIO Study Concludes Patent 'Reform' Legislation Would Impose Significant Costs on Patent System and Could Undermine U.S. Innovation and Economic Growth, LIFE SCI. WKLY, Feb. 14, 2008, at 3894, 3894; Robert Pear, Patent Bill Is Bonanza to Lobbyists, N.Y. TIMES, Apr. 30, 2008, at C1; Sheila Riley, Proposed Bill to Stop 'Patent Trolls' Supported by Big Tech Companies, INV. BUS. DAILY, May 29, 2008; Seth Stern, Economic Worries and Manufacturing Interests Threaten Patent Overhaul, CONG. Q. TODAY, April 4, 2008; Nuala Moran, U.S. Patent Reforms Might Force Firms to Rely on Trade Secrets, BIOWORLD TODAY, June 23, 2008, http://www.tmcnet.com/usubmit/2008/06/ 20/3509949.htm.
375. Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, Legal Instruments- Results of the Uruguay Round, 33 I.L.M. 1197 (1994) [hereinafter TRIPS].
376. Id. art. 27(1); see also id. art. 27(1) n.5 ("For the purposes of this Article, the terms 'inventive step' and 'capable of industrial application' may be deemed by a Member to be synonymous with the terms 'non-obvious' and 'useful' respectively.").
377. See id. art. 27(1) ("[P]atents shall be available and patent rights enjoyable without discrimination as to⋯the field of technology⋯. ").
378. While the EU and Japan have refused to pass legislation allowing business method patents, their respective patent offices have issued patents that might seem to fall into the business method category. Even so, both countries approach business methods much more restrictively than the United States: In practice, the European Patent Office (EPO) has followed a much more difficult, perhaps even tortured, path in distinguishing between patentable, innovative computer-implemented inventions and unpatentable software and business methods. The Japanese Patent Office's (JPO) path to increased recognition of the patentability of business method and software patents has been far less contentious. However, in neither case is there indication that these countries will duplicate the extremely liberal recognition of business method and software patents that exists in the U.S. Robert E. Thomas & Larry A. DiMatteo, Harmonizing the International Law of Business Method and Software Patents: Following Europe's Lead, 16 TEX. INTELL. PROP. L.J. 1, 13-14 (2007).
379. TRIPS, supra note 254, art. 33 ("The term of protection available shall not end before the expiration of a period of twenty years counted from the filing date.").