A June Supreme Court decision on the legality of software patents has been sending shockwaves through the legal system. The case, called Alice v. CLS Bank, has led to a bunch of lower court decisions invalidating software patents. It may also have been responsible for September's sharp decline in patent lawsuits.
The decision appears to be having another effect that could be even more important in the long run: it's causing the patent office to reject a lot more patents on "business methods," a category of software patent that is notorious for its high litigation rate. While that might be bad news for the people seeking these types of patents, it means that there could be a lot fewer patent troll lawsuits over the next two decades.
The decline of "business method" patents
The data comes from Kate Gaudry, an attorney at the law firm of Kilpatrick Townsend. She has compiled data showing that the patent office's approach to "business method" patents, the type of software patents at issue in the Alice case, has changed drastically since the Supreme Court's June ruling.
The patent office's examiner corps is specialized by subject matter, with different "art units" (AUs) focusing on different types of technology. For example, AU 3616 focuses on land and motor vehicles (not classified as "business methods"), while AU 3625 focuses on E-Shopping inventions (which is a "business method" category).
Gaudry focused on the number of decisions by AUs that rejected applications based on Section 101 of patent law — the provision that determines which categories of technology are patentable. In January, the rejection rate among "business method" AUs was just 24 percent. In July the figure had risen to 78 percent. And this was only true for business method patents; AUs that focused on other kinds of technology saw little change in their rejection rates.
How business method patents can discourage innovation
Gaudry worries that this will be bad for the US economy. "Business needs to know that their success earned through investment in solving vexing problems cannot be stolen," she writes. "Without incentive, say goodbye to the quick pace of innovation we enjoy."
But the evidence suggests that business method patents do more to hinder innovation than to promote it. Business method patents are 12 times more likely to lead to lawsuits than other types of patents. The "inventions" are often broad concepts like one-click shopping that are easy to infringe by accident. This makes them popular with patent trolls that prey on accidental infringers.
Research suggests that the threat of frivolous litigation does more to discourage innovation than the prospect of gaining patents does to encourage it. So a decline in business method patents could make the US legal system more, not less, hospitable to innovation.