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Open
Source Law Publications
Submission to
Advisory Council on Intellectual
Property
Consideration of the Patenting of
Business Systems
Brendan Scott
October 2002
Executive summary
Patents are statutory monopolies. These necessarily cause dead
weight losses to the economy. Monopoly grants should therefore be
approached with great caution and empirically justified.
Monopolies should be treated like loaded guns to be handed out with
extreme caution. In the realm of business patents,there are
significant issues with the grant of such patents. As such
monopoly protection should only be available where there are clear and
empirically demonstrable benefits and where those benefits clearly
outweigh th
Discussion
1. It is my personal experience that in the last 18 months to two
years some technology vendors have begun to refuse to give traditional
warranties in relation to freedom of their products from competing
patent claims. Previously blanket warranties, backed by substantial
indemnities would be given to a buyer that the product was free from
all copyright and patent claims. Recently, this has begun to be
restricted to copyright claims (because the element of causality
required by copyright allows vendors comfort and ability to control
risk). Vendors
have begun to argue that they can't know or be expected to know all of
the patents which are becoming available. Patents are therefore
increasing business uncertainty when they should be decreasing it.
Initially this occured with US based vendors. More
recently I have noticed some Australian based vendors taking a similar
approach.
2. It is my opinion that this is largely a result of: (a) the growth of
patents granted on business methods; and (b) lack of confidence in the
patent office to reject spurious claims at the examination stage.
I speculate that two factors behind this are: (c) lack of experience in
the patent office with the area over which the patent is claimed; and
(d) lack of review of "publications" (eg websites with systems
implemented) which might disclose the invention.
3. There is no empirical evidence to suggest that innovation has
suffered from a historical lack of patenting of business methods.
Indeed, independent creation of business methods on the internet
indicates that patents are not required to produce the majority of such
innovations.
4. Innovation is not an end in itself. It would be
foolish, for example, to devote the whole of GDP to R&D.
Rather, incentives for innovation must be balanced against the returns
from those incentives. There is no evidence to show that the
benefits from providing patents on business processes outweigh the
detriments. The questions therefore which are addressed to whether or
not patents encourage this or that should be recast in net terms.
It is clear that patents may encourage some things but still create a
net loss to the community.
5. There are indications that, outside specialised areas in which
massive infrastructure investment is required in order to participate
in innovation, patents reduce innovation and delay the release of
information to the public. The patent system is predicated on the
assumption that the dissemination of information is prima facie
difficult and collaboration between more than a handful of people
impossible. It is prejudiced in favour of "big bang" innovation
by isolated inventors. The patent monopoly is a 19th century
innovation model. The internet has proven (at least in low
barrier to entry markets) that collaboration is massively scaleable and
that incremental innovation produces better results faster than the
traditional model.
An incremental innovation model requires more information to be
disclosed sooner than a patent model in order to motivate collaboration
(the patent model effectively requires information to be kept secret
until the invention is disclosed, thus delaying not only the release of
preliminary information, but perhaps also the completion of the
invention, since fewer minds are working on its development).
Business processes are prime candidates for incremental
innovation. Broad patentability increases uncertainty in large
scale collaborative models
and undermines the productivity gains such models promise (because
collaborative models can't afford patent search or licensing costs and
because the lack of a need for a causal link means that a patent can
foreclose parallel innovation).
6. The nature of business processes is one such that publication
is unlikely. Unlike products, where sale of the product is seen as the
means of returning investment, processes return value through their
exercise and are likely to be "invented" by customer organisations
disinterested in vending their discovery. Process improvements are more
likely to be worked in secret even in the presence of patentability
(and the only use of patents in this area will be to foreclose
reasonable competition). Patentability of processes is likely only to
secure the disclosure of those processes which could not, in any event,
be kept secret. This means that the publication pool against
which process patents will be assessed is unrepresentatively
small. This is a fundamental problem which cannot be solved by
providing additional resources to patent examiners. It
means further that is there is nothing returned to society for the
monopoly grant in relation to processes.
7. It is my perception that, in practice, the granting of
monopolies by the State tends to favour big business at the expense of
SMEs. This is because small businesses are unable to afford the
cost of monitoring and reviewing patents, and a single patent in an
area is often insufficient to give bargaining leverage. Patents
tend to be used by large corporations to close out competition and
innovation from smaller rivals, with cross licensing deals preserving
the status quo at the top tier. As most big businesses are also
foreign owned, the patent system acts in practice as a regime for
protecting non Australian businesses from competition.
8. Real value to society occurs not through the initial
invention, but through evangelisation and simplification (so that the
process can be implemented with a minimum of fuss). Both of these
can be provided by a customer side model, where innovations must
compete for customer's mindshare based on ease of use and
effectiveness, rather than marketing funded off the back of a monopoly.
Conclusion
9. Patents are statutory monopolies. These
necessarily cause dead weight losses to the economy. Monopoly grants
should therefore be approached with great caution and empirically
justified. Monopolies should be treated like loaded guns to be
handed out with extreme caution. In the realm of business
patents, there are significant issues with the grant of such
patents. As such monopoly protection should only be available
where there are clear and empirically demonstrable benefits and where
those benefits clearly outweigh the adverse impacts from the grant of a
monopoly.
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