Federal Agency Rethinks Internet Patents

March 30, 2000

Federal Agency Rethinks Internet Patents

Government Changing Its Evaluations of Business-Method Filings

By SABRA CHARTRAND

ASHINGTON, March 29 -- Facing charges that it has been too ready to issue patents for Internet business methods, the Patent and Trademark Office said today that it was changing its evaluation procedures to ensure that such patents cover true innovations.

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The patent office's director, Q. Todd Dickinson, said his agency will be "fine-tuning our examinations in a lot of areas" regarding the handling of business-method patents. "These changes have been in the works for a while."
The actions announced today are the first substantial move to address a growing debate over whether ownership of business methods can be awarded to someone exclusively because they are applied online. The debate centers on this question: Do recent patents for practices like single-click purchases or name-your-price sales, to name just two, protect legitimate innovations? Or do they stifle electronic commerce and competition when issued to inventors exploiting a patent system designed in a non-digital age?
It is not the first time the agency has made changes after being criticized for lagging behind technology; a similar controversy arose several years ago over its processing of software-related inventions. Both then and now, critics said the agency lacked the trained staff and resource materials to make informed judgments -- in the present case, to know enough about software, the Internet and electronic commerce to understand what business methods are widely used or already in the public domain.
The agency said today that it would tackle those challenges by increasing review of its examiners' work, and by inviting representatives of the software industry to help educate the agency's staff. The plans were first reported today in The Wall Street Journal.
Mr. Dickinson said the examiners who analyze and approve patents will be required to search databases to look for "prior art," or existing evidence of a business method. Each patent application will now undergo an initial examination and two reviews, instead of one review. The agency also will double the number of business-method patents it chooses at random each year to scrutinize for a fourth time.

The move follows debate over just what can be protected.

Mr. Dickinson said he also hoped "to get more examiners into the field," where they could visit laboratories and offices, in the software and computer industry, for example.
He said he would like industry representatives to offer their expertise to the agency, and planned to invite them to a round-table discussion this summer, to share information, and to bolster the agency's research resources and the expertise of its examiners, managers and policy makers.
Software makers and others would find themselves dealing with Group 705, a department created in 1997 to process patents for business-method software.
At that time, it employed 12 examiners; now it has 40.
The department was set up not long after a furor arose over software-related inventions. For years software was covered by copyright law, and was believed, like mathematical algorithms, to be ineligible for patents. But that changed as the software industry grew, and as ownership of lines of code became increasingly valuable.
The dispute culminated with a patent awarded in 1993 to Compton's New Media for a search-and-retrieval method. Critics immediately pointed out that the technology was already in the public domain. The Patent and Trademark Office was forced to reveal that it had few software engineers on its staff to evaluate such applications, and an inadequate supply of software manuals in its research library. The agency made a rare re-evaluation of an issued patent, and an even rarer rescinding of that patent.
In 1994, the agency issued new guidelines, hired software engineers to train as patent examiners, opened a new computer database of existing software technologies, and set out to collect reference material for its software library. But the lesson was not easily transferred to the explosive growth in electronic commerce and the sudden glut of Internet-related business-method patents.
In recent months, the agency has found itself criticized for issuing patents for what appear to be common ways of conducting electronic business, like the 1-Click purchasing patented by Amazon.com or the name-your-price method patented by Priceline.com.
The chief executive of Amazon, Jeffrey Bezos, proposed this month that the controversy might be resolved by publishing applications while they are pending, and by shortening the lifespan of business-method patents.
But Mr. Dickinson rejected the idea that the 210-year-old patent system was not well suited for a rapidly evolving computer-based economy.
"We've adapted to every technology that has come along," Mr. Dickinson said. "People made the same argument when the telephone came along. They said the same thing with Henry Ford and the motorcar. The automobile industry was the main part of the economy in the first half of the century. This will sort itself out in the same way."

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