Trumping Innovation

We can talk about creativity and innovation all day long, meld the culture, design the space, set up the infrastructure, and have a repeatable process for bringing ideas to market; but, the ultimate constraint and arbiter — making all other efforts useless — is the legal system.Protecting something as intellectual property is about balancing returns to society and compensation to a creator. We want society to benefit from a creator’s creation, but enough incentive must compel creators to do their thing.

Enough being the key word and one big, gray space. If a government misses that mark of protection in either direction, society can lose out on innovation. The issue is this mark changes based on the type of intellectual property. Business methods, when protected, have a different balance of returns to society and creator, than software, and pharmaceuticals.

Not that everyone views it that way or the law treats it that way, which is why a current Supreme Court case is important to watch.

Monday, the Court heard Bilski v. Kappos, a case that brings business method patents to the forefront. Previously, the Federal Circuit ruled Bilski’s business method wasn’t patentable because it wasn’t “…tied to a particular machine or apparatus, [nor did it] transform a particular article into a different state or thing.”

Bilski is calling into question the efficacy and legitimacy of what’s called the “machine-or-transformation” test. By telling Bilski his business method wasn’t protected, the Federal Circuit may have invalidated existing patents for business methods.

But, bringing into question the machine-or-transformation test may also have implications for the software industry. At one end, since source code must be run on a machine to do anything, it could be interpreted all software is patentable.

Or, in the view of the Software Freedom Law Center, source code is simply an algorithm we can comprehend, and algorithms themselves aren’t patentable.

Additionally, there are economic arguments that creativity and innovation in software just doesn’t really work that way. Allowing patenting of software led to significant societal inefficiencies like patent thickets, bloated legal departments, patent trolls, and risk-averse companies—all wasting money and limiting innovation.

Just thinking about business methods, does having a legal-based incentive to come up with a new way of doing business increase the rate of new business creation or improve the quality of innovation?

Without the protection, does the effect of essentially forcing businesses to compete on other aspects (really, compete at all), rather than just on who did it first, outweigh what we would gain from preserving/expanding business method patents?

(Of course, this is the economic view, and potentially only figures into a portion of court decision making.)

Leaving the issue of software aside, the Justices showed quite some skepticism of Bilski’s claims yesterday:

“Let’s take training horses,” said Justice Antonin Scalia. “Don’t you think that some people, horse whisperers or others, had some … insights into the best way to train horses? Why didn’t anybody patent those things?”

“I think our economy was based on industrial processes,” responded [Bilski’s lawyer].

“It was based on horses, for Pete’s sake!” said Scalia.  “I would really have thought somebody would have patented that.”
(Joe Mullins Reports in American Lawyer)

It’s predictable, but still interesting to see who lines up on each side, or who actively doesn’t choose a side in the amicus briefs.

For a longer treatment on the economics of innovation, check out this book.