The Business Method Patent Myth

Internet business method patents have been roundly criticized by most observers as being singularly inferior to most other patents. Many have even argued that business methods should not be patentable subject matter. As a result, Congress and the Patent and Trademark Office (“PTO”) singled them out for special treatment. All of these criticisms were, however, voiced without empirical support. We gathered data on most Internet business method patents issued through the end of 1999 and compared them with a large contemporaneous data set of patents in general. We also compared them with patents in fourteen individual technology areas within the general patent data set. Our comparison focused on several metrics that we believe serve as good proxies for patent quality and value. We found that Internet business method patents appear to have been no worse than the average patent, and possibly even better than most. They also appear to have been no worse, and possibly even better, than patents in most individual technology areas. These findings lead us to question the conventional wisdom that Internet business method patents were uniquely deficient. We briefly explore some possible explanations for the chasm between the accepted © 2003 John R. Allison and Emerson H. Tiller † John R. Allison is the Spence Centennial Professor of Business Administration, McCombs School of Business, and Professor of Intellectual Property Law, McCombs School and the College of Engineering, University of Texas at Austin. Emerson H. Tiller is Professor of Law, Northwestern University School of Law. Partial funding for this study was provided by the National Academy of Sciences (“NAS”), Science, Technology, and Policy Board (“STEP”). We appreciate the ideas and suggestions offered by several members of STEP’s Committee on Intellectual Property Rights in the Knowledge-Based Economy. The authors thank Thomas Bohman and Xinlei Wang of the Information Technology Services at the University of Texas for statistical consulting. The authors also thank participants at the University of Chicago Law School’s Law and Economics Workshop, University of California at Berkeley, Workshop on Institutional Analysis, Northwestern Law School’s Faculty Workshop, the University of Southern California Law School’s Workshop on Law, Economics and Organization, and the Huber-Hurst Research Seminar, University of Florida, for comments on this Article or portions thereof, as well as several individuals who provided especially helpful comments on earlier drafts, including Connie Bagley and Mark Lemley. 988 BERKELEY TECHNOLOGY LAW JOURNAL [Vol. 18:987 view and what we believe to have been the reality, including the possibility that negative opinions about these patents may have been the result of an information cascade. More importantly, we believe that efforts to single out these patents for special treatment not only lacked sound justification in the particular case but also reveal more fundamental problems associated with ex ante definitions to carve out any particular technology area for different treatment.