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Method Patents: The Next Frontier
Who would have guessed that Amazon.com (AMZN) providing a single button to take customers to the checkout process would be revolutionary? In fact, it almost seems like a logical next step in the purchasing process that online retailers would eventually want to add to their sites. Too bad that Amazon has a patent on the idea.
Patents in the United States are a part of the U.S. Constitution “to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” The basic idea is to stop people from profiting from other people’s original ideas. A worthy concept that has helped promote inventions and economic growth.
Article 1, Section 8 of the United States Constitution, however, was written more than 220 years ago. For most of that time, the implication of a patent was fairly simple in that machines and physical wares were the main patented inventions. Times have changed, however, and now such things as mathematical models (not to mention Amazon’s “One Click”) are being presented for patent protection.
Clearly mathematical models and an online method for purchasing products at a website don’t cleanly fall under the old interpretation of patents. Which leaves the question of what can and can’t be patented in the new digital world? Recently, the Supreme Court handed down two important rulings that did very little to help clarify that question.
In the first ruling, the court unanimously voted down a method patent for a mathematical hedging model. The reason being that it was too abstract to patent. However, in a split decision, the court upheld the right to patent methods with Justice Anthony Kennedy writing “The patent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles.”
That’s a mouth full, but it sums up the whole issue. Is Amazon.com’s “one click” unique or something that every web retailer would try? This can be, and has been, debated at length, but at least one court has decided that it is. Moreover, the idea was reviewed by the Patent Office and upheld after several revisions to the application. In fact, Apple (APPL) licenses “one click” for use on its retail websites. There are even some suggesting that any company that allows “one click” purchasing, such as from an e-reader, would have to pay a licensing fee to Amazon. This would allow the company to benefit from the success of its competitors.
On-line travel auction site Priceline.com (PCLN), known widely for its affiliation with actor William Shatner, has a patent on the concept of consumers naming the price they will pay for something. While this is the heart of the company’s offerings, it clearly limits what others can do along the same lines and, like Amazon’s “one click”, might be hampering progress on the Internet that would benefit consumers.
That said, the value of many technology startups is in their application of new ideas—often with regard to the web. Take Twitter as an example. The only value the company offers is in the idea of sharing short text messages with large groups of people using the web as the distribution method. If anyone could jump into that space, the “first mover” advantage would likely fall very quickly to well-heeled competitors, like Google (GOOG) and Microsoft (MSFT), that have a penchant for jumping on to hot trends. With a lock on the method, Twitter has the option of going it alone, partnering, or selling out to a larger company. This may or may not benefit customers, but it certainly rewards inventors—a necessary component of fostering ingenuity.