Back in 2001, something strange happened in the world of patent law. Microsoft, which had been fighting a lawsuit by Priceline, suddenly gave up. The suit, filed in late 1999, claimed that Priceline had patented its “name your own price” auction strategy, and that no one else could use it without a license from the company. Microsoft had been using a similar strategy on its Expedia travel site and had been arguing in U.S. District Court in Connecticut that the auction method was too obvious to be patented.
But the atmosphere for patent filings and lawsuits had been rapidly changing since 1990, and it didn’t look good for Microsoft. Federal courts had previously upheld patents on business methods — so-called “concept patents” that don’t relate to actual physical inventions.
In addition, the Federal Circuit Courts of Appeal had issued a number of rulings that made it more difficult to challenge a patent on the basis of obviousness. And even though Microsoft executives and lawyers still believed that “name your own price” was obvious, they settled the suit and spun off Expedia.
It is precisely this sort of case that has helped to encourage a surge in the filing of nonsense patents and a sharp rise in patent infringement suits. According to BusinessWeek, there were fewer than 100,000 patents awarded in 1990. That number has almost doubled today. And about 400,000 applications are now filed each year.
According to the law passed by Congress, known as 35 U.S.C. 101, anyone can patent processes, machines, manufactures, and compositions of matter. And, according to interpretations by the Supreme Court, almost anything, including concepts, can be patented, as long as they are new and not obvious. The court has specifically made exceptions for laws of nature, physical phenomena, and abstract ideas.
As more and more businesses filed patent applications like Priceline’s — essentially for business processes or methods — the Patent Office was overwhelmed and sought to stem the tide. It instituted a rule known as the “technological arts test.” In essence, this meant that the new method had to use a computer to satisfy the statutory requirement.
For several years, the Patent Office rejected applications based on that test. Then a man named Carl...
