My view on today’s Supreme Court case regarding business method and software patents appears in The Big Money.

This case, which concerns the patentability of a paper-and-pencil system for hedging weather risks in consumer energy prices, drew over sixty friend-of-the-court briefs, more than any other case this term.

The reason has little to do with the claimed method, which almost no one (except the inventors) seem to think deserves the denied patent.

The real issue here is the deeply troubled intersection of information age inventions and the badly broken patent system. Nearly all of the briefs are concerned that a ruling from the Court of Appeals for the Federal Circuit, if left standing by the Supreme Court, will eliminate patent protection for some if not all inventions implemented in software.

Software patents have only been granted in the U.S. since the early 1980’s, after an earlier Supreme Court case expressed its approval for a process that included software in the operation of injection molds. (European patent law has looked much more skeptically on the practice.) Since then, “pure” software patents and, since 1998, “business method” patent applications have swamped the U.S. Patent Office, which has taken to granting more patents and letting interested parties sort out the good from the bad through the expensive corrective of litigation.

Litigation is a terrible way to determine whether a claimed invention ought to be granted a government-enforced monopoly. As I write in Law Eight (“Virtual Machines Need Virtual Lubrication”) of The Laws of Disruption, even when patent grantees lose in court, they often win in the market. Amazon, for example, successfully asserted its “one-click” checkout patent against Barnes & Noble in 1999, a crucial moment in the introduction of on-line bookstores. In 2001, an appellate court ruled that Amazon’s injunction was wrongly issued. Too late.

To quote from the book:

“Other business-method patents of dubious quality have likewise been used to gain a strategic advantage, perhaps unfairly. Playing the slow pace of litigation off the accelerating speed of digital life and its rapid evolution, patents can be more valuable as legal weapons than as protection for real innovation. Interim rulings, for example, supported TiVo’s claim against other DVR manufacturers to technology that allows viewers to pause, fastforward, or rewind television programs; Netflix’s claim to the idea of online home video rentals against Blockbuster; and patents asserted by IBM against Amazon for core features of the concept of electronic commerce. Each win, even those later overturned, provided the patent holder with a valuable, sometimes priceless, bargaining chip: time.”

I’m with the open source people here, including Red Hat, who are urging the Supreme Court to use the Bilski case to end the reign of terror of software patents.

If the inventions of digital life really need the kind of incentives the patent system grants, Congress should create a special form of protection more in keeping with their shorter useful lives and lower investment costs relative to, for example, new drugs. (Amazon’s Jeff Bezos, for one, thinks software patents should last 3-5 years, not the standard 20.)

In the meantime, we’d be better off with no protection at all.