American disputes are patent folly

This is the latest case in the US that many say discredits the patent system. Patents traditionally are a reward for inventors, offering a period of state-backed monopoly over an invention in return for full disclosure to the public. They are the oil that lubricates technological progress and provide incentives for inventors and, since the development of the formal patent systems in the mid-1800s, they have been limited to just that - technological inventions.

In the 1990s, however, a string of decisions in the US removed the longstanding exclusion from patentability for "methods of doing business". Until then, these had been seen as innovative but not worthy of government enforced protection for long periods of time. This removal had a significant impact on the development of e-business where methods of trading easily online became significant differentiators for traders.

A rush to the US Patent and Trade Mark office ensued. The Amazon.com dispute with Barnes & Noble over the patented "one click" shopping method was the first well- publicised claim. The Woolston decision is based on similar "business method" patents. It will not be the last case decided on this type of patent.

Might we see the same problems in Europe? The US patent system has always been less robust in its exclusion wording than the UK equivalent. The UK Patents Act repeats wording from the European Patent Convention specifically excluding "a scheme, rule or method for doing business". The same provision is found in other European Convention states. By contrast, the US approach has always been to rely heavily on excluding "discoveries" as opposed to "inventions", an approach that is open to varying interpretation.

However, the UK has always had a tendency to follow the lead set by our American cousins. As with the development of patents over software, the UK and Europe has a problem. If Europe continues to offer more limited patent protection, the "brain drain" to the US becomes hard to avoid and so European citizens will not benefit from the innovations these people create.

The European Commission consultation on patenting software, published last year, revealed most to be against any extension of patents to business methods. Even the draft Software Patent Directive, currently being finalised, seeks simply to codify the current position rather than extend patent protection.

The European approach seems justified. The US experience is not pretty. Business method patents seem to be a charter for speculative patent applications and "ransom" litigation. The spectre of a court order preventing use of a major business technique is probably enough to make most companies pay up. Some estimates suggest 26 per cent of Ebay’s business operates through the disputed business method. Commentators use words like "extortion".

Woolston has previously run two successful cases against other companies and is in the midst of another as well as the threatened appeal from Ebay.

But as the legal position settles down, commentators will turn from attacking the current disruption to reviewing the economic benefits that can or are being derived from wider patent protection. If concerns are raised about the US economy using its more flexible patent system to extend its lead over European companies, European conservatism may become harder to defend.

Paul Carlyle is a partner at commercial law firm Shepherd & Wedderburn specialising in intellectual property and telecommunications law.