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2/16/2003

What’s the big idea?

By David Streitfeld
Los Angeles Times

For decades, finicky children have been eating peanut butter and jelly sandwiches with the crust removed. From a legal point of view, however, the lunchbox staple was invented on a patio in Fargo, N.D., in 1995.

David Geske, who ran a packaged-ice business, was entertaining his friend Len Kretchman, a consultant. For lunch, their kids wanted peanut butter and jelly with the bread trimmed and folded over. As they were preparing the meal, Kristen Geske and Emily Kretchman told their husbands: “You guys should make a sandwich with no crust.”

That offhand comment spawned Incredible Uncrustables, a sandwich that the two entrepreneurs successfully mass-produced for Midwestern schools. It also began a long-running dispute over whether the U.S. Patent and Trademark Office went too far when it gave Geske and Kretchman the first patent on a mundane household sandwich.

“This doesn’t mean your grandmother can’t make you a peanut butter and jelly sandwich,” said Ann Harlan, a lawyer for J.M. Smucker Co., which now owns Geske and Kretchman’s company.

But it does mean that Smucker will try to prevent other companies from making them. For more than two years, Smucker has been arguing in court and the patent office that a crustless peanut butter and jelly sandwich made by Albie’s Foods Inc. is violating its patent.

A generation ago, Smucker’s sandwich, which looks like a flying saucer, and Albie’s, which is a fat square, would have fought it out in the marketplace. The best sandwich would win.

Now the corporate urge is to get a patent to stifle competition. It’s a process being helped along by the courts and Congress, which keep broadening the nature of what is patentable, while limiting the patent office’s ability to reject an application on the grounds of common sense.

Meanwhile, the system as a whole is breaking down. Patents are increasing in complexity and length, but the 3,500 examiners still are evaluated by how many they approve. The inevitable consequence, says one former examiner: “The path of least resistance is saying yes.” No wonder three-quarters of applications get approved.

The American Intellectual Property Law Association says, “Crisis is a strong word, but we believe that it aptly describes the situation.”

James Rogan, a former Republican congressman from Glendale, Calif., who became director of the patent office in December 2001, agrees with all but the most strident critics.

“This is an agency in crisis, and it’s going to get worse if we don’t change our dynamic,” Rogan said.

Beyond the plight of an antiquated government bureaucracy overseeing a field that is undergoing explosive growth, there are deeper questions about the fundamental role of patents. They played a key role in the technology boom of the last 25 years. Companies licensed their innovations to others, who in turn used them as springboards for new inventions.

Yet there’s a point where patents impede innovation. It can cost more to check whether a software program infringes on previously patented programs than it cost to write the program in the first place.

Since patents tend to be complex, infringement can be determined only by a professional. That’s one reason why the number of intellectual property lawyers has quadrupled since 1985. During the same time, the number of court cases involving intellectual property has doubled.

Technology companies in particular spend massive amounts of time and money either suing over patents or being sued. Research in Motion Ltd., maker of the popular Blackberry hand-held organizer, sued competitors for alleged patent violations, gaining licensing fees. Then the company itself was sued for infringement. A private holding company named NTP Inc. said Research in Motion was violating its patents on wireless e-mail.

Research in Motion lost the case, recording a $32 million charge for litigation and related expenses. NTP is seeking an injunction to prevent the company from selling Blackberrys. Meanwhile, the patent office is reviewing whether it should have granted the NTP patents in the first place.

“Developing software is like crossing a minefield: With each design decision, you might step on a patent that will blow up your project,” said free-software advocate Richard Stallman. “A modern program combines hundreds of ideas, so be prepared for a long stroll among the mines.”

The system was never supposed to be so combative. Patents, which last for 20 years, are enshrined in the Constitution as a means of promoting creativity and encouraging progress by rewarding inventors.

For a long time, the scope of patents was sharply limited and easily understood. Ideas and natural phenomena were not patentable. Machines and industrial processes were — provided they were both new and useful.

In 1880, Supreme Court Justice Noah Swayne added a third requirement: A patentable invention, he wrote, should be inspired by “a flash of genius.”

This put a high bar on patentability, and over the decades, the courts raised it. In 1950, Justice William O. Douglas wrote that “the Constitution never sanctioned the patenting of gadgets. Patents serve a higher end — the advancement of science.”

Inventors and patent-seeking corporations didn’t like that. Two years later, Congress removed the “flash of genius” standard and replaced it with a more vague requirement of “non-obviousness.”

That began to loosen the patent floodgates. In 1980, the Supreme Court said life, in the form of genetically engineered bacteria, was patentable. The decision gave birth to the modern biotech industry.

Five years ago, the patent court, the Court of Appeals for the Federal Circuit, took the increasingly blurry line between what was patentable and what wasn’t and erased it.

At issue was a patent held by the Signature Financial Group Inc. for a system that channeled money from mutual funds into a central investment pool.

Under existing law, two things should have invalidated this patent. First, it was a method of doing business. Previous courts always had held that business methods, like ideas or laws of nature, were not something one could patent. After all, companies already had plenty of incentive to improve their business techniques. If they didn’t, they’d lose out to the competition.

But Signature’s system wasn’t only a method of doing business. It also was a mathematical process using algorithms.

An algorithm is a set of instructions for doing things in a certain order. And if a business plan, like “sell quick, cheap food close to major highways,” seems like an unpatentable idea, then an algorithm had seemed doubly so. Like all forms of math, it had been considered part of the realm of ideas — as unpatentable as E = MC2.

This time, however, the court said that since Signature’s algorithms produced a useful, concrete and tangible result, it could be patented. As for the long-standing exception for business methods, the court found it “ill-conceived.”

The ruling amazed intellectual property experts.

“What the Signature system was doing was accounting. It was dividing numbers by other numbers,” said Duke University law professor James Boyle.

The number of business-method applications, many involving algorithms, rose sevenfold between 1998 and 2001. One patent that quickly became notorious was given to IBM Corp. for a “system and method for providing reservations for restroom use” on airplanes. The method: First come, first served.

For Boyle, we’ve reached a point where we’re “tremblingly close” to patenting ideas.

“You’re no longer patenting the corkscrew. You’re patenting the idea of taking the cork out of the bottle so you can drink the wine,” he said.