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Patent ruling: Good or bad for tech innovation?

A rejection of a patent application by a U.S. appeals court today is expected to send shockwaves through some industries, notably the software industry, as it will likely put an end to the patenting of "business methods" considered to be more entrepreneurial than innovative.

A rejection of a patent application by a U.S. appeals court today is expected to send shockwaves through some industries, notably the software industry, as it will likely put an end to the patenting of "business methods" considered to be more entrepreneurial than innovative. Meanwhile, some say the ruling is a victory for innovation and exactly what's been needed to bring an end to patent hoarding practices and frivolous patent lawsuits.

The rejected application involved a method that could be used to manage the business risks created by sudden movements in the energy costs. The court argued that the application "was not tied to a machine and did not result in a transformation,  both standards set by the U.S. Supreme Court for patentability," according to Reuters. The ruling is widely expected to be appealed to the Supreme Court, something that the appeals court recognized in its opinion.

One of the examples used in news coverage of today's ruling is Amazon's one-click payment patent - which takes existing technologies of e-commerce and Web links and incorporates them into a new process.

Some of the best coverage I've seen on this ruling and general topic has been posted by Mike Masnick, who blogs about legal issues for Techdirt. If you're really engaged in the topic. check out some of the links in his post. Here's an excerpt:

The summary is that the court has said that there's a two-pronged test to determine whether a software of business method process patent is valid: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. In other words, pure software or business method patents that are neither tied to a specific machine nor change something into a different state are not patentable. That means a significant number of software and business method patents are about to disappear, freeing up many industries to be much more innovative -- at a time when that's desperately needed...

Companies that rely on such patents (such as patent hoarding companies) may have just found out their current business model is about to go away. An awful lot of patents are now about to be invalidated, and a lot of patent lawsuits may get thrown out as the patents do not meet the criteria set forth in this decision... So, while this is a huge victory for freeing up the ability to innovate, those who have used bogus patents to profit for years cannot be expected to go along quietly.