Debugging Software Patents: Increasing Innovation and Reducing Uncertainty in the Judicial Design of Optimal Software Patent Law

Abstract

Software patents not only do no promote innovation, they instead reduce it. The U.S. Executive branch has recommended against recognizing software patents, and the Supreme Court has never rejected a test (its physical-transformation test) that would invalidate pure business method and software patents. In this paper, I review the genesis of the patentability of software patents, analyze the social welfare implications of recognizing software as patentable subject matter and examine recommendations for reform. Others have suggested, among other things, enhancing software patent claim disclosure requirements to address social welfare losses. I conclude that altering disclosure requirements would dramatically increase litigation while reducing the value of most software patents. Instead, the only way to optimally reform software patent law without destroying settled expectations of current software patent holders, is for the Supreme Court to reinstate and apply prospectively its physical-transformation test.

Keywords: law and economics, patents, software, computers, business methods, technology, Supreme Court, innovation, uncertainty

JEL Classification: K00, O30, O31, O34