Courts, the Patent Office, and commentators are in vigorous disagreement about what types of innovation should be patentable, and what, if any, innovation should remain off limits to patenting. This Article shows that the disarray in the area of patentable subject matter results from a widespread failure to take the utilitarian policy underlying patent law seriously. Despite near-universal agreement that patent rights exist to provide incentives for innovation by allowing inventors to recoup their costs of research and development, courts have expanded patentable subject matter to many new fields without first demanding evidence that the newly patentable fields suffer from lack of incentives to innovate. The failure to ask the threshold question of whether patents are needed in a particular field to achieve efficient levels of innovation has resulted in both incoherent case law on patentable subject matter and costs to society from increased patent monopolies.
This Article explains that the sensible basis for determining patentable subject matter is to determine whether innovation is unlikely in the absence of patents. Part II of the Article sets forth an explanation and model showing that there is no reason to expand patentable subject matter into fields where innovation is already healthy due to other incentives such as low research and development costs, lead-time, or reputation benefits from innovation, or other legal protections such as trade secret and copyright law. To the extent that others argue for patentability even where there is no market failure in innovation, they are not following the utilitarian rationale for patent law, and inefficiency results.
Part III of the Article demonstrates how courts historically considered the issue of innovation market failure, at least implicitly, in their decisions as to what types of inventions were unpatentable. But with the advent of software and the Information Age, the courts’ patentable subject matter tests no longer fit. Rather than reworking their tests to serve patent law’s underlying rationale, they instead slowly abandoned their role as gatekeepers of patentable subject matter, resulting in the current inefficient regime in which almost all innovation is patentable. The courts’ failure to grapple with the utilitarian rationale for patentability means that current judicial consideration of patentable subject matter continues to be misdirected. Part IV applies the model and explanation from Part II to the sample case of business methods–one of the most harmful areas of patenting–showing an example of a field in which patents are not efficient. Part V draws out the implications from the analysis presented in this Article, and suggests solutions–most prominently, that the courts or Congress should revive the patentable subject matter gatekeeper function. The Article concludes in Part VI.