(FORTUNE Magazine) – One of the hottest topics in the Internet community is the patentability of Internet business models. On one hand, you have early market leaders who have filed for, and won, patents protecting their way of doing business--like Priceline's patent for its buyer-driven e-commerce system. On the other hand, many people believe business models are not sufficiently unique to be awarded a patent.

Patents are awarded for processes, machines, manufacturers, or compositions of matter. Because they are not physical things, software and models of doing business tend to be considered processes. While processes (such as chemical processes) are patentable, ideas for the most part are not. Furthermore, an invention must be considered useful, novel, and unobvious in order to be patented. It is the fine line between processes and ideas and the subjective nature of using the terms "novel" and "unobvious" for high-tech businesses that are at the core of the current debate.

Most discussions on this topic digress into a semantic argument about "process" and "novel." What's missing is a focus on the spirit of patent laws, and on whether that intent is served by current interpretations. Patents have historically been granted to protect the intellectual rights of the inventor and, in so doing, to protect the common good by providing an incentive to innovation. Which brings us to the problem with patents granted for broadly defined Internet business models: Rather than protect the common good, they create rents for the few to the detriment of the many.

Let's first consider the enforceability of these patents. Patented processes are required to be novel, yet many of the recently awarded patents are for common practices or metaphors with Internet tacked on as a phrase suggesting innovation. Taken to its logical extreme, the result is ridiculous. Should GM need a patent for selling cars on the Internet? Should Dell need a patent for selling customized computers over the Internet? The way things are going, they might be well advised to file, merely to avoid paying a Net tax to some opportunistic entrepreneur who knows how to play the patent system.

In general, patents are supposed to be unobvious to a person having ordinary skill in the particular "art" being considered. When it comes to the Net, the Patent Office has a curious way of interpreting obviousness. For instance, in August 1998 it issued Priceline.com U.S. patent No. 5,794,207, for the world's first buyer-driven e-commerce system. In a press release announcing the patent, Priceline.com declared that "using Priceline.com's patented system, consumers can go to the Internet to name their price for goods and services, and sellers electronically decide whether to accept the customer's price." But in October 1997 this very column outlined a remarkably similar service ("...This buyer-focused market can emerge simply by allowing consumers to advertise to buyers.... Going forward, consumers will be able to broadcast that they are looking to buy product A with features B and C with a price between D and E. Companies will then be able to sort through that data and determine whether they are interested in serving that customer." --Above the Crowd, FORTUNE, Oct. 20, 1997).

Priceline had filed for a patent in 1996, but this columnist was unaware of the filing when the column ran in FORTUNE. The point here is not to wave our own flag. On the contrary: How can an idea that easily pops into the head of a Net pundit be considered unobvious to the general Internet practitioner? Answer: it can't.

Let's also consider the efficient flow of the economy. Are we really better off as a nation with all companies having to pay a royalty when they offer their customers something as mundane as an online shopping cart? If an Internet business chooses to let its customers name a price (as the auto industry has done offline for decades), should Priceline.com win an idea tax? No. These ideas are merely common components of an Internet system, and failing to recognize them as such would be to overly tax our richly developing online economy. One burden has already emerged--unnecessary litigation. Priceline.com's patents have resulted in two challenges. Do we really want to create a world where startups must spend millions of dollars and much time on litigation? Is this the fate of the supposedly efficient Internet economy?

The last question to ask is this: do these patents act as an incentive to innovation? In many industries, such as biotech, the cost and time required to develop a new product are enormously high. In these markets, patents to innovators give investors an incentive to fund new health discoveries. But according to the MoneyTree Survey, in 1998 some $3.5 billion was pumped into 500 Internet deals. This represents a 218% increase over 1997's numbers--Internet investments are now the fastest-growing segment of venture capital. To argue that this sector suffers from any lack of funding incentive would be, pardon the pun, patently absurd.

There is a Latin phrase, typically associated with the Hippocratic oath, that reads, Primum non nocere, or "first do no harm." The U.S. Patent Office should keep this in mind. When it comes to Internet businesses, broad-based patents add little to the common good. Primum non nocere would be a good rule to follow. So would something even simpler: If it ain't broke, don't fix it.

REPORTER ASSOCIATE Mark Borden

J. WILLIAM GURLEY is a partner with Benchmark Capital, a venture capital firm. Except as noted, neither he nor Benchmark has a financial interest in the companies mentioned. To receive an expanded version of Above the Crowd, visit www.news.com, or to subscribe to the e-mail distribution list, please send an e-mail to subscribe-above_the_crowd@atc.revnet.com. If you have feedback, please send it to atc@benchmark.com.