Patently Counter-Productive. Paul Biggar explains how software patents risk damaging an innovative industry. The software industry is incredibly innovative, having in less than 70 years turned itself from nothing into a multi-trillion euro industry. In Ireland alone, the software industry accounted for 24000 jobs in 2005, and 24.5 billion euro in revenue, a growth of 45% over 2004. One of the largest threats to this growth, and to Small and Medium software Enterprises (SMEs), is software patents. Patents are designed to foster innovation by restricting the use of an invention by others. Software is automatically protected by copyright, but in America it is also possible to patent software ideas. Since the restriction is on an idea, as opposed to a single expression of an idea as in copyright, SMEs risk incalculable damage from software patents. With software patents, the cost of software development would be significantly increased by the legal costs of producing that software, resulting in decreased innovation in the industry. Though prohibited by the European Patent Convention, more than 50000 software patents have been granted by the European Patent Office. While an EU directive to introduce software patents into Europe, and to retroactively allow existing software patents, was defeated in 2005, the spectre of software patents appears again. ++++++++++++++++++++++++++++++++ Unnecessary ++++++++++++++++++++++++++++++++ Software patents are frequently promoted using analogies with the pharmaceuticals industry, but the high cost in time and money of creating new drugs make the industries very different. As such, the two industries cannot be compared, since innovation has existed without patents in the software industry, which cannot be said about pharmaceuticals. Opponents of software patents have pointed to the fact that they are unnecessary and counter-productive. Growth in the software industry is unprecedented, and that growth occurred initially when patents were not being granted. Today's software behemoths, such as Microsoft, IBM, Hewlett-Packard and Oracle, now seek software patents to support their dominance. Ironically, these giants rose to prominence without software patents, in a time before they were available in America. During their growth, as is the case for European companies today, software was protected from its competitors only by copyright. Though Microsoft now supports them, Bill Gates damned software patents himself. "If people had understood how patents would be granted when most of today's ideas were invented, and had taken out patents", Gates said in a 1991 memo, "the industry would be at a complete standstill today." This was written before Microsoft's staggering growth, and before it began its current policy of aggressively acquiring and pursuing patents and patent litigation. ++++++++++++++++++++++++++++++++ Expensive ++++++++++++++++++++++++++++++++ Currently, it is relatively cheap to produce software, and many small businesses require little more than a programmer, a computer and an internet connection. Software which is produced cheaply can also be replicated cheaply --- it is scarcely more expensive to produce a million copies of a software product than it is to produce one. The process of filing a patent with the European Patent Office is costly, both in terms of time and money. However, the main cost of software patents is that SMEs will no longer be certain that they are entitled to sell the software which they write. A company which writes software in isolation is guaranteed not to violate any other company's copyright. However, with software patents, it becomes necessary to search for whether any other company or individual has thought of the idea first. This patent search is expensive, and is difficult to complete exhaustively. Patent filings are written in legal lingo, and keywords which a company uses to describe its product may not necessarily be used in the patent filing. Patents on software which have been granted in Europe are even more obfuscated, describing a system implementing the software idea, instead of describing the idea itself. A piece of software is an amalgamation of hundreds of ideas. The novelty of an idea is a matter of perspective --- the novice may see novelty where an experienced professional sees obviousness. Is a business required to diligently search for patents covering each of the hundreds of ideas in their product? If so, what standard of novelty should they use? If they do find one or more patents covering their ideas, can they afford to pay all the required licencing fees? The alternative, working around an idea, is also risky; for each work-around, more patents may be infringed. What of the company wishing to enter an established market? Forging a foothold into an existing market may be impossible for a new-comer, as many of the ideas will already be patented by the incumbents. In software, entrants to a market must ensure that their product is compatible with the dominant market players' saved files, database or communication protocols. Software patents would create barriers to interoperability. Companies wishing to create tools which operate on these patented standards, such as Microsoft Word documents, may be required to pay a licensing fee, or may simply be refused entry to these markets. Without the ability to interoperate, new products are unlikely to succeed. With fewer competitors, the risk of innovation stagnation is high, and consumers of these markets may suffer. For an SME, the worst case is patent litigation. A legal opinion on a threatened suit can cost thousands of euro, but a legal case will run into the hundreds of thousands. It is very difficult to over-turn a patent and the legal process is estimated to take two to five years. Between large companies, each with their own portfolio of patents, patent suits frequently get resolved with cross-licensing agreements. However, newcomers without those portfolios cannot protect themselves in the same way, and as a result may be chased from the market. In this manner, innovation suffers. In further irony, a software patent system may in fact discourage investment. Laura Creighton, a European venture capitalist, claims that many small companies are below the radar of software patent holders. However, upon receiving an investment, the cash injection can make a now-medium-sized company a target for lawsuits. Creighton is a software entrepreneur and vice-president of the Foundation for a Free Information Infrastructure, which campaigns against software patents. She claims that the proposed system should be scrapped, and efforts turned to better funding opportunities for SMEs. ++++++++++++++++++++++++++++++++ Open source ++++++++++++++++++++++++++++++++ The rise of open source software has led to great innovation in business tools and consumer software products, leading to greatly reduced costs for SMEs. Open source software refers to software which is free, whose source code is available for free, and for which the right to distribute the code is not restricted. The worlds most popular web server, Apache, is open source, and is credited with a number of important technological innovations. Firefox and OpenOffice are both innovative alternatives to Microsoft's closed source offerings. OpenOffice provides an alternative to Microsoft Office, a tool practically required in business today, for hundreds of euro per copy less. These tools, as well as thousands of others, such as the GNU/Linux operating system, reduce the costs of starting and running SMEs, and can speed up the development time for software companies, especially those who provide bespoke software development. However, open source software is particularly in danger from software patents. Since open source projects are run by volunteers, there is rarely funding to fight patent infringement lawsuits, nor to pay license fees. A fundamental part of an open source product is the right to redistribute both the software and its source code. If there is a licensing fee on each copy, then the software's authors must be able to count the number of copies distributed, which is impossible when all users have the right to redistribute the software and its source. Microsoft is currently exploiting this situation as their legal case with the European Commission winds down. The MCPP Development Agreements, published in September by Microsoft, require payments of certain royalties to interoperate with their communication protocols. Samba is an open source alternative to Microsoft's file and print services. Discussing MCPP, their leader, Jeremy Allison, said "it's impossible to release open source implementations of the product". With software patents in Europe, the innovation afforded by open source is likely to be damaged, at a high cost to SMEs. ++++++++++++++++++++++++++++++++ American Model ++++++++++++++++++++++++++++++++ In America, software patents are allowed. Although no laws were changed to specifically allow software patents, a 1981 Supreme Court ruling in the case of Diamond v. Diehr was the first case to permit them. In 1993, a new Commissioner for Patents and Trademarks, Bruce Lehman, was appointed, leading to a policy change in 1995. Already, approximately 5000 software patents were being granted per year. By 2007, this had increased to greater than 40000 software patents per year. Despite this, there are many within the United States who recognize that software patents were a mistake. A report by the Federal Trade Commission in 2003, titled "Report on Innovation", was damning about the innovative value of software patents. It claimed that 'competition drives innovation in these industries', and that the 'use of copyright protection or open source software [fosters innovation].' Additionally, the presence of 'software and Internet patents are impeding innovation' by 'impairing follow-on incentives, increasing entry barriers, creating uncertainty that harms incentives to invest in innovation, and producing patent thickets.' Proponents of software patents suggest that they promote investment into research and development, a point contradicted by the FTC report: “[This] forces companies to divert resources from R&D into obtaining patents, [and makes] it more difficult to commercialize new products and raises uncertainty and investment risks.' A commonly cited example of a bad patent is the Amazon.com 'one-click' patent. Amazon protected the 'novel' idea of selling goods to a customer with a single mouse-click on its web-site, in 1997, and just three weeks later sued their rival, barnesandnobles.com. Barnes and Nobles was forced to remove their infringing 'Express Lane' technology when the appeals court ruled in Amazon's favour in 1999. An unintended effect of the US patent system is referred to as 'submarine patents'. In some cases, software patents may not be granted until many years after the patent is filed. During this time, the patented idea may have been used in software standards, or by a product which has sold millions of copies, and the infringer may owe million of dollars in licencing fees. 'Patent trolls' are companies which buy the patent portfolios of bankrupt companies, attempting to extract patent revenue from healthy companies who violate their rights. In a famous 2004 case, Disney agreed to pay between $1.1m and $1.6m to Acacia Technology Group for key patents it held related to streaming video. Disney's liability for patent infringement was not reduced by that fact that it was not intentional and that they did not know about the patent. Even those who oppose software patents in America believe it may not be possible to change the system. Revoking software patents would render null and void the large investments made by many companies operating under the US' software patent umbrella, which is unlikely to be popular amongst large businesses, whose campaign contributions fuel US elections. Those same companies are the ones pushing for patent 'harmonization' in Europe, and it is well to examine the US model, before we make the same mistakes here. ++++++++++++++++++++++++++++++++ Battle in Brussels ++++++++++++++++++++++++++++++++ The European situation also has in interesting history. The European Patent Convention bans software patents in Article 52, though the wording depends on one's reading. The European Patent Office (EPO) is charged with approving patents, and interprets the wording to allow the granting of software patents. This has resulted in the filing of greater than 50000 software patents to date. However, enforcement falls to national courts, which have so far regarded the patents as invalid. The difference between the law and the practice of the EPO led to a large debate lasting from 2002 to 2005. The European Commission introduced a 'directive on the patentability of computer-implemented inventions' in 2002. Intended to 'harmonize' the patent policies of EU member states, members of the European Parliament worried that it validated the EPO's policy of granting software patents. The parliament returned the directive to the Commission in a heavily amended form in September 2003, making it clear that software was not to be patented. Incredibly, the great majority of the amendments were discarded before the directive was given to the Council of Ministers, who approved it in May 2004. Furthermore, this new version was submitted for acceptance without discussion, which was narrowly averted by intervention by the Polish Minister for Science and Information Technology, Wlodzimierz Marcinski, in December 2004. Though the Parliament asked for the Commission to restart the drafting process, the directive reappeared for adoption in March 2005. Eventually, the European Parliament rejected it in its second reading, by an overwhelming margin of 648-14, in July 2005. Though the directive was rejected, a similar policy emerged a year later. The European Patent Litigation Agreement would replace the national courts, who have ruled against software patents, with a new court, under that auspices of the EPO. The new court, the European Patent Judiciary, would be appointed by the EPO, leading to de facto recognition of EPO approved software patents, including the 50000 patents whose legal status in currently dubious. European Association of Craft, Small and Medium-sized Enterprises (UEAPME) is the largest representative body for SMEs in Europe, representing 11 million SMEs. During the discussion of the directive, it came out strongly against software patents in Europe, in order to protect the 50m employees under its banner. "UEAPME is opposed to the introduction of an EU software patent, which would reinforce monopolization in the software sector, damage interoperability and act as a barrier to innovation by SMEs. Small firms simply do not have the resources to engage in the costly and time-consuming process of patent application. This would enable dominant large firms in the sector to secure vast numbers of patents and result in crippling litigation costs, which would put small firms out of business. "UEAPME believes that software is already successfully covered by the copyrighting system, under which the software sector has developed and continues to flourish. Open sourcing has enabled innovation in the software sector to thrive and small firms to act as job generators. Introducing software patenting would threaten the survival of these smaller innovators." Experience in the United States, the wishes of the European Parliament and of a huge number of SMEs indicate that software patents are not wanted in Europe. There is no evidence that they are required for innovation, in Europe or elsewhere, and have been shown to in fact be counter-productive in this regard. Will the EPO and the European Commission listen?