CEC/ETLA 2002

The European Commission (CEC)'s Directorate General for Enterprises (DG Enterprise) has published a study which dwells extensively on the effects of software patents in particular in the telecommunication sector

Overview
Annotated Links

1. Overview

Enterprise Papers No 8, 2002

Technology policy in the telecommunication sector Market responses and economic impacts

The Study was written by a scientist from ETLA (Research Institute of the Finnish Economy) and London School of Economics and is available for download at CEC/ETLA 2002: Technology policy in the telecommunication sector -- Market responses and economic impacts: Introduction.

On pages 28/29 the study discusses patents and copyrights. It finds that patents are generally granted for technical inventions and criticises the extension of patentability to areas where previously only copyright was available.

Thus the study almost incidentally hits a central point of the debate which we can summarise as follows

Many patent claims cover very general ideas
Many unsuspicious debatants such as ZVEI und Softwarepatente have found that the concept of invention has been softened and have expressed concern about the CEC/BSA directive proposal's tendency to codify and reinforce this development.
The debate is suffering from the fact that terms such as "technical contribution" are understood in very different ways by the debatants.

The study ends on page 33/34 with the following Conclusions

Highly tentative conclusions that can be made based on the literature suggest that stronger patent rights may create substantial problems in the telecommunication sector. First, strong patent rights may cause "patent portfolio race". In other words, companies may use patents primarily not to protect their technological invention itself but as instruments with which to trade in order to be able to negotiate access to external technologies. Given the observed entry deterrence strategies of the incumbents, stronger patent rights might provide with them new powerful weapons to defend monopolistic market positions. Thus, stronger patent rights may hinder the development of effective competition in the telecommunication markets. Patentability of principles or ideas might further result in strategic patenting against compatibility. This could be particularly lethal to the content industry and further to the markets of the future generations of cellular mobile telephones and services. Currently available empirical evidence does not allow us to make definite conclusions. However, it suggests that strengthening of patent rights in the communication sector or extending patent protection to cover intellectual property currently protected by copyright involves great potential risks.

The study also criticses the Community Patent and tendencies for a centralised European patent system as measures which are conducive to the worrisome "stronger patent rights".

The creation of a Community patent and the proposed establishment of a Community intellectual property court suggest that the EU countries are moving towards stronger patent rights.

The risks caused by an excessively broad patenting of software are reinforce by a future Community Patent. One could also count the efforts at building a Universitarian Patent System and Basel II among the strengthening factors.

2. Annotated Links

Research on the MacroEconomic Effects of Patents: We try to keep track of economic and other research on the effects of patents.
Nokia and Software Patents: Tim Frain, head of Nokia's patent department, is a "permanent resident" of the European parliament and has used every opportunity to ask politicians in Brussels and in Finland to support the European Commission's software patentability directive. He is present at conferences everywhere. He argues that small companies badly need software patents because otherwise their ideas might be stolen by large companies. Interestingly, most of the software which Nokia uses in its mobile phones is written by Opera, a relatively small (120 employees) company which has actively supported the Eurolinux campaign against software patents. Frain's department is one of the most active producers of software patents in Europe. Here you find an overview of their applications at the European Patent Office.
Alcatel and Software Patents: In 2002, the french telecom giant published a paper which complains in harsh words about negative effects of patents such as legal insecurity and diversion of funds from R&D to litigation. On the other hand, Alcatel, as a global telecom player, owns a large software patent portfolio, and Alcatel's patent department is actively lobbying politicians to assure that Alcatel's patenting efforts will pay off in Europe in the same way as in the US. Jonas Heitto, Alcatel patent lawyer trained at MPI in Munich, seems to be present at every related meeting in Brussels and some national capitals. He is not the only one. Alcatel participated in the European Commission's "Consultation Exercise" of 2000 in its own name as well as in the name of IT associations such as ANIEL from Spain. Alcatel has recently been pursuing a strategy "fabless company", i.e. outsource as much production as possible to partners in countries where production is cheap (e.g. China) while keeping a lean headquarter (financial and legal services and some R&D) in France and/or the Bahamas/Bermudas, depending on where taxes are lower. Patents are said to be helpful in implementing this strategy and in transferring money to tax havens. In the rationale for her software patentability directive proposal, MEP Arlene McCarthy cites Alcatel as an example and stresses that patents are needed to protect European businesses at a time where production costs are high here. Here we try to take a closer look at Alcatel's patent-related strategies and in particular their software patent applications at the European Patent Office. Most of Alcatel's developments are in the area of software, and recently Alcatel is more than ever focussing on "next generation Internet" communication standards and applications.
Siemens and Software Patents: Siemens has always been at the forefront of the patent movement. Yet, even those Siemens patent cadres who most actively promote software patentability within industrial and governmental organisations do not try to argue that this is beneficial, either for Siemens or for the world. They merely say that Europe has to follow the lead of the US, which sets the standards in the global market. Meanwhile, many Siemens managers in IT and telecommunications believe that patents are putting brakes on their activities and doing substantial harm to the industry.
Ericsson and Software Patents: A report by the Swedish telecommunication giant Ericsson estimated in 2001 that "Like other companies operating in the telecommunications industry, because our products comprise complex technology, we experience litigation regarding patent and other intellectual property rights. Third parties have asserted, and in the future may assert, claims against us alleging that we infringe their intellectual property rights. If we do not succeed in any such litigation, we could be required to expend significant resources to pay damages, develop non-infringing technology or to obtain licenses to the technology which is the subject of such litigation. However, we cannot be certain that any such licenses, if available at all, will be available to us on commercially reasonable terms." Ericsson is currently (2003) facing software patent infringment charges in a US court where the plaintiff is demanding 1 billion USD in damages. The patent activities of the swedish telecommunication giant Ericsson are cited in MEP Arlene McCarthy's software patentability directive proposal as a reason for legalising software patents in Europe. Here we take a close look at the software patent applications of Ericsson at the European Patent Office. Although Ericsson's patent portfolio is gigantic, we cannot find the "1000 patents per year" which McCarthy talks about, nor does it seem likely that Ericsson's R&D is dependent on the availability of software patents. The Ericsson paper itself writes: "We rely upon a combination of trade secrets, confidentiality policies, nondisclosure and other contractual arrangements, and patent, copyright and trademark laws to protect our intellectual property rights...". In order to defent itself against litigation threats and earn itself the freedom to develop products, Ericsson it is patenting masses of ideas and concepts which any normal engineer or software developper would hardly consider as "inventions".


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