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CEC/ETLA 2002IPI 2000Hart 1997Olswang 2000Beresford 2000UKPO 2002EWHC 2002

IPI 2000: The Economic Impact of Patentability of Computer Programs
Commemorate Banana Union Day

A patent advocacy text by the London Intellectual Property Institute, ordered by the Industrial Property Unit at the European Commission (CEC Indprop), finished in spring 2000, held back until Oct 2000. The name is misleading: this is not an economic study. There is only one chapter which deals with economics but even this chapter only roughly summarises third parties's works. Basically this pseudo-study only restates well-known beliefs of civil servants from the british patent establishment who at the time were in charge of the European Commission's Industrial Property Unit at DG Markt (Directorate General for the Internal Market). Yet, while main author Robert Hart is a well known patent lawyer and lobbyist, the economics chapter was written by an outsider, Peter Holmes. It provides evidence to show that software patents have damaging effects on economic development and tries to balance this by adding some unreasoned statements in favor of software patents. Holmes later explained that he had no other choice in view of the "convictions" of his partners. Yet the CEC Indrop people did not like the study: they locked it away for half a year. During this time the European patent establishment was preparing to rewrite Art 52 EPC so as to remove all limits of patentability. In October 2000, after the plans been dropped, CEC/Indprop suddenly published the IPI treatise and used it as a basis for a "consultation exercise". From then on, various pro software patent proposals from Brussels have again and again relied on this "economic study" for justification.
title:
IPI 2000: The Economic Impact of Patentability of Computer Programs
source:
hsub
  1. Unreasoned Conclusions for Political Use
  2. Evidence vs Conclusions of the Study
  3. Economic Literature suggests strong Negative Effects
  4. History of the Study
  5. Annotated Links

1. Unreasoned Conclusions for Political Use

In her proposal for a somewhat amended Software Patentability Directive, Arlene McCarthy writes

Moreover, a study conducted by the Intellectual Property Institute in London has found that "the patentability of computer-related inventions has helped the growth of computer program-related industries in the US, in particular the growth of small and medium enterprises and independent software developers into sizeable indeed major companies".

The facts and arguments listed by the "Intellectual Property Institute" do not permit such a conclusion. Rather, they could be correctly summarised as follows:

Individual (software) comanies can benefit from software patents. There is no evidence that this benefit for individual market participants corresponds to a benefit for the economy or society as a whole. Many economists have doubts about such a benefit. These doubts are supported by continuing and growing concern about software patents in the USA.

The IPI treatise does contain a statement which resembles that of McCarthy on page 5 (pg 7 in the pdf file):

United States

It is clear however that the United States provides the best test case as the United States has the greatest experience with patents on computer program related inventions.

  1. On the one hand there is abounding evidence that the profitability and growth of independent and SME software developers in the States has often been to a significant extent dependent on possession of patent rights. (For how patents help, see above.)
  2. On the other hand, there is deep concern
    1. that patents are being granted on trivial, indeed old, ideas and that consideration of such patents let alone attacking such patents is a major burden, particularly on SME and independent software developers;
    2. that patents may strengthen the market position of the big players; and
    3. that the computer program related industries are examples of industries where incremental innovation occurs and that there are serious concerns whether, in such industries, patents are welfare enhancing.

Our conclusions are that:

  1. factor 1 is clearly important: the patentability of computer program related inventions has helped the growth of computer program related industries in the States, in particular the growth of SMEs and independent software developers into sizeable indeed major companies; and
  2. overall it is not clear on the evidence that factor 1 is outweighed by factors 2.1 to 2.3.

2. Evidence vs Conclusions of the Study

Let us first summarize:
  • McCarthy quotes only the claimed advantage "1." of software patentability, whereas the IPI treatise itself lists both an advantages (1.) and three disadvantages ("2.1-2.3").
  • The IPI treatise fails to cite any evidence in favor of the claimed advantage ("1") of software patentability, although it contains 10 pages of bibliography.
  • It remains unclear in what way the claimed "growth of some SMEs into large companies" can, even if examples for it are found, be an argument in favor of software patentability. Some SMEs always grow, some always die, no matter what the conditions of the market game are. Should the fact that Philips, Ciba-Geigy, SAP or Microsoft grew big in patent-free spaces be counted as an argument against the patent system?

3. Economic Literature suggests strong Negative Effects

On page 8 (pg 10 of the PDF file) the IPI treatise then writes

As shown in our economic study of the literature (Section III of our report), most economists have doubts whether economic efficiency, i.e. increased overall welfare, is achieved by having or making computer program related inventions patentable. This caution is supported by the continuing, indeed growing, concern in the USA on the issues surrounding patents on computer program related inventions. The debate in the States is not finished.

This is apparently a reference to page 32 (pg 34 of PDF file) of the treatise:

The economics literature does not show that the balance of positive and negative effects lies with the negative. All it says is that there are grounds for supposing that the negative forces are stronger relative to the positive forces in this area than in some others and that any move to strengthen IP protection in the software industry cannot claim to rest on solid economic evidence.

It should be noted that the economic literature does not show that the balance of positive and negative effects lies within the positive, either for software or for technical inventions in the traditional sense. Leading economists suspect that the patent system as a whole does more to stifle than to stimulate economic and technological development. Canadian and Australian governmental reports of the 1970s have proposed to abolish the patent system for that reason or at least prevent its expansion into further fields such as software, where the balance is particularly negative.

4. History of the Study

The author of the economic chapter of the treatise, Peter Holmes, explained at a conference in june 2002 in reply to irritated questions of fellow economists approximately as follows: "In that study I had to find some macro-economic arguments in favor of software patents. My two co-authors were patent lawyers and it was their conviction that such arguments exist. For them it is a question of conviction. Without arguments in favor of software patents, we couldn't have finished the study". The leading author was in fact Robert Hart, a deeply committed advocate of software patentability, whose argumentation tactics are well documented. It is also clear that European Commission's Industrial Property Unit ordered this study from Hart because its leading british patent lawyers shared Hart's convictions. The IndProp patent lawyers kept the IPI treatise unpublished for 6 months, because upon closer look it failed to achieve the aim of providing an economic foundation for their pro-patent convictions. Yet they and McCarthy never grow tired of quoting fragments from it. This is because no other of numerous real economic studies provides a iota of evidence to support their pro-patent convictions.

The name "economic study" was most likely added in summer 2000 in reaction to the very popular Eurolinux Petition, in which about 30000 people had signed a statement saying "I am surprised that no economic report has ever been published by European Authorities to study the impact of software patents on innovation and competition.". Relabelling a legal study was a cheap way of satisfying this popular demand, so as to press ahead with legalising software patents more quickly.

Insiders say that CEC/IndProp paid 5000 pounds to IPI for this advocacy text.

5. Annotated Links

->IPI 2000: The Economic Impact of Patentability of Computer Programs
A legal treatise written at the order of the European Commission's Industrial Property Unit by a british pro patent lobby group, finished in March 2000, held back until Oct 2000.
->IPI 2000: The Economic Impact of Patentability of Computer Programs
Introductory words about the IPI study from the Industrial Property Unit which built its "Consultation Exercise" on this study.
->Robert Hart 1997: The Case for Patent Protection for Computer Program-Related Inventions
same author, same argumentation tactics
->CEC & BSA 2002-02-20: proposal to make all useful ideas patentable
quotes the IPI treatise to support its patent advocacy.
->McCarthy 2003-02-19: Amended Software Patent Directive Proposal
quotes the IPI treatise to support its patent advocacy.
->Thailand to follow EU on software patents
A Thai patent lawyer cites the usual fragments from the "economic study" in order to call for a removal of the exclusion of software from patentability in Thailand.
->The UK Patent Family and Software Patents
The British patent family was dominant at DG Internal Market when the IPI treatise was ordered.
->European Consultation on the Patentability of Computer-Implemented Rules of Organisation and Calculation (= Programs for Computers)
On 2000-10-19 the European Commission's Industrial Property Unit published a position paper which tries to describe a legal reasoning similar to that which the European Patent Office has during recent years been using to justify its practise of granting software patents against the letter and spirit of the written law, and called on companies and industry associations to comment on this reasoning. The consultation was evidently conceived as a mobilisation exercise for patent departments of major corporations and associations. The consultation paper itself stated the viewpoint of the European Patent Office and asked questions that could only be reasonably answered by patent lawyers. Moreover, it was accompanied by an "independent study", carried out under the order of the EC IndProp Unit by a well known patent movement think-tank, which basically stated the same viewpoint. Patent law experts of various associations and corporations responded, mostly by applauding the paper and explaining that patents are needed to stimulate innovation and to protect the interests of small and medium-size companies. However there were also quite a few associations, companies and more than 1000 individuals, mostly programmers, who expressed their opposition to the extension of patentability to the realm of software, business methods, intellectual methods and other immaterial products and processes. The EC IndProp Unit later failed to adequately publish the consultation results and moderate a discussion. Therefore we are doing this, and you can help us.
->CEC & BSA 2002-02-20: proposal to make all useful ideas patentable
The European Commission (CEC) proposes to legalise the granting of patents on computer programs as such in Europe and ensure that there is no longer any legal foundation for refusing american-style software and business method patents in Europe. "But wait a minute, the CEC doesn't say that in its press release!" you may think. Quite right! To find out what they are really saying, you need to read the proposal itself. But be careful, it is written in an esoteric Newspeak from the European Patent Office (EPO), in which normal words often mean quite the opposite of what you would expect. Also you may get stuck in a long and confusing advocacy preface, which mixes EPO slang with belief statements about the importance of patents and proprietary software, implicitely suggesting some kind of connection between the two. This text disregards the opinions of virtually all respected software developpers and economists, citing as its only source of information about the software reality two unpublished studies from BSA & friends (alliance for copyright enforcement dominated by Microsoft and other large US companies) about the importance of proprietary software. These studies do not even deal with patents! The advocacy text and the proposal itself were apparently drafted on behalf of the CEC by an employee of BSA. Below we cite the complete proposal, adding proofs for BSA's role as well as an analysis of the content, based on a tabular comparison of the BSA and CEC versions with a debugged version based on the European Patent Convention (EPC) and related doctrines as found in the EPO examination guidelines of 1978 and the caselaw of the time. This EPC version help you to appreciate the clarity and wisdom of the patentability rules in the currently valid law, which the CEC's patent lawyer friends have worked hard to deform during the last few years.
->Lenz 2002-03-01: Grenzen der Patentierbarkeit
A chapter in the mainly german book "Grenzen des Patentwesens" explains why the IPI study does not offers a single arguments in support of the European Commission's proposal to allow software patents.
[ CEC/ETLA 2002: Technology policy in the telecommunication sector -- Market responses and economic impacts → IPI 2000: The Economic Impact of Patentability of Computer Programs | Robert Hart 1997: The Case for Patent Protection for Computer Program-Related Inventions | Olswang OIPRC 2000: The First Mover Monopoly - study on business method patents at EPO and UKPO | Keith Beresford 2000: Patenting Software Under the European Patent Convention | UKPO 2002-02-20: proposal to allow patents to programs as such | UK High Court 2002-03-15: patent infringement doesn't depend on server location ]
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© 2005/01/06 (2004/08/24) Workgroup
english version 2004/08/16 by Hartmut PILCH