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Analysis and Opinion Behind the Parliament's Decision
Commemorate Banana Union Day

The European Parliament has already, through a series of amendments, rejected texts from the Commission and the JURI Committee, which were largely identical in wording and spirit to that approved now by the Council. The amendments reflected the demands of the vast majority of software innovators and innovation policy researchers in the EU, including the authors of studies ordered by the Commisson as well as the members of the EU's consultative organs

The competitiveness of European enterprises in the face of globalisation - How it can be encouraged

Opinion signed by heads of regional governments all over Europe cautions that the patent system is not universally applicable and in particular should not be extended to software.

Study by Dirk W.F. Verkade, professor of IP law, commissioned by Dutch Ministery of Economic Affairs, published as a book with ISBN 90-5409-267-X. The book's main thrust is that extension of patentability to software is very dangerous and the power copyright in the software business should not be underestimated.

  • Granting of software patents started in the US without oversight from the legislative branch (just like in Europe)
  • Doubts about ability US Patent Office to handle software patent related decisions, and whether it has enough knowledge and prior art information available
  • Software market is different from traditional industries: small or no market in "components", most people write programs from scratch, no consultation of patent literature, high chances of infringement
  • Innovation in software development occurs faster than in other industries, patents often granted after the technology has become obsolete.
  • Software patents may cause the software industry to cease being a creative cottage industry, restricting it to large companies that cross-license.

Study on the desirability of software patents ordered by the Directorate General Enterprises of the European Commission, performed by UK researchers among SMEs, large enterprises and research institutions.

  • None of the examined groups makes a lot of use of patents to protect their (software) investments.
  • SMEs think they will not have a chance when protecting patents in front of a court due to a lack of money.
  • Given the short life span of computer programs, SMEs think they can better spend their time on the development of new programs, than on obtaining patents.
  • Large companies patent more than small companies.
  • "SMEs consider the creation and implementation of undesirable laws as one of their primary concerns."
  • "There is a general consensus that the patentability of software will probably pose a growing a concern for SMEs."

Ordered by DG Internal Market from a London-based think-tank of patent lawyers who are well known for their advocacy of software patents. Apparently in reaction to the Eurolinux Petition, the initial lawyer study was renamed to become an "economic impact study" and an economist was ordered to write an economics chapter, which however did not reach the conclusions desired by the Commission. The study was therefore locked away for 6 months until it became a basis of a "consultation exercise" (con00):

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.

There is no evidence that the positive effects stemming from owning software patents outweigh the following deep concerns:

  • 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;
  • that patents may strengthen the market position of the big players; and
  • 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.

After an unexepected decision of the national governments to refrain from plans to change Art 52 of the European Patent Convention (EPC), the Commission announced another "consultation exercise". Previous consultations had involved only the peer group of the Industrial Property Unit, i.e. about 40 corporate patent lawyers, and asked only questions that were geared to this peer group. The new consultation was designed in the same way, but, due to the higher degree of public attention that the process had meanwhile reached, it received almost 1500 responses from unexpected quarters.

What percentage of participants belonging to the following groups was against software patents:

Individuals98.5%
SMEs95%
Large Enterprises81%
Associations45%
Users99,6%
Students99,5%
Academics98,0%
Software Developers95,8%
Patent Professionals33%
Governments22%

It appears from this that the governmental patent administrators are even more strongly biased in favor of the EPO practise than the large enterprises and patent lawyers. This is no wonder because the EPO practise was introduced by these people, who represent their governments on the EPO's Administrative Council and in the EU Council's Patent Working Party.

The Commission concluded from the statements of some of a few associations such as EICTA and UNICE, whose patent policy is dominated by patent lawyers of large corporations, that an "economic majority" was in favor of software patents. However 2/3 of the employment and taxes in the software sector come from SMEs, very few of whom have any interest in patenting.

see also The "Economic Majority" in the Software Patent Debate

Survey among several hundred companies by Fraunhofer Innovation Research Institute and Max-Planck Institute for Intellectual Property, ordered by patent department of German Ministry of Economics, all with heavy pro-patent bias, yet yielding the following results:

  • Patents are the least used way and least significant means to protect investments in software development
  • Development time is very short and innovation occurs extremely rapidly in the software field compared to other fields
  • More incremental development in software sector than in most other industries
  • Rapid innovation and effective development process even more important in software than in other fields, so obstacles to conducting development work are even more serious here
  • Interoperability is extremely important
  • R&D intensity has no influence on patenting behaviour
  • Basic rule as in other branches holds: bigger companies obtain more patents
  • "The theory that patents facilitate market access, above all for young companies, could not be confirmed."
  • "The strategic benefit of patents in international competition is obvious, but concentrated on very few large companies."

Report of the Dutch Ministry of Economic Affairs of 2001

  • "A partial unplanned effect of more conscious handling of the IP and the patenting strategy of companies is the arising of the problem of the `anti-commons'. Parties keep each other prisoner in a patent minefield. [$ldots{}$] Mainly the (high-tech) SMEs suffer from this strategic patenting."
  • "Besides, patents are only part of the total knowledge strategy of companies. For most companies patenting is less important than secrecy and technological lead time."
  • "Innovations of SMEs are relatively more encumbered by existing patent portfolios. They also experience more obstructions to patent things themselves."
  • "Given the differences between sectors and the differences in company sizes, a differentiated patent system is an attractive option from an innovation point of view."

Study by the Dutch Ministry of Economic Affairs.

  • "The importance of the IP-regime as far as innovation is concerned differs per sector. In the biotech and pharmaceuticals patents have an essential role given the long time to earn back investments. In the software sector developments are so quick that patents are used less to earn back investments."
  • "Further, one should look at the innovation obstructions stemming from the trend of patenting enabling technologies (e.g.software) and broadly applicable business methods."

  • Study by dutch IT law experts Prof. Bernd Hugenholtz and Reinier Bakels commissioned by the European Parliament's Directorate General for Research
  • General problems with patent system as a whole
  • Problem of "trivial patents" can not be solved by improving examination
  • Software patents have caused a lot of problems in the US (both economical and administrative)
  • Requirement of "technical contribution" is too vague in Commission proposal and can easily be circumvented, may even not be relevant by Commission's own admission (in that it cannot prevent all business methods from being patented)

The German Monopoly Commission (competition watch organ associated with the ministry of economics) raises concerns about the recent practise of the patent offices and courts of allowing software patents, criticises this practise as being illegal and harmful to innovation and competition.

A report of the French State Commission on Economic Planning published on 2002/10/17 gives figures about the software industry in France (270000 employees, 31,6 bn eur turnover in 1999), sees France's software economy handicapped by proprietary standards and patent dangers and recommends that algorithms and business methods should not be patentable, formats and standards should be exempted and patents for technical inventions that use software should be limited in duration to 3-5 years.

Study by Heli Koski et al from Finnish Institute of Engineering ordered by European Commission's DG Enterprise

  • Patents cause a lot of problems in the Telecom sector
  • Patents are mainly used strategically there (block competitors, make sure you are not blocked by a competitor), not to earn back investments

The ESC is main consultative organ of the EU, the opinion was approved by plenary vote

  • Commission text allows patents on software executed by a computer
  • Commission text simply codifies legally questionable EPO practice
  • Commission text does not prevent patents on business (or on any other) methods
  • Commission text does not preserve interoperability, confuses matters further instead
  • Doubts about intention of Commission, which talks about several irrelevant things (such as piracy) in its introduction
  • No effective economic analysis that shows benefits for SMEs
  • "It is hardly plausible to have us believe that the directive would only be a sort of reversible three-year experiment, at the end of which an assessment would be made"

  • "Technical" means "application of natural forces to control physical effects beyond the digital representation of information" (Article 2)
  • Data processing is not a field of technology (Article 3)

  • Publication can never be an infringement (Article 5)
  • Interoperability can never constitute patent infringement (Article 6a)

  • Software patents have in the US resulted in a transfer of ressources from R&D to patenting activities.
  • More patents meant less innovation even within the companies that patented most.
  • Most software patents are owned by large hardware companies and obtained for strategic purposes rather than for preventing imitation of products.
  • Software patents hinder instead of encouraging innovation in fields where most innovation is incremental, such as in software development

The US Federal Trade Commission (FTC) conducted hearings among software companies which showed continued general animosity of the US software industry against software patents. In previous hearings in 1994, large companies such as Adobe, Oracle, Autodesk had expressed strong opposition against the patentability of software. This time, Robert Barr, vice president and head of intellectual property at Cisco Inc, a leader in Internet technology whom many view as a model of modern innovation managment, said:

My observation is that patents have not been a positive force in stimulating innovation at Cisco. Competition has been the motivator; bringing new products to market in a timely manner is critical. Everything we have done to create new products would have been done even if we could not obtain patents on the innovations and inventions contained in these products. I know this because no one has ever asked me "can we patent this?" before deciding whether to invest time and resources into product development.

[...]

The time and money we spend on patent filings, prosecution, and maintenance, litigation and licensing could be better spent on product development and research leading to more innovation. But we are filing hundreds of patents each year for reasons unrelated to promoting or protecting innovation.

[...]

Moreover, stockpiling patents does not really solve the problem of unintentional patent infringement through independent development. If we are accused of infringement by a patent holder who does not make and sell products, or who sells in much smaller volume than we do, our patents do not have sufficient value to the other party to deter a lawsuit or reduce the amount of money demanded by the other company. Thus, rather than rewarding innovation, the patent system penalizes innovative companies who successfully bring new products to the marketplace and it subsidizes or rewards those who fail to do so.

The final report of the FTC, published in October 2003, comes to the conclusion that the patent system stimulates competition and productivity in some fields (pharma is cited as an example), whereas it tends to harm both in others, especially where software and business methods are concerned. The report expresses doubts as to the wisdom of past court decisions to admit patentability in these areas and proposes a series of measures for repairing some of the damage. The positons expressed at the hearings are summarised as follows:

Computer hardware and software industry representatives generally emphasized competition to develop more advanced technologies as a driver of innovation in these rapidly changing industries. These representatives, particularly those from the software industry, described an innovation process that is generally significantly less costly than in the pharmaceutical and biotech industries, and they spoke of a product life cycle that is generally much shorter. Some software representatives observed that copyrights or open source code policies facilitate the incremental and dynamic nature of software innovation. They discounted the value of patent disclosures, because they do not require the disclosure of a software product's underlying source code.

As one of for "urgent measures for strengthening innovation and economic growth in Germany", a report from Deutsche Bank Research recommends:

3. Set up a balanced IP protection regime to foster the creation and flow of ideas. Stronger IP protection is not always better. Chances are that patents on software, common practice in the US and on the brink of being legalised in Europe, in fact stifle innovation. Europe could still alter course.

FAQ

A software patent is a patent (20 year monopoly) on all computer programs that match a specified set of features.

Since 1998 the European Patent Office (EPO) has been allowing program claims, i.e. claims of the form

computer program [stored on a data carrier], characterised by that upon loading the program into memory ... [a process with certain features is carried out].

Since 1986 the EPO has been allowing process claims to objects where the only "inventive" achievement lies in data processing and for which therefore program claims would have been more straightforward.

Art 52 of the European Patent Convention (Munich Convention of 1973) says that "programs for computers" are, along with "mathematical methods" and "presentations of information", not inventions in the sense of patent law. The Examination Guidelines of the European Patent Office (EPO) of 1978 explain:

A computer program may take various forms, e.g. an algorithm, a flow-chart or a series of coded instructions which can be recorded on a tape or other machine-readable record-medium, and can be regarded as a particular case of either a mathematical method or a presentation or information.If the contribution to the known art resides solely in a computer program then the subject matter is not patentable in whatever manner it may be presented in the claims. For example, a claim to a computer characterised by having the particular program stored in its memory or to a process for operating a computer under control of the program would be as objectionable as a claim to the program per se or the program when recorded on magnetic tape.

In other words: whenever the allegedly novel achievement could be adequately framed in a program claim, it is not an invention in the sense of the law.

see also Art 52 EPC: Interpretation and Revision

This term was introduced in May 2000 by the EPO as a euphemism for "computer programs in the context of patent claims", i.e. non-inventions according to the present law. This term was introduced as part of the "Trilateral Project", an effort of patent offices to create uniform rules for patentability for "computer-implemented business methods" in USA, Japan and Europe.

The European Commission's proposal uses the EPO definition, whereas the European Parliament has redefined the term to mean the opposite: technical inventions (engineering solutions involving forces of nature) for whose implementation a computer is used. The Council Working Party has yet another definition which includes both technical inventions and software innovations.

Patent law is an economical law, and virtually all economical studies show mainly negative effects of software patents. The Commission did not carry out a thorough impact assessment study. The majority of European companies is against software patents. The consultative organs (COR00, ESC02) and two of the European Parliament's concerned committees advised against legalisation of the EPO practise.
Yes, indeed they do. The major investments in software development are protected by copyright, and several other protection means (which require this copyright protection to work) are employed as well. Software patents undermine the protections offered by copyright.
The European Parliament's version allows patents on novel ways of harnessing forces of nature, regardless of whether or not a computer is used. Some of the patents in the telecom (and electronics) sector are however indeed directed to data abstraction and, in an age of "media convergence", would cover programming on the Internet. There is little reason to assume that pure software patents have any positive effect on innovation.

see also Why Software -- in particular embedded software -- should not be patentable and FFII interests and the EU Software Patent Directive

No. On the contrary, the Commisson and Council versions arguably violate TRIPs.

see The TRIPs Treaty and Software Patents

No. The Commission/Council texts impose a practise of the European Patent Office on Europe which is not accepted by all courts and thereby make 30,000 software and business method patents much more difficult to contest than they are at present.
All a computer can do, is process data, i.e. calculate with symbolic entities. When it is used to control an invention, the computer still merely processes data, but the peripheral equipment might be doing something patentable. This article ensures compatibility with TRIPs and clarifies that only the peripheral process but not software as such is patentable.
The directive proponents have insisted that the concept of "technical [contribution / considerations / effects]" is the only acceptable criterion for limiting patentable subject matter, and they have insisted that this directive should clarify what is patentable and what not. It follows from this that a definition is needed.

The reference to "forces of nature" is omnipresent in the traditional patent law. It has been codified in the Scandinavian Patent Law treaty as well as in several patent laws of Eastern Europe and East Asia. It appears in most of the decisions against software patentability of German, but also US, French and other courts.

see Patent Jurisprudence on a Slippery Slope -- the price for dismantling the concept of technical invention

Indeed today there is an ongoing trend toward "convergence". Everybody tries to abstract from the quirkiness of matter and to transfer as many problems as possible to the level of data processing. This is because data processing is so convenient, so "calculable", so easy.

It may be modern to make things easy, but is it also modern to patent easy things?

The Commission only guarantees the right to reverse-engineer, which cannot be forbidden by a patent in the first place. Its article however does not allow the use of the discovered information. Anti-trust law is too blunt a tool to solve this problem.
[ What happened on 2005-03-07? | Fake Limits on Patentability in the Council Proposal | Council 2004-05-18: an Unqualified Majority | Analysis and Opinion Behind the Parliament's Decision | Steps Out of the European Software Patent Deadlock | Draft Letter to Luxemburg Head of State Concerning Software Patent Directive ]
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english version 2004-05-24 by Hartmut PILCH