Comments on the study 'The Economic Impact of Patentability of
                       Computer Programs'

Ed Avis, epa98@doc.ic.ac.uk

These are comments I would like to submit to the Commission about its
study on software patentability.  The order of the comments follows
the order in which the study is presented, which means that comments
on the study's conclusions come first.

At the end are some more general comments on whether it is useful to
grant patents on computer programs.


SECTION I

* Open source development

I feel that the authors of the report have misunderstood the position
of open source developers summed up in the quotation from one open
source developer.  This developer points out that while the platform
itself is open, individuals are free to create proprietary products
based on that platform.  This is usually true. and it is what
copyright achieves.  But I know that most open source developers would
not support the idea that a particular use of their platform could be
patented by one company which then prevents others from making their
own implementation---in effect making the platform itself proprietary,
since it no longer provides an open base for competing developers to
build on.

The anonymous developer comments: `The goal of open source is to make
sure that IP rights or other proprietary rights do not interfere with
that platform'.  This is the case for copyright on software, but
software patents often do interfere with a previously open platform
and limit choice.  This is particularly true given the broadness and
triviality of many software patents currently being granted.

Actually, I feel that the emphasis given to open source developers is
misleading.  Certainly the individual developer is vulnerable to
software patents, but then so are all development groups not big
enough to fight back.  It just happens that unpaid open source
developers are at one end of the scale.  (They are also more
vulnerable because they cannot keep their development secret, a point
I'll mention again later.)


* Software patents necessary for American SMEs

Commenting on the situation in the United States, the authors write:
`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'.

It should be clear that this does not imply that the existence of
software patents helps small and medium-sized developers to grow.  It
could just as well be true that the legal climate is such that a small
company without sufficient patents to use defensively is vulnerable to
attacks from large patent-holding corporations, and thus it is
necessary for small companies to acquire patents if they are to
attract investment and grow.  In fact I believe that this is the case.
The fact that, in the present US legal climate, it is necessary for
small firms to hire patent lawyers and start acquiring patents does
not mean that small firms in Europe would be helped by the
introduction of a similar system.  It might just be a burden they
would rather do without.

Also remember that a fast-growing, highly profitable company which
holds many patents does not necessarily indicate a healthy
marketplace.  It could be that this company is doing well through
blocking competitors from entering the market and through demanding
licence money from other firms.  Such behaviour does not usually help
consumers, who would prefer an open and competitive market.  It might
be better to have several companies, not quite as fast-growing or as
profitable, who are competing freely and growing the total size of
this market segment faster than a single monopolistic firm.

It is jumping to conclusions to say, as the report does, that
patentability of computer programs has helped the growth of SMEs in
the US.  All one can conclude is that in a market where your
competitors are filing for patents, you need to do the same yourself
if you expect to grow.


* Do software patents help small companies?

The authors claim that lack of software patents in the early days of
the computer industry made it easier for large companies to copy the
ideas of smaller developers.  But is there any evidence that
widespread software patentability has stopped this trend?  A small
developer holding one or two patents on a key idea will not stand a
chance in a legal battle with a large developer holding thousands of
patents, many of them vague or extremely broad but nonetheless
granted.  Software patents certainly do not level the playing field in
favour of the small developer---except perhaps for the company which
does no development work itself (thus not infringing on anyone else's
patents) but distorts the market by accumulating patents on whole
classes of computer programs.

(There is also the implicit assumption that it's a bad thing for other
companies to market their own products based on a particular idea.
But in order for competition in software to exist at all, this must be
allowed.  The advantage of being first to market is particularly great
in the software industry, there's no reason to create extra barriers
to entry for those who are trying to bring competing products to
market.)


* Invalid patents

The report acknowledges that many software patents granted in the US
are invalid, but doesn't consider this important: `Their existence
... is hardly a significant barrier to software developers.'.  This is
to seriously underestimate the problem.

Even an infringement suit for an invalid patent requires hiring a
patent lawyer and a trip to court.  Even if you win, the process can
be cripplingly expensive for a small software developer, impossible
for an individual or start-up.  (This is true even under a loser-pays
system, since it can never be absolutely certain who will win.)
Multiply that by the sheer number of vague, possibly invalid patents
held by many large companies, each one of them the subject of
infringement proceedings, and you will see that invalid patents are
just as much a problem as valid ones.

The overheads of software development are much lower than those in
most industries where patents are used; so the costs of fighting
patent lawsuits are proportionally much higher.  Any patents, invalid
or otherwise, represent a real risk for the small software developer.
Large companies can usually countersue with their own collection of
patents and reach a cross-licensing agreement, so invalid patents
aren't so much a problem for them.


* Current quality of software patents

The report concludes that we need to make sure European patent offices
(national and EPO) do not fall into the same trap as the USA, to make
sure they do not grant `obvious' patents.  (It's not clear whether
this means obvious to a software developer, or obvious to a patent
examiner, which in practice is rather different.)  There's no evidence
that this is happening.  If patentability is to be extended, it would
be prudent to clean up the patent examination procedure before such an
extension, rather than afterwards.


* Antitrust law

Anti-trust regimes are not an effective way to stop companies abusing
their software patent portfolio.  The speed at which the courts work,
and the speed at which the software industry works, mean that any
possible action would come far too late and take far too long.  It is
not good to introduce one layer of litigation through software
patentability, and then try to fix it with another legal process.
Better to allow companies to write software without the threat of
legal action hanging over them, and let them respond quickly to market
demand without waiting for courts to make decisions.


* Options presented for changing the law

On aims II and III, the report presents three options.  I feel that
these options are misleading and do not show the whole story.

OPTION 1: The report tries to present the status quo as being that
computer programs are patentable, and suggests that the `computer
programs as such' exception be removed from the EPC.  But this is not
maintaining the status quo at all.  The EPO has very cleverly managed
to reinterpret the law to make an arbitrary and unclear distinction
between `computer programs as such' and `computer programs not as
such'.  This happened very recently in the lifetime of the EPC; if it
were really the intention of the EPC's authors, surely it would not
take several decades for this new, enlightened interpretation to
appear?

Since the EPO's decision was not based on any economic criteria or any
research of its effect on the software market, there is no reason to
suppose that it represents any improvement on the previous, clear
position that computer programs were not patentable.

The criterion of `technical effect', which is supposed to distinguish
between software as such and software not as such, does not have any
clear meaning.  Patents have been granted for purely abstract,
mathematical algorithms such as data compression on the basis that
this has a technical effect---the effect being that you might use such
an algorithm to encode data travelling across a network, for example.
But the same could be said of any algorithm to translate data from one
format into another, so at a stroke all network protocols and file
formats become patentable.  Patents have been granted on user
interfaces, so we can assume that any software whose purpose is user
interaction is not software as such.  So already all means of input
and output are considered as having a technical effect; and for any
other software patent application it is not difficult for a computer
programmer to think up a possible technical effect which gets round
the `software as such' exclusion.  For example, the EPC rejected a
patent application for a homophone checker on the grounds that it did
not have a technical effect---but conceivably one could use such a
program to get more efficient data compression, thus putting it into
the ever-expanding category of software not as such.

I'm sure you have seen the software patent `horror gallery' listing
very broad patents granted by the EPO on setting prices in a Website
(WO9615505), dynamically generating web pages from a database
(EP0747840), printing ingredients required for a recipe (WO9529453)
and many others.  Apart from the serious implications for competition,
these should be sufficient proof that the notion `technical effect' is
in practice just used as an excuse to grant patents on as wide a range
of programs as possible.

It's hard to imagine the EPC ever ruling that something previously
considered a technical effect is no longer to be counted as one---the
border between patentable software and excluded software would move in
one direction only.  For these reasons, there is no real difference
between Option 1 and Option 2.

But there is an option left out:

OPTION 0: Uphold the status quo as clearly defined by the EPC, making
it clear that computer programs are not patentable, just as methods
for playing games and methods for doing business are not patentable.
This would not stifle competition and innovation in the software
market; it would not expose small developers to legal threats; it
would mean that companies can get on with writing software and not
fighting court battles.

I urge you to consider this option too, and to recognize that the
EPO's fig-leaf of `technical effect' has no real meaning when applied
to software.


SECTION II

Since I am not a lawyer, I will not write much on Section II, but I
would like to say a few things about lawmaking:

Firstly there is the obvious point that there is a fundamental
difference between a physical invention or process, and something
which is purely information such as a picture or computer program.
Making a clear, legally enforceable distinction between the two has
already been managed by copyright law, so there is no reason why
patent law cannot do the same.

But more importantly, the patent system exists only to serve economic
interests.  Any decision on what is patentable should be made on
economic grounds and not by trying to carry across decisions made for
a different area.

So removing exemption of computer programs on the grounds of
`technical effect' alone is not sensible, because having a technical
effect and being economically justified are two unrelated criteria.
What is worthwhile for other industries may not be worthwhile for
software, and vice versa.

Finally, on the question of whether software is `technology', I would
like to point out that while marketing departments often refer to
software as `technology', you will not usually hear a programmer use
this term.


SECTION III

Section III has a mixture of pro- and anti-swpat viewpoints.  But
those which favour software patents, or at least suggest that the
anticompetitive effects they cause would not be too great, tend to be
founded on the assumption that `the system works properly'.  So large
numbers of bad patents are not being issued, companies cross-license
on reasonable terms, antitrust laws work swiftly and effectively, and
so on.  But this idealized software patent world is not real.  The
software patents being granted by the EPO are frequently of very poor
quality, just as bad as those in the US if not worse.  And it only
takes a single firm to start aggressively enforcing its software
patents to cause serious trouble to every other firm which is not big
enough to have its own defensive portfolio.

The claim that `the existence of a patent system ... discourages
business secrecy' may be true in other areas, but not for software.
Many companies cannot disclose their source code, even if customers
want it, for fear that this would allow others to trawl through it for
possible infringements.  On the other hand, the typical software
patent will not disclose anything of value; either it is too broad and
vague to give any details, or contains ideas which would occur to many
programmers thinking about the same problem.  (There are some software
patents which contain descriptions of new algorithms, but in these
cases the algorithm would have been disclosed anyway without a patent,
if it is to become any sort of useful standard.)  So software patents
actually encourage business secrecy and discourage disclosure.


GENERAL COMMENTS ON SOFTWARE PATENTABILITY

The hard work of software development is usually not in thinking up an
idea but in implementing that idea.  This is particularly true given
the obviousness of many of the ideas that the USPTO and EPO consider
patentable, in some cases simply because they involve a computer.  It
is not like (for example) the drug industry where many years and lots
of money must be expended to generate new patents.  Rather, thinking
up new ways to solve a problem is what a computer programmer does
every day, and the same idea will almost certainly have occurred to
many programmers in the past.  The expense comes in implementing and
testing code based on that idea.

The work of implementation is already protected by copyright, which
provides a good balance between incentives for development and a
competitive marketplace.  Software patents tip that balance too far
towards monopoly, and in any case it's unlikely that the first company
to file a patent actually `invented' the idea.

But even if, in theory, it were possible for the patent office to
examine all the millions of lines of program code currently in use and
grant patents only on genuinely new algorithms, the price would still
be too great.  The software market is unlike most others in its strong
requirement for compatibility; competing products need to read each
others' file formats, for example.  A patent on a file format, or on
an algorithm used to encode that format, allows one company to block
all competing products that might perform the same function as its
own.

Developers are expected to check every line of their code against
thousands of existing patents.  Consider that the USPTO has allowed
the same algorithm (LZW compression) to be patented twice, by Unisys
and by IBM.  If even the patent office cannot check an application
against previous patents, what hope is there for the developer
checking a 500,000 line program?  Copyright, on the other hand, does
not have this problem; you have legal certainty that if you have not
copied anyone else's work, you are not infringing.  Copyright works
well for computer software; patents do not.

In short, the possibility of infringing on thousands of software
patents is a serious burden for small companies, and patents on file
formats (or on business methods, which could effectively be granted if
the business method involves a computer) affect even large companies.
The result is reduced choice in the market and less software available
to the consumer.  And patents on file formats mean total monopoly with
no possibility of competing, compatible programs being written.

The fact that American firms are stuck in this mess is not a reason to
inflict it on European companies.  I urge you to recommend that the
existing wording of the EPC be upheld, so that computer programs
(along with methods for playing games, doing business, and so on) are
made explicitly not patentable.

Also, any change to the EPC which allows the EPO to decide for itself
on changes to the rules would be very unwise.  The patent office is
not equipped to make a proper economic analysis of changes to the
system.  Past experience has shown that the EPO would move the
frontier of patentability in one direction only.