Software patents: protector or inhibitor?

What is a patent?
The economic principle behind the patent is it provides an incentive both to invent and to invest in invention by solving the problem of market failure caused by freeriding imitation. According to the Patents Act 1990 (Cth), the granting of a patent creates in the patentee certain exclusive rights over the exploitation of an invention. Those rights are deemed to be the personal property of the patentee and are enforced by law for 20 years from the date of the patent in the jurisdiction in which they are granted.

Under this model, patents help software developers protect their intellectual property (IP) and compete on the global markets. However, in practice, do these laws protect or harm innovation? Free and open source software advocates have, arguably, been the most vocal dissidents of patents. Richard Stallman’s "Software patents-–Obstacles to software development" outlines the most common objections-–such as the concept that a patent is an absolute monopoly on using an idea. "Even if you could prove you had the idea on your own, it would be entirely irrelevant if the idea is patented by somebody else," Stallman’s paper states.

Andrew Tridgell, creator of Samba, would like to see software idea patents abolished.

"As a programmer I now spend a very large proportion of my time on legal issues," says Tridgell. "Billion dollar patent claims on fundamental software technologies are now everyday occurrences, threatening the basic infrastructure we use everyday. ... It's a big lottery, with the whole world paying the bill."

Instead Tridgell, Stallman, and others argue for software to be protected under copyright.

The biggest differences between patents and copyright are: Copyrights cover copying but don't cover ideas. Patents cover ideas and the use of ideas; Copyrights happen automatically while patents are issued by a patent office in response to an application.

So copyright infringement occurs when a developer writes a program that copies a third party’s work. However, under patent laws, a developer might infringe a third party’s patent even if the developer has never heard of that invention and has only partially used that idea.

This in turn impacts licensing. Consider this case scenario, you have written a software program and licensed it to someone else, but it turns out a third party owns a patent in respect to part of the program. The patent holder can take action against your licensee for infringement and take action against you for authorising the licensee to infringe the patent.

"Today it is almost impossible to write a piece of complex software without violating a patent, and what's worse, it is not even possible to find out what patents you violate with any degree of certainty. Some lawyers might claim they can do this, but they are most definitely wrong," says Tridgell. "We are heading for an inevitable global IT disaster when ‘the big one’ hits… If the system continues as it is then we will someday be hit by the IT equivalent of a kilometer wide meteor."

The patent holder
One of the largest holders of patents in Australia is Canon Information Systems Research Australia (CISRA) – an arm of Canon – with 169 granted US patents and 360 patents granted in Australia. In 2003 CISRA had 36 patents granted in Australia. This was the 2nd highest number granted to an Australian based organisation. Most of CISRA's patents are software.

Dr Phil Robertson, director of CISRA, puts stock in patents over copyright.

"Patents afford a broad scope of protection because they prevent another company from taking the functional aspects of your technology advances and incorporate them within its products. They don't need to be copying to infringe your patents - rather they infringe if they take the functional aspects you have patented."

Copyright, however, only affords legal protection from actual copying, and cannot protect against competitors who take your technology advances and incorporate them within its products. It may be difficult to prove that similar software is a copy if it doesn't contain actual extracts. It is also usually difficult to access someone else's software to find out if it has infringed your copyright.”

Developers that do not protect their IP with well-written patents may find their business growth is limited, according to Robertson.

"Lack of patent protection may limit the revenues that they may bring in, and leave them open to others copying when the product becomes successful. Why put in all the effort to open up a market only to have someone else come in afterwards to undercut it? And if you want to license to larger companies, it's definitely an advantage to have patents," says Robertson.

In fact Roberston argues that Australian organisations need to increase their level of patenting in major global markets roughly four-fold to be on a par with other countries with similar capabilities, on the basis of purchasing-power-parity GDP, or of equivalent population levels.

"Until we do that, our share of global commercial revenues from technology based products and services will remain significantly lower than the potential share we could achieve."

Sun Microsystems’ President Jonathan Schwartz is another strong supporter of patents, despite a stinging US$92 million settlement with Kodak for a claimed patent infringement. On the day Kodak and Sun settled, Schwartz wrote on his blog that he had been called by an open source software developer who lobbyed for outright invalidation of software patents in favour of copyright. Schwartz slammed the suggestion, a position he still stands by today.

"Although that blog came out before the Kodak case was heard, there isn’t a thing I’d change about it," Schwartz says. "We need to be protected in such a way as spurs innovation, not in a way that spurs litigation.”

"[In the Kodak case] we spent $92 billion to defend the Java community… Customers now have nothing to worry about. As far as I’m concerned we just stood up for IP."

"If you talk to academics, and I’ve found this just in talking with them, for the most part they are very interested and willing to invest in open source. Until they strike upon idea they think can make them wealthy. And then they move to a proprietary licensing model and stop sharing IP with open source community. Why? Because they think there is a company to be built. There is nothing wrong with that. It’s the foundation of a free market economy," says Schwartz. "The opposite of that approach is hire 500 lawyers and become the biggest patent litigator in the world. I don’t think that is productive way of competing in marketplace."

"You should look at [Sun’s] patent history. We have never been an offensive litigator. It’s not a core part of our business. We don’t go litigate against companies to get them to fork over loyalties."

But Schwartz pans companies that want to invalidate patents in favour of copyright.

"I find it hypocritical that a lot of the noise around patents is made by companies that want to compete based on copyright against companies that hold a lot of patents. They somehow want to distinguish between the value of copyright and the value of patents. And I don’t think you can have your IP cake and eat it too," says Schwartz.The software patent Cold war
Yet, rather than protect IP, we are seeing patents being used as an "offensive measure", according to John McPhail, a partner at legal firm Baker & McKenzie.

"People are pooling and accumulating patents so that they can cross license with other players and make it harder for the little guys," MacPhail says. "It’s a rich player’s business. If you don’t have any patents, you don’t have any weapons in your armoury."

But Mel Slater, CEO of National ICT Australia (NICTA), says patents can provide a defensive position for Australian IT companies. With 15 years background in R&D at Motorola, Slater’s position on patents is a considered one.

"If you are a successful [company] chances are you will have a legal challenge. If you have a patent portfolio, at least good enough to be defensive, you could withstand the fight."

"You shouldn’t look at patent portfolio as something that will assure you sole access to a given market. It is rare in [the IT] business that a patent will give you exclusive rights to a market because there are always going to be clever people all over world that find competitive ways of solving the same problem. But patents can be a defensive mechanism used in collaboration with locking in customers and getting an early jump on a given market."

Global forces
At the time of writing the FTA had been delayed, partly due to an impasse between both countries on an intellectual property protection regime, but was slated to start from January 1. It is believed that the re-election of President George W. Bush means the deal will get through in time for it to start as scheduled.

The FTA has stirred a hornet’s next amongst Australian developers. Many have expressed concerns that the agreement steers Australia’s IP protection regime in the direction of the US government’s Digital Millennium Copyright Act, which imposes long protection terms and strict conditions preventing what might in this country be seen as "fair use" of another’s innovative ideas to build fresh innovation.

Dissidents of the FTA say it pre-empted cautious reform moves in Australian copyright law and puts local technology developers at a disadvantage. Open source developers in particular argue that developing open source software to interface with existing commercial products will be restricted, along with the freedom to price US-sourced software at an appropriate level locally.

"By adopting the FTA, the Australian Government stands to irreparably cripple the innovative and booming local software industry with the wholesale acceptance of US style patent and intellectual property laws" says Pia Smith, President of Linux Australia.

However independent developer and industry researcher, Tony Healy, claims any potential reform to the way we treat software patents will impact the broader business community. "The OECD Report on Patents and Economic Performance points out that only about 10 percent of software patents are granted to software companies, with the rest being to other types of business. Thus any special treatment of software patents could harm much broader sections of business."

"One of the issues in this debate is that people think lawyers are experts because they know the law. But this is not about the law. It's about software economics. Not a single one of the many lawyers active in the FTA debate has a good knowledge of this area. I call them the IP mafia," says Healy.

FTA or no FTA, whether a developer of open source solutions or proprietary technology, Slater says Australian developers need to formulate a strategy in order to compete in today’s global market. "Developers – that have developed a product – need to understand its market and its customers. What are the channels to market? Who are your customers? What kind of financing do you have? There are many dimensions to run a successful company. Patents are not the sole consideration."

"This market is now a global market. Lots of smart people all over world competing. If Aussies are going to compete or survive on a global basis they need to understand this."