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pineditorial: Concerning Patents

Overload Journal #40 - Dec 2000 + Project Management + Journal Editorial   Author: John Merrells

It was late, many cocktails late, Jerry Springer was laying bare trailer trash America as prurient entertainment. At the first commercial break: 'Do you need a personal injury lawyer? We'll pay you $250 to sue your case.'; 'Are you in need of a personal visitation from God?'; 'Are you deeply in debt? Consolidate with our credit card.'; and 'Do you have a great idea? Patent it!'

There were 161,000 patent applications filed with the United States Patent Office last year. Thankfully only a few thousand were software patents, or were submitted by viewers of Mr. Springer's televisual program. The first recorded patent was granted in 1421 to an Italian architect who invented a novel, yet easily duplicated, lifting barge. From these origins patent systems were instituted in many European countries in the 17th, 18th, and 19th centuries. Their purpose is to grant a temporary monopoly to inventors in return for releasing their inventions into the public domain. The inventor prospers from their skill, and society benefits through derivative and complementary innovations. The term of the monopoly is usually a not so temporary sixteen to twenty years.

The original system was devised to protect engineering designs, but was gradually extended to cover chemical engineering, pharmaceutical development, and industrial processes. In the early 80's a number of high profile cases opened up the US patent system to the information sciences. Biotechnology in 1980, software in 1981, and in 1998 the much vilified business-method patents were permitted. The most infamous being Amazon's One-Click-Shopping 'invention', for which Jeff Bezos, Amazon CEO, received considerable personal flak.

As the majority of readers of this magazine are residents of the United Kingdom this topic may seem a little remote for an editorial. There is a Europe wide patent convention that does not allow software or business-method patents. However, at a conference later this year it is expected that the convention will be extended to cover software patents, and undoubtedly business-methods will follow shortly.

A rough poll of my colleagues suggests that the engineering community regard software patents as a bad thing. Rather than fostering innovation, they stifle it. Software development tends to involve the creative combination of already existing ideas. Twenty years ago the software patent land-grab began, staking out huge tracts of the software engineering landscape. He who files first wins! The patent gatekeepers, the patent examiners, are hindered by limited databases of prior art in the field, by the high turnover rate of their staff, and confusion around the novelty and innovation in the software industry. The more severe black mark against software patents is an economic one. They actually serve as a tax on software development. A tax that is levied whether you file or don't file. If you file, a patent attorney, who knows the secret language, will charge a healthy fee to file the description, diagram, and flow chart. Also, your senior engineers will spend time articulating the nature of the invention. If you don't file, there are fees to defend against aggressor patent holders claiming infringement. And, if the case is lost, then there are licensing fees to those patent holders.

A company may use software patents, as above, for defense against aggressive patent holders. Cross-licensing deals are played out like a hand of Whist. Each company plays their patents off against each other attempting to cancel each other out by countering with equivalent infringement claims. This is classic cold war game theory - always try to have one more than the other guy, or agree to keep things even.

Beyond defense, patents can be used for building the capital of a company. Industrial age firms have their plant and buildings as capital from which their market value is partly derived. Information age firms have some rented space, some office furniture, and some rapidly depreciating desktop computers. Patents, as a manifestation of intellectual capital, provide information companies with something more tangible to show to investors.

Companies are increasingly finding that the old barriers to market entries are being eroded: Capital? Cheap. Labour? Mobile. First-mover advantage? Transient. Brand? Ephemeral. One of the few defensive measures remaining to them is to assert their strength through the patent system.

Finally patents may be used for generation of revenue. IBM, for example, generated $1.5bn in licensing fees last year, 20% of its profits.

Conclusion

I think that software patents are an evil thing, but they exist, and they're not going to go away. It can be argued that a patent portfolio is the manifestation of the intellectual capital of a company. Yet the real value is the fact that there are employees talented enough to invent new technology, and will repeatedly do so. Software patents have no technical value, just business value. As a pragmatist, I'm not going to whine about it, I'll just try to make the most of them. I'd be very interested to hear your comments on this issue.

PS: One piece of irony is that penalties for infringement whilst knowing about the existence of some intellectual property are more severe than for accidental infringement. Ignorance is an excuse, and any patent lawyer you meet will encourage you to remain this way.

PSS: As penance Jeff Bezos is now funding a prior art database for software technology and business-methods to combat frivolous patenting.

References

www.delphion.com - The IBM patent database.

www.economist.com - My favorite business journal.

www.britannica.com - Britannica Encyclopedia

www.eff.org - Electronic Freedom Frontier

www.acm.org - ACM

www.oreillynet.com - Tim O'Rielly takes on Jeff Bezos and Jay Walker.

www.freepatents.org - Campaign against software patents in Europe.

Overload Journal #40 - Dec 2000 + Project Management + Journal Editorial