Intellectual Property Owners Association Adopts Resolution to Amend Patent Eligible Subject Matter

The Intellectual Property Owners Association (IPO) board of directors has adopted a resolution which advocates for amending section 101 of the Patent Act in the U.S. to essentially overturn Mayo v. Prometheus and Alice v. CLS Bank.  The reason for the resolution is the development of inconsistent application of the so-called Alice/Mayo test.  Indeed, there have been a number of relatively recent decisions attempting to clarify Alice/Mayo which find patent eligible subject matter satisfied, including DDR, Enfish, McRO, Amdocs, and Cellz Direct.  How does this happen: the development of panel splits at the U.S. Court of Appeals for the Federal Circuit.  Notably, the United States Patent and Trademark Office (USPTO) has worked extremely hard in attempting to provide guidance to patentees and arguably is doing quite a good job.  I think the USPTO deserves a lot of credit for attempting to bring clarity and predictability to the field.  My personal opinion (shared by others) is that section 102 and 103 could provide a better gatekeeper than section 101 even though early resolution may be difficult.  I do think that the USPTO’s attempt to place certain claims in a “streamlined” analysis seems to be a good idea.  Claims drafting gamesmanship and looking at the claim as a whole will always raise issues though (that pesky Diamond v. Diehr!).  Here is the proposed language amending section 101:

101(a) ELIGIBLE SUBJECT MATTER
Whoever invents or discovers, and claims as an invention, any useful process, machine, manufacture, composition of matter, or any useful improvement thereto, shall be entitled to a patent for a claimed invention thereof, subject only to the exceptions, conditions, and requirements set forth in this Title.

101(b) SOLE EXCEPTION TO SUBJECT MATTER ELIGIBILITY
A claimed invention is ineligible under subsection (a) if and only if the claimed invention as a whole, as understood by a person having ordinary skill in the art to which the claimed invention pertains, exists in nature independently of and prior to any human activity, or exists solely in the human mind.

101(c) SOLE ELIGIBILITY STANDARD
The eligibility of a claimed invention under subsections (a) and (b) shall be determined without regard as to the requirements or conditions of sections 102, 103, and 112 of this Title, the manner in which the claimed invention was made or discovered, or the claimed invention’s inventive concept.

U.S. Federal Trade Commission Releases Report on Patent Assertion Entities

On October 6, 2016, the Federal Trade Commission [FTC] released a 269 page report titled, "Patent Assertion Entity Activity: An FTC Study" [Study].  The Study reviews PAE activity from 2009 to 2014.  The press release from the study excerpts some highlights: 

The report found two types of PAEs that use distinctly different business models. One type, referred to in the report as Portfolio PAEs, were strongly capitalized and purchased patents outright. They negotiated broad licenses, covering large patent portfolios, frequently worth more than $1 million. The second, more common, type, referred to in the report as Litigation PAEs, frequently relied on revenue sharing agreements to acquire patents. They overwhelmingly filed infringement lawsuits before securing licenses, which covered a small number of patents and were generally less valuable. 

The report found that, among the PAEs in the study, Litigation PAEs accounted for 96 percent of all patent infringement lawsuits, but generated only about 20 percent of all reported PAE revenues. The report also found that 93 percent of the patent licensing agreements held by Litigation PAEs resulted from litigation, while for Portfolio PAEs that figure was 29 percent. 

The study found that the royalties typically yielded by Litigation PAE licenses were less than the lower bounds of early stage litigation costs. This data is consistent with nuisance litigation, in which defendant companies decide to settle based on the cost of litigation rather than the likelihood of their infringement.

Interestingly, the report relies on the AIPLA economic survey on patent litigation costs to conclude that the majority of Litigation PAE litigation is nuisance litigation.  That merits additional scrutiny, I think.  The Study also includes reforms to address nuisance infringement litigation: 

  

“The FTC recognizes that infringement litigation plays an important role in protecting patent rights, and that a robust judicial system promotes respect for the patent laws. Nuisance infringement litigation, however, can tax judicial resources and divert attention away from productive business behavior,” the report states. With this balance in mind, the FTC proposes reforms to: 

• Address the imbalances between the cost of litigation discovery for PAE plaintiffs and defendants;

• provide the courts and defendants with more information about the plaintiffs that have filed infringement lawsuits;

• streamline multiple cases brought against defendants on the same theories of infringement; and

• provide sufficient notice of these infringement theories as courts continue to develop heightened pleading requirements for patent cases.

Notably, the Study also reviewed " types of patents held by PAEs, and found that 88 percent were in the information and communications technology sectors; more than 75 percent of those patents were software-related patents." Interestingly, some Study PAEs frequently targeted a small number of firms in the "Computer and Electronic Manufacturing" sectors.  Further, the Study "also looked at whether PAEs were able to make money by mass-mailing so-called “demand letters”; however, the FTC observed an “absence of large demand letter campaigns for low-revenue licenses among the Study PAEs.”  This results in the Study stating that reforms concerning demand letters "on its own" would make little difference. 

Notably, the Study includes an review of the wireless chipset sector in particular: 

[T]he report also looked at the wireless chipset sector, examining how reported PAE assertion behavior compared to certain manufacturers and non-practicing entities (NPEs) (who primarily seek to develop and transfer technology ). For this study, the FTC obtained non-public data from eight manufacturers and five NPEs, for the same timeframe using its 6(b) authority. 

The wireless case study found that Litigation PAEs and manufacturers behaved differently. Within the study, Litigation PAEs brought far more infringement lawsuits involving wireless patents—nearly two-and-a-half times as many as manufacturers, NPEs, and Portfolio PAEs combined. Litigation PAE licenses involved simple lump-sum payments with few restrictions, if any, whereas the reported manufacturer licenses frequently included field-of-use restrictions, cross-licenses, and complicated payment terms.

Importantly, the Study does not draw conclusions concerning the merits of PAE activity in monetizing inventions for inventors and innovators: 

Study PAEs had diverse and heterogeneous data-keeping practices. As a result, the FTC does not report how much revenue PAEs shared with others, including independent inventors, or the costs of assertion activity. The FTC sought to evaluate the role of PAE activity in promoting patent monetization for inventors and innovation as part of its study. Towards that end, the FTC requested that Responding PAEs provide detailed data describing how they shared licensing revenue with outside parties and their costs of patent assertion. Responding PAEs used different methods to maintain information describing their revenue sharing and costs, however, which prevented any meaningful comparison of the degree of revenue sharing by PAEs or their assertion costs. For example, some Responding PAEs viewed payments to outside counsel as a cost of patent assertion, but others viewed such payments as revenue sharing (counsel often received a fixed proportion of licensing royalties). Moreover, the majority of Responding PAEs did not maintain information on assertion costs, and only a few Responding PAEs provided such data at either the Affiliate level or assertion campaign level. For these reasons, we did not analyze either the proportion of licensing revenue that they shared with outside parties, or the costs of patent assertion. Due to this limited data, this report does not address the efficiency of PAE business models. [emphasis added].

And, what impact will Alice have?  The Study notes that "it did not collect enough information regarding patent assertion after the Alice decision" to "directly measure" Alice's impact, but: 

In addition, because more than 75% of the patents in the FTC’s sample likely include software-related claims, and because the FTC estimates that Study PAEs held more than 75% of all U.S. patents held by PAEs at the end of 2013, any change in PAE behavior with respect to software patents that results from Alice will likely have a significant impact on both the overall volume of PAE assertion and the types of technologies that PAEs assert.

Study PAEs generated about $4 billion in licensing revenue.  And, the Study noted, "Fewer Than 1% of Study Patents Were Identified as Encumbered by a FRAND Commitment to a SSO."  [Hat tip to Professor Dennis Crouch's Patently Obvious Blog.]

Google’s Patent Purchase Program: What Did We Learn?

Recently, this blog discussed Google’s Patent Purchase Program (Program), here.  The Program was designed to help Google get in front of the patent troll problem by purchasing patents that could be acquired by patent trolls and subsequently used to “hold up” practicing entities.  Tam Harbert has published an article in the IEEE Spectrum titled, “Google Tries to Keep Patents Out of the Hands of Trolls.”  The article reports on the results of the Program.  Notably, the article states: “Internet Giant Buys 28% of the Patents Offered During Its Patent Purchase Experiment.”  The median price for a patent was $150,000.  The lowest price Google paid was $3,000 and the highest price was $250,000.  Interestingly, the highest submission offer was $3.5 billion and 47 percent of the submission offers were below $100,000.  The article notes that even though the Program was only available for three weeks “a few thousand” patents were submitted for consideration.  Around 28% of a few thousand patents is a significant number of patents.  It is unclear how many patents were purchased.  The article also notes that the value of the patents in this field are likely significantly less because of the U.S. Supreme Court’s decision in Alice.

As the article hints, a lesson from the experiment may be that we (of course) need a real marketplace for patents (with “less friction”).  Even with the short notice for the program as well as a narrow time frame to submit, there were many willing participants.  Moreover, a substantial number of the submissions were from individual inventors—about 25%.  Interestingly, this may indicate that individual inventors do not have many opportunities to monetize their patents and valuable patents may be “languishing” on the shelf, so to speak.  And worse yet, technology covered by those patents may not be commercialized.  This brings me to a second point.  What does Google plan to do with this patented technology?  The article also hints that Google acquired patents relevant to its business.  Will it actually utilize the technology covered by the patents?  Is it already using technology covered by the patents?  I suppose it could just sit on the technology and not use it.  Will it assert the patents against other operating companies? 

Notably, Google continues to accept submissions to consider patents—although not under the terms of the Program.  Will Google reopen the Program?

Google also has taught us that there are a lot of potentially valuable patents out there that could be successfully asserted against operating companies.  Good to know?  It doesn't seem like Google is widely publishing the results of the Program.  

Living next door to Alice patents

There’s been a lot of discussion about the US Supreme Court’s ruling in Alice Corp v. CLS Bank which apparently put into place limitations on software patents. IAM Magazine reported some research back in Spetmebr 2014 that indicate that a number of companies would lose valuable patent portfolios and some applicants (see Infosys here) appear to be re-thinking their patenting strategies. However, six months on, it is interesting to look and understand how the case will actually affect software patents and their value.

Dennis Crouch over on the PatentlyO blog has done a valuable service by looking at the fate of a number of applications that had actually been allowed by the USPTO, but were later withdrawn based on the Supreme Court’s decision. These were patents that had been found to ne novel and not obvious, but were then rejected on the basis that they were directed to an abstract idea, and thus ineligigble for patent protection.

Dennis has found that 93% of the patents are still pending. Most are on a so-called second round final which presumably means that the applicants have had the opportunitiy to express their views and are awaiting a final decision from the USPTO. Most interestingly 7% of the patents have actually been granted and only 1% rejected. It’s clearly too early to say how many of the 93% will actually be granted in the end. However, the ratio of grants to rejections is looking fairly healthy. And seems to suggest that the fear that many patents would be held invalid and lose their value may not be entirely justified.

Bold Proposal on U.S. Patent Reform: Eliminate the U.S. Court of Appeals for the Federal Circuit

The Cato Institute is "a public policy research organization — a think tank – dedicated to the principles of individual liberty, limited government, free markets and peace," which operates the Cato Unbound forum, an online journal.  This month's journal features a discussion titled, "Patents and Public Choice."  The feature essay is authored by Eli Dourado, a research fellow at the Mercatus Center at George Mason University, and critically tackles the U.S. patent system.  There is one responding essay by Professor Zorina Khan (I recently highlighted one of her papers concerning patent trolls, here).  Forthcoming essays will be published by Professor John F. Duffy of the University of Virginia Law School and Professor Christina Mulligan of the Brooklyn Law School.  Mr. Dourado's essay is titled, "The True Story of How the Patent Bar Captured a Court and Shrank the Intellectual Commons."  The essay essentially argues that the U.S. Court of Appeals for the Federal Circuit, the supposedly specialist patent court in the U.S. with nationwide jurisdiction over patent appeals from U.S. district courts and jurisdiction over patent appeals from the United States Patent and Trademark Office, has been captured by the patent bar and has continuously expanded patent eligible subject matter to the detriment of innovation.  He points to software patents as a problem, including a discussion of the tragedy of the anticommons, as well as patent trolls.  Despite the U.S. Supreme Court's attempt to reign in software patents, he believes the Federal Circuit will continue to evade Supreme Court precedent (maybe true, but the composition of the court has been changing).  Here are his proposals for reform:

It would be better instead simply to abolish the Federal Circuit and return to the pre-1982 system, in which patents received no special treatment in appeals. This leaves open the possibility of circuit splits, which the creation of the Federal Circuit was designed to mitigate, but there are worse problems than circuit splits, and we now have them.

Another helpful reform would be for Congress to limit the scope of patentable subject matter via statute. New Zealand has done just that, declaring that software is “not an invention” to get around WTO obligations to respect intellectual property. Congress should do the same with respect to both software and business methods.

 . . . Current legislation in Congress addresses this class of [patent troll] problem[s] by mandating disclosures, shifting fees in the case of spurious lawsuits, and enabling a review of the patent’s validity before a trial commences.

What matters for prosperity is not just property rights in the abstract, but good property-defining institutions. Without reform, our patent system will continue to favor special interests and forestall economic growth.

I am not so convinced that returning to the uncertainty and splits of jurisdiction existing before the creation of the Federal Circuit and “races to the courthouse” is going to put us in a better position.  And, the party advocating for change and carrying the burden of proof may need to make a stronger case for reform given the relative success of the biotechnology and information technology industries in the U.S.   Professor Khan offers an incisive rebuttal, here.  This blog has featured posts challenging the assertion that patents in the information and technology communications space are inhibiting innovation, here,  [Although I do wonder about price.] and describing counter-arguments to proposals to reduce the Federal Circuit's influence over patent law, here.  We look forward to Professor Duffy and Professor Mulligan's essays.  [Hat Tip to Professor Dennis Crouch's Patently-Obvious Blog for a lead to the essay.]  

Alice in Valueland

There's been a lot of comment in the blogsphere over the past few days about the US Supreme Court decision in Alice Corp vs CLS Bank. It's not the purpose of this piece to review the points made by the justices. This has been done excellently over in the Scotus Blog by David Kappos, former Director of the US PTO, in his analysis here and over on the Patenlyo Blog here. The court's decision can be found here.

Given that many of the IP transactions over the past years have related to patents that might be broadly considered to be software patents, it's interesting to look at how this latest decision might affect valuation of intellectual property. As most commentators seem to have noted, the Supreme Court rejected clearly the opportunity to declare software unpatentable. The justices affirmed the revocation of Alice's patent, but they did so not on a basic principle that software is unpatentable. On the contrary, they repeated in essence their previous position set out in the Bilski case that abstract ideas are not patentable. The court repeated the test set out in Mayo in which they first looked at the elements of the claims to see whether these were directed to a patent-ineligible abstract idea and then whether the claims as written transformed the abstract idea into a patent-eligible invention. The court concluded that was not the case for Alice Corp's patent.

This is clearly good news for intellectual property holding companies. There was always a risk that the Supreme Court might chose to go further in rejecting the concept of software patents - and indeed some amicus curae briefs submitted to the court advocated that the court do exactly that. Any valuation of IP in the last few months has needed to take this uncertainty into account. The fact that the court chose not to do this - and indeed issued a decision which is entirely consistent with their previous positions - means that the validity of many patents relating to computer-implemented inventions has been confirmed. At least one risk factor can be eliminated. Indeed the impact of the decision is probably more wide-ranging since the court has concluded, at least implicitly, that a patent couched in software terms is no different from one that is implemented using traditional mechanics. There is nothing inherently different (or even "wrong") in claiming an invention that is implemented in software. This may even encourage more such patents to be filed.

One further factor that will also affect the valuation of the patent is the court's comments that the claims "did not purport to improve the functioning of the computer itself", nor "do they effect an improvement in any other technology or technical field". This language is consistent with the European Patent Office's standard rejections for computer-implemented inventions that are deemed not to meet the EPO's tests for patentability. We seem to be seeing a convergence in thinking on what constitutes an acceptable patent for a computer-implemented invention in the US and in Europe. Another uncertainty factor in valuing software patents is being eliminated. The debate probably is not yet over. No doubt the legislatures in Europe and in the United States will be called upon "to take action" and "defend our rights". That will require greater hurdles than persuading nine judges to declare a whole gamut of ip rights to be null and void.

Technorati Tags: US Supreme Court, Software Patents

Software Patents: a Convenient Misnomer for those who Seek to Expropriate IP

In this, the seventhin his series of posts for IP Finance, Keith Mallinson (WiseHarbor) reviews the recent history of software patent protection and the challenges made against it, concluding that the patent system is here to encourage investment in innovation by helping enable inventors to make a return on their risky investments and arguing that there is no evidence that patent systems are stifling innovation where inventions are implemented in software.

You can follow Keith on Twitter @WiseHarbor.

Software Patents – a Convenient Misnomer for those who Seek to Expropriate IP 

It makes no sense to disqualify innovative technologies from patentability or limit the rights and remedies associated with those patents on the basis they can be implemented in software on general purpose processors rather than only on dedicated hardware. The “software patent” debate is largely a battle of ideology and business models between those who develop patented technologies that can be implemented in software and implementers who would rather not pay for the privilege of using others’ IP. I focus exclusively on technologies in this article because a large and rising proportion of manufactured products are increasingly software defined. Patentability for “business methods”, such as financial trading algorithms, while also contentious, is an entirely different matter. 

Generosity at others’ expense 

Google has made itself popular from the promise of free software with its Android smartphone operating system (OS) and WebM project with VP8 coder-decoder (codec) for video and Vorbis codec for audio. This promise is as in free beer (i.e., something for no payment) rather than merely free speech (i.e., being allowed to say what you like). The proposition obviously seems very appealing to many implementers, including software developers and device manufacturers, who like the idea of getting something for nothing. 

However, this proposition is tricky because many software programs infringe the unencumbered rights of IP owners who justifiably do not wish to give away the fruits of their labour for nothing. In Free and Open Source Software (FOSS) the “free” refers to the freedom to copy and re-use the software, rather than to the price of the software. A fundamental requirement with Open-Source Software (OSS) is that “licenses shall not require a royalty or other fee”. 

Whereas these licences generally require licensees to contribute their patented and copyrightable works royalty free, that is far from sufficient to ensure (F)OSS implementations will actually be completely free of charge to licensees. FOSS licenses are private contractual orderings that have no impact on the obligations of those IP holders outside any given contract’s reach.  Many IP owners decide not to sign away their rights in (F)OSS licenses and others may be oblivious for a long time that specific (F)OSS software programs are infringing their rights. Despite efforts to prevent (F)OSS programs infringing un-liberated IP (that is, IP held by third parties outside the reach of the FOSS license), it is impossible to ensure this will not occur – particularly with respect to patents. 

 (F)OSS licensees may be found by courts of law or agencies such as the U.S. International Trade Commission (ITC) to be wilfully or otherwise infringing IP, with resulting legal costs, financial damages awards and even injunctions or exclusion orders preventing them from selling their products. Some of these licensees might not have expected this due to misleading statements from (F)OSS proponents and given that patent infringement was typically not a problem with packaged software, sold under license from the likes of Microsoft, that has prevailed for decades on PCs and elsewhere. Indemnities – derived from cross-licensing among various IP owners and commonly provided to licensees of proprietary software – are rarely available or as extensive with (F)OSS.  In fact, attempts by either IP owners or FOSS distributors to enter into license agreements with third party IP holders have often been deemed antithetical to the FOSS movement (or event in conflict with the terms of FOSS licenses) and so they have, until recent months, been the exception rather than the rule. 

 Until very recently, Google appears to have provided little or nothing more than rhetorical support for its beleaguered Android licensees who are signing patent licenses or being sued for infringement or by proprietary software providers Apple with its iOS, Microsoft with Windows Phone and others. On the receiving end of the onslaught are HTC, Samsung and others implementing this open source OS. Perhaps Google will assist in various counter-suits following its recent purchase of 1,000 patents from IBM and acquisition of Motorola Mobility with a trove of 17,000 patents. 

 Free riders infringe 

Tensions are running high between IP owners and those who shun paying patent fees for anything implemented in software including standards-based technologies. Already 12 patent owners have joined discussions to create a pool to collect royalties from those that implement the VP8 video codec standard. VP8 is based on technology developed by the Google acquisition On2 for its WebM project. This is purported to be completely royalty free (5^th September 2011):

“Some video codecs require content distributors and manufacturers to pay patent royalties to use the intellectual property within the codec. WebM and the codecs it supports (VP8 video and Vorbis audio) require no royalty payments of any kind. You can do whatever you want with the WebM code without owing money to anybody.”

Whereas there is no reason to prevent VP8 being developed free of any copyright or patent fees to any of its developers who agree to such terms, the codec is most likely infringing the patents of these 12 and many others. Non-assert provisions in VP8 licensing anticipate that Google has essential patents --and licensees might too. Different, independently developed, programs will likely not infringe software copyrights, where code is not copied, but all codecs implementing a given standard will infringe the same set of patents that are essential to that standard. Software developers, by definition, cannot design around essential patents when implementing a standard. Similar (or “competing”) standards may well have common technologies among them which are also covered by the same patents. This is particularly the case in Codec algorithms, which represent cumulative technological developments made over many years, including many players and at substantial costs. Different codec standards setting organisations (SSOs) can try to design around patents in formulating their standards. While this is possible to some extent, it is difficult, and impossible to eliminate all infringements while also seeking to achieve high-performance functionality exploiting latest technologies. In some cases, SSOs might not even be aware of some patents their standards are infringing.
 MPEG LA licenses the H.264 video codec extensively. More than one thousand licensees have agreed royalty terms compensating 28 different licensors through a patent pool. These fees are due even where the software program implementing the codec is subject to royalty free copyright licensing, as is the case with the x264 – “a free software library and application for encoding video streams into the H.264/MPEG-4 AVC format, and is released under the terms of the GNU GPL [a royalty free licensing agreement]”. 

 With other codecs reading on hundreds of patents and significant similarities among codecs, it is also most likely VP8 infringes some of the patents that are also infringed by other video standards including H.264. The question is simply how many patents and which of them are infringed? 

 Changing the rules  

Meanwhile, the patentability of any technologies and algorithms implemented in software are being significantly challenged with lobbying to policy makers around the world. 

Those who argue against “software patents”, including some absurd and unsubstantiated claims, seek to invalidate issued and pending patents associated with, for example, smartphone features and video codec standards. Others have suggested that the perceived problems with “software patents” could be remedied by requiring that those patents be licensed on a royalty free basis in certain contexts (i.e., in standards). The fact that many standards-essential and other technologies implemented in software infringe numerous different patents, rather than typically just a few patents in a drug or simple mechanical device, is no justification to deny any patent rights at all. A combination of bilateral (i.e., cross licensing) and multilateral arrangements (i.e., with patent pools) can be used to negotiate rates and collect payments efficiently. The average aggregate royalty for video codecs on a DVD player is just a few dollars and aggregate standards-essential patent licensing on mobile phones rarely costs more than 10% of the wholesale product price. Moreover, the unsubstantiated claim that FOSS developers are prohibited by the terms of FOSS licenses from paying these royalties has been debunked and shown to be little more than an attempt by certain implementers to gain business model advantage. 

Processors and software in everything  

The products and services we all use every day are increasingly software defined and computer-intensive as microprocessors are included in many different manufactured items. Software predominantly implements the innovative algorithms for a wide variety of technological functions; from touch screen scrolling and bar code reading to turn-by-turn navigation. Just a few of numerous and varied examples also include anti-lock brakes, eco-friendly air conditioners, medical equipment, programmable lathes and toys. 

The existence of microprocessors and computers over the last 30 years has fostered a marketplace for downstream development of computer programs performing a wide variety of functions with relatively low barriers to entry. For example, there are thousands and thousands of smartphone application developers.  Many of these set themselves up with just a computer and a few software tools in their sitting rooms or dormitories. 

Computer technologies with general purpose processors are increasingly substituting for application-specific designs. In some cases, state-of-the-art general processors make it possible to implement technologies (e.g., radio interference reduction, video compression or touch screen gesture recognition) significantly in software, in comparison to the more hardware-specific implementations such as with Application-Specific Integrated Circuits (ASICs) that were once required.  Mobile communications protocols including GSM, HSPA and LTE can now be implemented in Software Defined Radios (SDR)s. SDRs are already commonplace in network equipment and increasingly in terminal devices such as phones and dongles. Similarly, whereas older codec implementations were significantly in hardware with dedicated signal processors and hardware accelerators, it is now possible to implement these in general processors with customised hardware and accelerators being used mostly for high-end devices. 

Substituting software for hardware implementations of a given radio or codec technology is a design decision driven by considerations on feature performance, power consumption, heat dissipation, semiconductor die size, time-to-market and fixed versus variable manufacturing cost structure.
The speed, ease and low costs of coding in software— rather than having to design and fabricate dedicated hardware— does not negate the innovative steps, substantial costs and risks entailed in developing new ideas and technologies, regardless of their means of implementation. For example, development of anti-lock brakes requires lab work and drive testing under various conditions and medical instrumentation techniques (e.g., measurement of oxygen saturation in the blood) requires lab work and extensive clinical trials. Algorithms are first conceived, then modified and refined to improve performance, reliability and safety on the basis of this work. Software just happens to be an efficient and effective way to implement. 

What is patentable?  

So-called “software patents” do not actually depict software per se: instead they describe algorithms and processes that can be performed by a programmed computer. It is such computer-implemented techniques— not the software itself—that can be eligible for patent protection. 

 In Information and Communications Technology (ICT), it is the underlying useful, novel and non-obvious techniques that can be implemented in hardware or software to perform real world functionality—such as in radio communication, audio noise reduction, video encoding, and touch screen operation—to name just a few possibilities —that are potentially patentable. To be patent-eligible in the U.S., generally, a claimed method must involve a machine or a transformation of an article—that is, it must describe a series of steps that use physical means to produce a result or effect in the physical world. All the above examples and many other technical processes do just that – whether they are, or could be, implemented in hardware or software. 

  In 2002, the European Commission proposed a Directive on the patentability of computer-implemented inventions, but the European Parliament rejected the final draft with the result that national laws were not harmonised. The European Patent Office, which generally adapts its regulations to new EU law, has no reason or incentive to modify its practice of granting patents on certain computer-implemented inventions, according to its interpretation of the European Patent Convention and its implementing regulations. 

 Copyrights protect software owners from having their programs duplicated, but this does not prevent reverse-engineering of software-implemented innovations. Similarly, it is increasingly possible to implement previously hardware-based functions such as radio modems and video codecs on more general processors such as SDRs and with software-based rather than hardware-based graphics accelerators. It would be nonsensical to disqualify patented innovations from protection, simply because independent advances in processor and software technology make the former implementable on general purpose processors as well as dedicated hardware. 

 Openness and patents in standards 

Whereas some assert that open standards should be royalty free, the International Telecommunications Union defines open standards, among other factors, as follows: 

"Open Standards" are standards made available to the general public and are developed (or approved) and maintained via a collaborative and consensus driven process. "Open Standards" facilitate interoperability and data exchange among different products or services and are intended for widespread adoption. 

Intellectual property rights (IPRs) – IPRs essential to implement the standard to be licensed to all applicants on a worldwide, non-discriminatory basis, either (1) for free and under other reasonable terms and conditions or (2) on reasonable terms and conditions (which may include monetary compensation). Negotiations are left to the parties concerned and are performed outside the SDO [standard- development organisation]. 

There are numerous open standards. However, IP policies differ widely among standards-setting organisations (SSOs). A relatively small number of SSOs have IPR policies that require participants to license essential patent claims on a royalty-free basis, but this can only bind those who elect to join those organisations and so standards implementers can be exposed to IP infringement claims by non-members. Most SSOs including those for mobile communications, video and audio codecs accept that patent owners can license their IP on a (Fair), Reasonable and Non-Discriminatory basis, including a royalty. 

For example, H.264 is open in the sense that the specifications are freely available from a copyright perspective. One can distribute an implementation of H.264 freely as long as one abides by certain terms. However, implementers of the H.264 standard are required to pay patent royalties. 

Software is no exception 

There is no good reason to abandon the widespread practice of allowing patents on technologies that are implemented in software. The patent system is there to encourage investment in innovation by helping enable inventors to make a return on their risky investments. There is no evidence that patent systems are stifling innovation where inventions are implemented in software. On the contrary, innovation continues apace in ICT, as illustrated by the rapid development and extensive adoption of smartphones and video encoding technologies, to name just two from among numerous examples, as I have explained in my previous articles with IP Finance.

Software Patents: Are They the Real Threat to the Smart-Phone Industrry?

It is seldom that I focus on a Letter to the Editor. But I cannot resist the letter from Joshua Bloch, who is identified as Chief Java architect at Google, which was published in the November 6 issue of The Economist. The background to Mr Bloch's letter was an article that appeared in the October 23 issue of the same magazine. Entitled "The Great Patent War: Smart-Phone Lawsuits", here, the article discussed the various strands of the increasing reliance on patent litigation by the various actors in the smart-phone industry. So first a word about the article.

The article pointed to the change of the composition of patent litigants in this space, changing from patent trolls and patent owners from other industries (e.g., Kodak) to the handset manufacturers and developers of software for the smart-phone industry (e.g., Microsoft, Nokia, Apple and HTC). If all the various patentees with a possible claim with respect to the smart-phone industry check in with a lawsuit, we could reach the situation described by sometimes IP- skeptic professor Josh Lerner of the Harvard Business School, whereby '[i]f 50 people [each] want 2% of a device's value, we have a problem."

Not for the first time, Google's position would appear to be idiosyncratic, because its business model focuses on making its Android software available to manfaucturers for free, and then garnering revenues through advertising activities by users of the smart-phones. As such, Google may be a less appropriate object for suit because, in the words of the article, Google "will be hard to pin down. Google does not earn any money with Android, which makes it difficult to calculate any potential damage awards and patent royalties" -- although, as also noted, Oracle has filed suit against Google regarding the use of Java by the Android system (for more on this lawsuit, see here and here .)

My immediate interest is not to comment on the article itself, but to focus on the letter from Mr. Bloch, who wrote as follows:

"Your article on the patent wars in the smart-phone market left out one key player: the consumer ("The great patent battle", October 23). The flourishing competition among mobile platforms, devices and applications directly benefits consumers. In contrast, exploiting vague software patents to try and block open-source innovation neither helps consumers nor promotes the development of new technologies.

Innovation and competition, not ligitation, are the keys to providing the new generation of products and services that is changing the lives of billions of people around the globe."

So what do we make of these comments? Let me suggest the following:

1. Mr. Bloch's comments refer only to software patents. I am bit puzzled about this.
If Google's interest is promoting "innovation and competition [that] are the keys to providing a new generation of products and services" on behalf of consumers, should not his concern be with the applicability of the patent system generally in the context of a product and eco-system such as the smart-phone industry? After all, to recall Prof. Lerner's concern, it does not matter what party of the smart-phone device--hardware or software--is subject to the "50 times 2%" nightmare. Lockup is lockup, and 100% is 100%, whatever the source.

2. Indeed, judged by his silence, Bloch's implication seems to be that that patents are okay, and may even contribute to innovation, unless they are being employed against open-source (read Android) software. After all, doesn't Google also own patents in various areas? As long as the patent owners are suing the makers of smart-phone manufacturers and, presumably, developers of proprietary operating software for smart-phones, such as Microsoft, innovation and competition are fine. It is only when "vague software patents" are brought to bear against the open-source community that there is reason for concern.

3. We understand why Google is better off if no one person controls the smart-phone operating system in the manner in which Microsoft controlled the operating system for the PC world. With no single person able to control the operating system, the source of profts in the smart-phone industry can be enjoyed by others, including Google, it as the leading purveyor of online advertisements.

4. There is nothing wrong with Google, or any other person, earning profits in the smart-phone space. What is a bit troubling, however, is the attempt is to couch one's business model within an appeal to consumer welfare, competition and innovation. After all, even if we solve Google's problem and free its operating software from the threat of software patents, we still have the proverbial 50 other patentees, each still seeking to obtain its 2% interest in the device. If Google really wants to contribute to consumer welfare, competition and innovation in this industry, it should offer a solution for that problem.