Should Patent Protection Be Considered for Computer Software-Related Innovations? by ´ Elo¨ıse Gratton* I. INTRODUCTION The twentieth century witnessed the development of more significant scientific and technological advances than any other period in history.1 In today’s society computer-related technologies, including software, are at the forefront of change. But at the beginning of the computer age the computer industry overlooked software in favor of more-valuable computer hardware.2 The question of software patentability arose during the 1960’s and the early 1970’s, when the prevailing view of computer suppliers was that software should not be protected by copyright or patent.3 The industry believed that a system allowing the free exchange and availability of computer programs might stimulate the computer hardware trade.4 Computer manufacturers have come to realize, however, that inventions in all areas of technology, including software, need patent protection.5 There is an ongoing debate between those opposed to and those in favor of software patents. A patent is a grant formalized by an official document issued by the U.S. Government, or a foreign government, that has the attributes of personal property.6 The intent of the patent system, which is rooted in the Constitution, is to promote the advancement of science and useful arts.7 The patent system achieves this goal by granting limited exclusive rights to inventors in return for public disclosure of inventions that would encourage scientific and technological advancement.8 A computer program, or software, is a “set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result.”9 A software-related patent *

The author is an attorney at the law firm of MENDELSOHN in Montreal, Canada.

1.

Jim Keon, Computer Program and Semiconductor Chip Protection: Legislative Progress in Canada, 3 C.I.P.R. 230 (1986).

2.

Raymond Trudeau, Software Patents, 9 C.I.P.R. 234 (1992).

3.

Achmed N. Sadik, An Update on Patent Protection for Computer Related Technology in Canada and the U.S.A., 5 C.I.P.R. 41, 41 (1988).

4.

Id.

5.

Trudeau, supra note 2, at 234.

6.

David R. Syrowik & Roland J. Cole, The Challenge of Software-related Patents (1994), available at http://www.spi.org/primover.htm (last visited Aug. 28, 2002).

7.

Id.

8.

Id.

9.

17 U.S.C. § 101 (2000).

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is a “patent that claims as all or substantially all of its invention some feature, function or process embodied in a computer program that is executed on a computer.”10 A major subject of debate is whether software alone, not in combination with other physical elements or steps, should be, or is, patentable.11 Many countries, including several in Europe, are reluctant to grant patents for computer programs for the fear that technological progress in this volatile industry will be impeded.12 The United States and Japan, following the principles of rewarding inventors and perpetuating the industrial tradition, have expanded the scope of patentability to software in the past ten years.13 Furthermore, both countries expanded the scope to the services sector and mathematics on the belief that services based on software are a major economic sector.14 The topic of patents for software-related inventions is a very technical and complicated area. There have recently been many discussions and heated debates on the subject, including: using the patent system to protect software; analyzing the business and administration issues related to software patents; the need for such protection; and the positive and negative aspects of system favoring software patents. This paper will summarize the pros and cons of a system that would promote patents to protect computer software and will propose an alternative solution that would incorporate the best aspects of both systems. A. North American and European Legal Framework In North America, the United States in the past ten years has expanded its scope of patentability to include software.15 But Canada, like Europe, has excluded software from patent protection, despite having previously granted software patents that were very similar to the U.S. patents in the past.

10. Syrowik, supra note 6, available at http://www.spi.org/primsrpa.htm (last visited Aug. 29, 2002). 11. Robert H. Barrigar, Legal Protection of Software from Unauthorized Use: Proprietary and Contractual Rights, 30 C.P.R. (2d) 159, 162 (1977). 12. See generally Jean-Paul Smets, Stimulating Competition and Innovation in the Information Society – Patent or Sui Generis Right: What Protection Should be Considered for Software and Other Intangible Innovations? (Mar. 23, 2001), available at http://www.pro-innovation.org (Europe’s positive law forbids patents on computer programs). 13. Id. 14. Id. 15. Id.

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1. Canada In 1970 the Canadian Commissioner of Patents, in a notice to the profession, took the position that before a patent was to be granted, it had to satisfy a series of patentability criteria, including a requirement that the invention could not be “for a computer program, an algorithm or a set of instructions to operate a computer.”16 Regarding this issue, the Canadian Patent Act defines “invention” as “any new and useful art, process, machine, manufacture or composition of matter, or any new and useful improvement in any art, process, machine, manufacture or composition of matter.”17 The Act also provides that no patent shall be issued for “any mere scientific principle or abstract theorem.”18 This means that software related patents should not be granted in Canada since software is effectively treated as “algorithms.” Algorithms are defined as “a set of rules or processes for solving a problem in a finite number of steps.”19 Because algorithms are abstract theorems, patents should not be granted for software.20 In Schlumberger Canada Ltd. v. Commissioner of Patents, a Canadian court considered whether computer programs and related claims were patentable.21 The Appeals Court emphasized the fact that there was nothing new in using computers to make calculations of the kind prescribed by the specification in this case and surmised that even if a program can do sums faster than an unaided human, it would not make sums patentable even if useful data resulted.22 In Re Application for Patent No. 178,570, more commonly referred to as the “Securities Valuation System Case,” the Patent Appeal Board affirmed the Examiner’s final refusal of a patent application relating to a system used to compute and display the current value of an investment portfolio, using a general purpose central computer, a database, telephone lines, suitable sub-programs and an overall central program, on the basis that the

16. Notice to the Profession, Office Notice, Non-Statutory Subject Matter, Section 2(d) of the Patent Act, 4 C.P.R. (2d) 24, 26 (1970). 17. The Patent Act, R.S.C. 1985, c. P-4, § 2 (Can.). 18. Id. at § 27(8). 19. DAVID VAVER, INTELLECTUAL PROPERTY LAW COPYRIGHT, PATENTS, TRADEMARKS 129 (Irwin Law 2000). 20. Re Application No. 096,284, 52 C.P.R. (2d) 96, 100 (1978) (Patent Appeal Board & Commissioner of Patents). 21. Schlumberger Canada Ltd. v. Comm’r of Patents, 56 C.P.R.(2d) 204 (1981) (The patent disclosed a process whereby measurements were recorded on magnetic tapes, transmitted to a computer program according to a mathematical formula, and converted by a computer into useful information including charts, graphs, etc.). 22. Id.

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subject matter was computer programs.23 Nevertheless, the Board decided in Re Application No. 096,284 to allow patents for a computing apparatus programmed in a novel manner, where the patentable advance was in the apparatus itself, or for a method or process carried out with a specific novel apparatus devised to implement a newly discovered idea.24 A 1981 U.S. decision allowed a patent for a rubber-curing process that depended on the computerized application of a known algorithm.25 The Canadian Patent Office accepts this reasoning when a real change in a tangible thing, not just the production of information, results.26 Thus, in Re Application for Patent of Tokyo Shibaura Electric Co., the Board deemed patentable a computerized method of controlling the operation of an industrial plant.27 Still, the Canadian Patent Office has yet to formally change its policy. In February 1995, in the wake of the new U.S. ruling, the Canadian Patent Office issued new guidelines, reaffirming its earlier position: (1) Unapplied mathematical formulae are considered equivalent to mere scientific principles or abstract theorems which are not patentable under section 27(8) of the Patent Act. (2) The presence of a programmed general purpose computer or program for such computer does not lend patentability to, nor subtract patentability from, an apparatus or process. (3) It follows from (2) that new and useful processes incorporating a computer program, and apparatus incorporating a programmed computer, are directed to patentable subject matter if the computer-related matter has been integrated with another practical system that falls within an area which is traditionally patentable. This principle is illustrative of what types of computer-related applications may be patentable, and is not intended to exclude other computer-related applications from patentability.28 Despite these guidelines, the Canadian Patent Office has granted patents related to computer software that are similar to those granted under the recent U.S. policy.29

23. Re Application for Patent No. 178,570, 2 C.P.R. (3d) 483, 484 (1983) (Patent Appeal Board & Commissioner of Patents). 24. No. 096,284, 52 C.P.R.(2d) at 100. 25. Diamond v. Diehr, 450 U.S. 175, 188 (1981). 26. See No. 178,570, 2 C.P.R. (3d) at 487. 27. See Re Application for Patent of Tokyo Shibaura Elec. Co., 7 C.P.R. (3d) 555, 561-62 (1985) (Patent Appeal Board & Commissioner of Patents). 28. Canadian Patent Office Record, Vol. 123, No. 8 at 11, February 21, 1995. 29. See VAVER, supra note 19, at 130.

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2. United States The U.S.Code defines inventions that are the proper subject matter of U.S. patents as follows: “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.”30 Not all “inventions” are patentable in the U.S. because neither a mathematical formula nor an algorithm for making mathematical computations or conversions can be patented.31 Also excluded from such patent protection are “laws of nature, natural phenomena, and abstract ideas.”32 An idea in and of itself is also not patentable.33 The implication is that any mathematical procedure is akin or identical to a law of nature, which leaves doubt as to whether any computer-implemented inventions are patentable. Following the decision in In re Freeman,34 the U.S. Patent and Trademark Office (“USPTO”) applies a two-step test—which was further refined in In re Walter35 and in In re Abele36 —to determine whether a particular invention is patentable. The first step is a determination of whether the patent claim describing the invention recites elements or steps that are themselves mathematical algorithms.37 If a mathematical algorithm is not present, patent protection may be the proper vehicle of protection if the other statutory requirements are met.38 If a mathematical algorithm is present, a second step attempts to determine whether the claim reciting the mathematical algorithm relates or applies, in a non-trivial fashion, the algorithm to physical elements or process steps, so that the claim as a whole must be analyzed.39 In 1981, the U.S. Supreme Court clarified that computer technology should not be treated differently from other technologies under the patent law and that inventions involving a computer program can be the proper subject matter for protection by U.S. patents.40 Furthermore, the Federal Circuit in In re Alappat held that software has the power to convert a general purpose computer into a special purpose machine, which constitutes patentable sub30. 35 U.S.C. § 101 (2000). 31. See Gottschalk v. Benson, 409 U.S. 63, 71-72 (1972). 32. Diamond, 450 U.S. 175, 185 (1981). 33. Rubber-Tip Pencil Co. v. Howard, 87 U.S. 498, 507 (1874). 34. 573 F.2d 1237, 1245 (C.C.P.A. 1978). 35. 618 F.2d 758, 767 (C.C.P.A. 1980). 36. 684 F.2d 902, 907 (C.C.P.A. 1982). 37. Freeman, 573 F.2d at 1245. 38. Walter, 618 F.2d at 767. 39. Id. 40. See Diamond, 450 U.S. at 187.

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ject matter.41 It is interesting to note that software-related patents have led to the award of very significant damages. In Stac Electronics v. Microsoft Corp., for example, the parties ended up signing a broad cross-licensing agreement after a federal jury in Los Angeles awarded Stac $120 million for patent infringement and Microsoft $13.6 million for trade secret misuse.42 In recent years and since the 1981 decision, the USPTO has granted rapidly increasing numbers of patents for software-related inventions. By some counts, some 10,000 software patents had been issued in the U.S. at the end of the eighties43 and as many as 10,000 applications for such patents were pending in the mid-nineties.44 3. Europe Traditionally, software has been protected by copyright and excluded from patent protection in Europe. Article 52(2) of the European Patent Convention excludes “schemes, rules and methods for performing mental acts, playing games or doing business, and programming computers” from patentability.45 These exclusions are made for abstract and intellectual mechanisms, as opposed to useful tangible products or processes. Over the last fifteen years the Technical Board of Appeal of the European Patent Office (“EPO”) has tried to get over this obstacle, almost even to the point of undermining the clear intent of the entire European patent system, but it is still shackled by its current provisions.46 In contrast, the Trade-Related Aspects of Intellectual Property Rights Agreement47 (“TRIPS”), to which the EPO is not a signatory,48 has abandoned the exclusion of computer programs from patentability. Article 10(1) 41. In re Allapat, 33 F.3d 1526, 1545 (Fed. Cir. 1994). 42. Mike Hofman, Patent Fending (Dec. 1, 1997), available at http:// www.inc.com/magazine/19971201/1374-print.html (last visited Oct. 9, 2002). 43. Sadik, supra note 3, at 43. 44. Syrowik, supra note 6, available at http://www.spi.org/primsrpa.htm (last visited Aug. 29, 2002). 45. European Patent Convention of October 5, 1973, available at http:// www.european-patent-office.org/legal/epc/e/ar52.html (last visited Sept. 10, 2002). 46. Louis Joseph et al., Kaltons’ Response to the European Commission Consultation Invitation on the Patentability of Software (Dec. 2000), available at http:// europa.eu.int/comm/internal_market/en/indprop/comp/kalton.pdf (last visited Oct. 14, 2002). 47. The TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS AGREEMENT [hereinafter TRIPS AGREEMENT] sets minimal rules for national intellectual property law in order to prevent member nations from using intellectual property as a hidden trade barrier against other nations. TRIPS AGREEMENT, Annex 1C of the Marrakesh Agreement Establishing the World Trade Organization, signed in Marrakesh, Morocco on April 15, 1994, available at http://

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of TRIPS states that “[c]omputer programs, whether in source or object code, shall be protected as literary works.”49 And Article 27(1) suggests that computer programs are as patentable as any other product or process.50 This provision provides that, “[s]ubject to the provisions of paragraphs 2 and 3, patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application.”51 Europe is now considering a change in its positive law to allow the patenting of software and information processing methods that have “technical effects.”52 Since the 1970’s, software in Europe has been protected primarily by copyright.53 Although European positive law prohibits patents on computer programs,54 the EPO is responsible for granting at least 20,000 software patents in the last few years.55 In an effort to revise its software patent policy, the European Commission initiated a public consultation on the subject of patents on October 19, 2000.56 The consultation sought the views of interested parties, the general public, and Member States on the subject of “The Patentability of ComputerImplemented Inventions.” The Commission’s stated goal was to develop a policy that would promote innovation through the possibility of obtaining patents for computer implemented inventions while still ensuring adequate competition in the market place.57 The bulk of responses to the consultation www.wto.org/english/tratop_e/trips_e/t_agm0e.htm (last visited Sept. 10, 2002). 48. It is important to note that, because the EPO is not a signatory to TRIPS, it cannot be forced to adopt the rules of the convention, including the concept that computer programs may be patentable. See Joseph, supra note 46. 49. TRIPS AGREEMENT art. 10(1), available at http://www.wto.org/english/ tratop_e/trips_e/t_agm3_e.htm (last visited Sept. 10, 2002). 50. Joseph, supra note 46 (“The exclusionary provisos under paragraphs 2 and 3 do not exclude computer programs but other things like immoral inventions, medical treatment, etc.”). 51. TRIPS AGREEMENT art. 27(1), available at http://www.wto.org/english/ tratop_e/trips_e/t_agm3c_e.htm#5 (last visited Oct. 14, 2002). 52. Smets, supra note 12, at 54. 53. Id. at 53-54. 54. Id. at 53. 55. PbT Consultants Ltd., The Results of the European Commission Consultation Exercise on the Patentability of Computer Implemented Inventions, Final Report under contract number PRSW/2000/A0-7002/E/98 at 8 (2000), available at http://europa.eu.int/comm/internal_market/en/indprop/comp/softanalyse.pdf (last visited Oct. 14, 2002). 56. Id. at 3. 57. Id.

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came from a petition for a patent-free Europe organized by EuroLinux.58 The results of the consultation indicated that ninety-one percent of the Respondents oppose software patents.59 II. ARGUMENTS AGAINST PATENT PROTECTION Opponents of patent protection for computer software generally support their position with one of three arguments: first, the nature of computer software renders it unpatentable; second, software patents are unnecessary; and third, extending patent protection to software will lead to negative business and administrative effects. A. Nature of Computer Software The nature of computer software is analyzed in evaluating the adequacy of the patent as a protection for these types of inventions. The “mental steps” doctrine, which was developed in the U.S. during the 1970’s60 and has since been abandoned,61 denied patent protection to any process that could be performed in the mind.62 This doctrine was based on the practical embodiment component of patent law and on the principle that ideas cannot be patented.63 Although the “mental steps” doctrine is no longer a barrier to the patent process, certain types of ideas, such as principles of nature, scientific truths, and mathematical formulas, are still unpatentable unless they are a part of an otherwise patentable invention.64 Some opponents of software patents believe that software’s novelty and utility generally reside in its algorithm, not in its physical structure.65 These opponents argue that the algorithm cannot be patented because it is a mathematical formula.66 In addition to its unique mathematical quality, computer software differs from other technology in several ways. Many of the Respondents to the Eu58. Id. “The EuroLinux Alliance for a Free Information Infrastructure is a coalition of commercial companies and nonprofit associations united to promote a vigorous European Software Culture based on open standards, open competition, and open source software such as Linux.” See About EuroLinux, available at http://www.eurolinux.org/about/index.en.html (last visited Aug. 29, 2002). 59. PbT Consultants Ltd., supra note 55, at 4. 60. See, e.g., Application of Musgrave, 431 F.2d 882, 888 (C.C.P.A. 1970). 61. See Freeman, 573 F.2d at 1245 (rejecting the “mental steps” doctrine in favor of the two-step test of patentability); see also Walter, 618 F.2d at 766-67. 62. Andrea F. Rush, Legal Protection of Computer Programs and Data, 2 I.P.J. 261, 264 (1986) (book review). 63. Id. 64. See Walter, 618 F.2d at 765. 65. See id. at 764, n.4. 66. See id.

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ropean Commission Consultation noted that software differs from other areas of technology in terms of its “relative proportions of research, development, production, and distribution costs.”67 The Respondents also indicated that software development is incremental and that software novelty is usually “based on a mixture of original and derived elements rather than a single inventive step.”68 Even if software met the technological criteria for patent protection, such protection would be ineffective because much computer technology has a very short market life. A software program may have a useful life of six months to one year.69 Because a patent is only enforceable after its issuance and because a two to four year period of examination and prosecution in the USPTO may be required before a U.S. patent is issued, the technology will become obsolete before it obtains patent protection.70 Consequently, patents in Canada and in the United States, which are now granted for twenty years, may not be appropriate for a software invention that has a short market life.71 In “slower” industries, the twenty-year patent term allows a company to recoup its costs of research and development, and to make a profit.72 The patented item is likely to be useful to competitors even after expiration of the patent.73 Does a twenty-year patent make sense for an industry that may render itself obsolete within five years?74 B. Patents are Unnecessary Some argue that legal options other than patents provide adequate protection for software-related inventions.75 A relevant body of law continues to emerge in certain jurisdictions as software developers turn to well-known proprietary rights like trade secrets, sanctions provided by the criminal law, and copyright to protect elements of computer software.76

67. PbT Consultants Ltd., supra note 55, at 30. 68. Id. 69. R. Lewis Gable, The Use of Patents with Other Intellectual Property Rights To Protect Computer Technology in the United States, 2 C.I.P.R. 206, 229 (1986). 70. Id. 71. The Patent Act, R.S.C. 1985, ch. P-4, § 44 (Can.); 35 U.S.C. § 154 (2000). 72. Michael Yam, Letters: Patent Polemics, Software Patent Institute Database of Software Technologies, Letters to the Editor, Dr. Dobbs J., May 1992, available at http://openbsd.pe.kr/DDJ_Issue_10/articles/1992/9205/9205p/ 9205p.htm (last visited Sept. 19, 2002). 73. Id. 74. Id. 75. See Keon, supra note 1, at 232. 76. See Rush, supra note 62, at 261.

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One such element, a copyright is a “statutory grant that permits the owner to stop others from making, copying, selling, distributing or publishing copies of or performing or displaying a protected work, or preparing ‘derivative works’ based on the protected work.”77 Another characteristic of copyright is that, “[i]n the absence of some further agreement, copyright does not prescribe the use of a lawfully obtained copy, save for the duplication of that copy.”78 In North America, copyright in a work exists from its creation and endures for a term consisting of the life of the author plus seventy years in the United States79 and the life of the author plus fifty years in Canada.80 In France, the right has no special formality81 and lasts for the life of the author plus seventy years.82 Most commentators seem to agree that software subject matter would already be protected by copyright.83 The claim to copyright in a computer program is based upon a minimum amount of original authorship in the expression or form of the statements or instructions contained in the computer program. Traditionally, a work is deemed original if it is the independent creation of an author. In other words, “[t]he development of software is by nature a creative process, the product of which embodies another process in the form of a procedure, algorithm or method. Copyright has proven sufficient to protect this process.”84 In the past, some commentators have questioned copyright protection for object code, but Canadian decisions have laid this debate to rest by determining that programs are protected in object code.85 The current European view is that copyright protection naturally extends to the human-readable source code of the software.86 In the United States, the Copyright Act clearly

77. Gable, supra note 69, at 225. 78. Id. 79. 17 U.S.C. § 302(a) (2000). 80. The Copyright Act, R.S.C. 1985, ch. C-42, § 6 (Can.). 81. JOANNA SCHMIDT-SZALEWSKI & JEAN-LUC PIERRE, DROIT INDUSTRIELLE 126 (Litec 2001) (in French).

´ E ´ DE LA PROPRIET

82. Code de la Propri´et´e Intellectuelle, Art. L. 123-1 (Fr.), available at http:// www.celog.fr/cpi/lv1_tt2.htm (last visited Aug. 29, 2002) (in French). 83.

See Keon, supra note 1, at 233.

84. PbT Consultants Ltd., supra note 55, at 30. 85. IBM Corp. v. Spirales Computers Inc., 2 C.I.P.R. 56 (1984) (The court awarded an interlocutory injunction to restrain copyright infringement of computer software. The decision supports the view that the program in source code is a literary work, and the object code version is also protected.). 86. See TRIPS AGREEMENT art. 10(1), supra note 49.

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provides protection for software programs so long as they are fixed in any tangible medium of expression.87 Because copyright is actually the preferred form of legal protection of computer software in most jurisdictions, patents may be unnecessary to protect software related inventions. Author Jim Keon, in his publication entitled Computer Program and Semiconductor Chip Protection: Legislative Progress in Canada, discussed this position: The conclusion that traditional copyright protection is most appropriate for computer programs in all forms seems now to be generally accepted in Canada. This arises from the fact that the extent of protection provided by copyright is limited to the expression rather than the ideas contained in the program. Indeed a fundamental principle of copyright protection is that it does not extend to ideas or information but merely the form of expressing those ideas. Copyright protection for computer programs for the traditional term of copyright now appears to be the international norm.88 There are other advantages to using copyright for the protection of computer software: namely, the relative ease and low cost of obtaining protection.89 Though registration of a work is required to bring suit, protection generally begins upon “fixation of the work in any tangible medium.”90 Also, contrary to the costs associated with patent applications, the cost of preparing an application for copyright registration, either as a published or unpublished work, remains relatively low.91 The Copyright Office provides copyrightworthiness examinations rather quickly, typically requiring only one-and-ahalf to three months before a Certificate of Registration is issued in the U.S.92 Moreover, the Copyright Office examination is generally limited to formalities.93 In addition to copyright protection, computer programs can be protected by trade secrecy.94 Traditionally, the computer industry has relied heavily on trade secret and contract law protection against piracy.95 Trade secrets can be 87. See Accusoft Corp. v. Mattel, Inc., 117 F. Supp. 2d 99, 101 (D. Mass. 2000) (citing Computer Assocs. Int’l, Inc., 982 F.2d 693, 702 (2d Cir. 1992) (The U.S. Copyright Act protects computer programs as “literary works.”)). 88. Keon, supra note 1, at 233. 89. See Gable, supra note 69, at 225. 90. See id. 91. See id. 92.

See id.

93.

See id.

94. See Keon, supra note 1, at 233. 95. Id.

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more effective than patents for the protection of software because many computer programs, which merely adapt an old program to a new use, may be unpatentable since they would be obvious to a computer programmer of ordinary skill in that art. Author R. Lewis Gable, in his article entitled The Use of Patents With Other Intellectual Property Rights to Protect Computer Technology in the United States, explained that the degree of originality required of a trade secret is less than that defined by the test of unobviousness required to obtain a patent.96 A skilled computer programmer might easily understand the instructions for a computer program; nevertheless, the instructions may have a distinctive logic coherence and a value to the owner and competitors that would be sufficient to qualify them as a trade secret.97 Another advantage of using trade secret protection for software related invention is that such protection may last for an indefinite period of time so long as the trade secret’s unique characteristics remain confidential.98 For this reason, a software developer considering obtaining patent protection for a computer program should analyze his particular commercial situation before he elects to proceed, since he may have to consider that an applicant for a patent is obliged to divulge to the Patent Office, and eventually to the public through publication of the ensuing patent, information as to the content of the software, the utility to which it can be put, and more. For this reason, the inventor of the software may be better served by simply exploiting the software as a trade secret rather than divulging it to the public. By obtaining a patent, he may simply be publishing information to the benefit of his competitors, who may otherwise have been unable to obtain the information. C. Negative Effects of Software Patents It appears that the system favoring software patenting as it exists in the United States also has many perverse effects involving business and administrative issues. 1. Business Issues The issues discussed in this section relating to business include: patents are anti open source; patents represent a threat to interoperability and standards; patents promote low quality of patents; and, while favoring large organizations, patents have a negative effect on the economy and innovations. Open source, also known as “free software,” requires source code sharing and publishing of downloadable programs on the Internet.99 Such a sys96. 97. 98. 99.

See Gable, supra note 69, at 224. See id. See id. at 224-25. See Jean-Paul Smets & Hartmut Pilch, Software Patentability with Compensatory Regulation: a Cost Evaluation, II Upgrade Dec. 2001, at 23, 27, available at http://swpat.ffii.org/stidi/pleji/indexen.html (last visited Sept. 11, 2002).

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tem has been called “a key technology to promote innovation, competition, freedom and democracy in the information society.”100 Thirty-three percent of the Respondents to the European Commission Consultation saw the Open Source movement as: beneficial for software development and distribution and claimed that patents were a threat to this movement. Open Source software was seen as being particularly vulnerable to infringement claims due to the ease of analysis of source code as opposed to object code. The open source principle of freedom to improve, amend and extend code was seen as being threatened by patents.101 According to authors Jean-Paul Smets and Hartmut Pilch: [s]oftware patents are not a threat to Free/Open Source developed by companies such as IBM, HP, etc., which constitutes the minority of Open Source/Free Software. Software patents are however a threat to the vast majority of Free/Open Source software which is developed by individuals. A substantial amount of Free/Open Source software has already been taken off the net because of patent threats. Even, in Europe, large corporations have threatened individual programmers. . . . Companies such as Microsoft consider software patents as a strategic tool to fight against Free/Open Source software.102 Others, however, are of the opinion that software patents would be a direct benefit, rather than a threat, to Open Source software. The PbT Consultants’ report points out that in the United States it is in some cases “safer for a company to keep source code secret rather than disclosing it in order to prevent software patent disputes.”103 Furthermore, the report stated that: despite the granting of many tens of thousands of patents for computer-implemented inventions over the last two decades in the United States, Europe and elsewhere, the dynamism and growth of the open source movement in recent years is testimony to the fact that patents are not inimical to the further development of open source software.104 According to some Respondents to the European Commission Consultation, key elements in the success of the Internet have been the interoperability between hardware and software and the cross-network interoperability

100. Id. 101. PbT Consultants Ltd., supra note 55, at 32-33. 102. Smets & Pilch, supra note 99, at 27. 103. PbT Consultants Ltd., supra note 55, at 18. 104. Id. at 36.

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of software.105 Software patents, on the other hand, have inhibited the necessary openness and sharing of information and destabilized the standardization processes.106 It is widely acknowledged that interoperability, which is compatibility of file formats, network protocols and interfaces between competing products, is necessary to ensure fair competition in the software industry.107 In fact, the 1991 Council of the European Communities Directive on the legal protection of computer programs recognized that interoperability is the key to competition in the software sector.108 Software patents may in fact serve to hinder or even completely obstruct interoperability because they allow the creation of monopolies on file formats, network protocols, and interfaces.109 Some Respondents to the European Commission Consultation indicated that software patents encourage object code products instead of source code products.110 These Respondents claimed that source code products tend to be “better” products because users and others are free to develop “bug-fixes” and other improvements; the author of an object code product, meanwhile, is the only person who can correct errors in his code or otherwise develop the product.111 Moreover, it appears that the content of the patent software database is of very low value because the knowledge contained in the software patents is almost always unusable. As a matter of fact, it seems that ninety percent of the software patents granted in the United States are neither new nor inventive and are unusable largely because of part-secrecy tactics.112 According to some commentators, this is because the Patent Offices may not be applying

105. Id. at 30. 106. Id. 107. Smets & Pilch, supra note 99, at 26. 108. See Council Directive 91/250/EEC of 14 May 1991 on the legal protection of computer programs, Document 391L0250, available at http://europa.eu.int/information_society/topics/ebusiness/ecommerce/3information/law&ecommerce/ legal/documents/391L0250/391L0250_en.doc (last visited Sept. 11, 2002). 109. Smets & Pilch, supra note 99, at 26 (For example, Apple Computer was granted an exclusive license on the Sorenson patents on digital video compression, and it was marketing a product called Quicktime which allows a computer user to view digital video compressed according to the Sorenson method on Windows and MacOS only. Other competing products like Real Player, Windows Media Player, KDE Multimedia, and XMMS, could not view digital video compressed this way because of the exclusive licensing of the Sorenson patents to Apple). 110. PbT Consultants Ltd., supra note 55, at 30. 111. Id. at 30-31. 112. Smets, supra note 12, at 51.

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the criteria of novelty and unobviousness properly.113 Jean-Paul Smets suggested, in his article entitled Stimulating Competition and Innovation in the Information Society, that adoption of the U.S. patenting system for software would be unlikely to provide Europe with a suitable vehicle to “promote growth of innovation and move towards a dynamic, independent information society.”114 Another impractical aspect of using patents to protect software is that searching millions of pages of software code to avoid patent conflicts before planning and programming computer code might terminate any effective development. Furthermore, a person who enjoyed a patent on a particularly valuable program may inhibit the use of computers to the disadvantage of both users and manufacturers. Moreover, considering the scope of the monopoly given by a patent, such a form of protection may not be desirable. The creation of any similar programs could be stopped from being developed for twenty years in North America, thereby hampering technological advancements. The effects of patenting on dissemination of technical knowledge are negative on the whole because patenting has led to software source code being kept secret, despite the fact that the source code is the very essence of practical technical knowledge in software.115 The freedom to integrate functions of one piece of software into another, and vice-versa, is the key to innovation in software and software developers will suffer by not being allowed to develop new and unique solutions because they may be dependent upon using a small part of a code that unfortunately is patented.116 Introducing patenting into software would place all software authors and developers in the position of involuntarily infringing patents; the subsequent threat of lawsuits could be fatal to smaller software developers, including innovative ones.117 The risks for small software developers are tremendous, including the possibility of disputes in which they would suffer a great disadvantage to big corporations, not only because of their smaller financial size but also because they do not usually own large patent portfolios, which large corporations use to eliminate litigation risks with their competitors.118 There is also potential 113. Robert Hart, Peter Holmes and John Reid (on behalf of Intellectual Property Institute), The Economic Impact of Patentability of Computer Programs, Report to the European Commission, Study Contract ETD/99/B5-3000/E/106, 1999, at 5. 114. Smets, supra note 12, at 86. 115. See id. at 68. 116. See id. at 73. For example, free operating systems like NetBSD (http:// www.netbsd.org/) and Linux (http://www.linux.org/) have already been struggling with the RSA patent which kept them from delivering compatible security mechanisms out of the box. 117. See id. at 17, 75. 118. Smets & Pilch, supra note 99, at 26.

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for abuse of the software patent system because software patents may result in the promotion of broad blocking patents, widespread filing of trivial patents in the hope that one will hit gold, or waiting until a patent has been widely adopted as a de facto standard before filing an infringement claim, each of which would hamper technological advancements.119 Patent applications are expensive to prepare and file, and patents are expensive to enforce. A complicated computer program would almost certainly cost several thousands of dollars to patent in just one country, and a separate patent application must be prepared and filed in every country in which protection is sought. Furthermore, software patents may be viewed as a potential source of litigation. Some Respondents to the European Commission Consultation expressed concern about the risk of lawsuits to small companies that possess neither the resources nor the expertise to defend themselves legally.120 The law usually provides the successful patent litigant with damages in terms of reasonable royalties and injunctive relief, but injunctive relief is seldom given before the conclusion of protracted and costly litigation involving complex issues of infringement and validity. Because of the associated costs, patents for software related inventions may favor large organizations. Product costs can increase because of a number of factors, including the need to employ lawyers, the need to check for infringements, the payment of license fees, and the cost of indemnity insurance coverage.121 Some believe that the introduction of patents into the software economy increases industrial property assessment, thereby generating an average thirty percent increase in software development costs.122 This extra cost can be very high for a small software developer because it requires new skills and because it includes highly unpredictable risk factors: [a]s a reminder, most packaged software is developed by small teams of developers, typically 1 to 5 engineers. Training existing engineers to industrial property is long and reduces their availability for innovation tasks. Hiring a full time industrial property expert is too costly. Sharing a full time industrial property expert is difficult. Fully outsourcing industrial property is often inefficient thus too expensive. Industrial property is often experienced as a useless burden rather than anything else by small software developers.123 A software developer filing for a software patent hopes that such a patent will prohibit competitors from copying his invention without his consent and that, in principle, it will increase profits sufficiently to cover the ex119. See PbT Consultants Ltd., supra note 55, at 29. 120. See id. at 30. 121. See id. at 34. 122. Smets & Pilch, supra note 99, at 26. 123. Id.

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penses incurred in filing and searching the patent.124 But rather than financing innovation, software patents seem to finance a “litigation economy” based on the filing of questionable or pre-existing software innovations at patent offices.125 Although the software patenting system does not appear to affect the activity of large software developers, it threatens the emergence of small publishers and startups, which are essential for competition and innovation in the software economy and are viewed as the most vulnerable targets: Small innovative publishers lose money on litigation, licenses or patent application costs and earn virtually nothing on their patent. Large developers lose money on filing fees and litigation; however, owing to cross-licensing of software patents, they get free use of the inventions of small, innovative developers which they have obtained in return for stopping their lawsuits against them. Thus large publishers and patent funds act similarly towards small publishers who have no software patent portfolio. The large publishers thus indirectly benefit from the patenting system because they can limit the potential for growth of small competitors.126 Philip Sargent, the Managing Director of Metaweb,127 also confirms that “[t]here is overwhelming evidence that software patent portfolios are used above all as a way of applying pressure during acquisition negotiations, and as a way of eliminating small firms that do not have a large legal department.”128 The fear also exists that large software developers will use their patents as a way to raise financing by using patent infringement lawsuits as a means of raising revenue. On the other hand, it is interesting to note that most of the number of software related patent applications reported for Germany did not come from large developers but from small and medium-sized enterprises (“SMEs”).129 Furthermore, large corporations may not necessarily be those who benefit most from the patent system since it appears that some smaller companies

124. See Smets, supra note 12, at 70. 125. See Smets & Pilch, supra note 99, at 27. 126. Smets, supra note 12, at 71. 127. Press Release, Metaweb, Ltd., Metaweb appoints Philip Sargent as new CEO, available at http://www.metaweb.net/ (last visited Aug. 26, 2002). 128. Smets, supra note 12, at 72. 129. See PbT Consultants Ltd., supra note 55, at 38 (“In 1997: 736 of which 622 were likely to come from SMEs; In 1998: 874 of which 733 were likely to come from SMEs; In 1999: 938 of which 768 were likely to come from SMEs.”).

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that focus entirely on developing patents rather than products are an even better fit for survival in a “patent-cluttered environment.”130 2. Administrative issues There are also many practical difficulties within the Patent Office to consider. First, it is very difficult for a government-employed patent examiner to effectively gauge the novelty or ingenuity of a given program as compared with prior programs. Second, there are serious problems in the enforcement of software patents. First, if software becomes generally patentable there might be an administrative crisis caused by a drastically increased volume of software patent applications. Such an argument has been used to support European countries’ disallowance of software patents. On this issue, Kaltons IT/Internet131 argues that if the U.S. has been able to cope with the increase in applications, so should Europe.132 The real difficulty examiners would face is with respect to technical issues, such as “novelty” and “inventive step,” for software-related inventions.133 Also, because most software technology has traditionally been kept from public view, patent examiners do not have ready access to such technology in trying to evaluate the patentability of a new software-related invention. Accordingly, it is interesting to note that the European Software Patent Database apparently contains a compilation of many “impressively trivial and broad patents.”134 With regard to enforcement, it will often be very difficult for a patentee to know whether a competitor is using his patented program because the computer program, however it may be expressed in patent claim language, is frequently inaccessible.135 Even if the program is accessible, the programming languages used may be different, making correlation with the patented program difficult.136 A great deal of sophisticated analysis may be required, and it may be virtually impossible to tap and identify the transient operations 130. FFII Swpat Workgroup, Political Economy of the Patent System: the Mechanisms of Patent Inflation (Dec. 2000), at http://swpat.ffii.org/stidi/tisna/index.en.html (last visited Aug. 23, 2002). 131. Kaltons Solicitors, About Us, available at http://www.kaltons.co.uk/ (last visited Aug. 29, 2002). Kaltons is a niche e-commerce/IT, IP and property law firm. 132. See Joseph, supra note 46. 133. See FFII Swpat Workgroup, Why are Software Patents so Trivial? (Dec. 2000), available at http://swpat.ffii.org/stidi/danfu/indexen.html (last visited Aug. 23, 2002). 134. Id. 135. See Barrigar, supra note 11, at 166. 136. See id.

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of a computer in processing its program: “[s]ometimes the only effective way of obtaining the knowledge that a competitor is making use of a patentee’s patented program is through the weakness of the human element—someone at a programmer’s convention may, after one too many drink, spill the beans.”137 III. ARGUMENTS

IN FAVOR OF PATENT PROTECTION

Patent protection is desirable from the software developer’s point of view because it affords remedies against the unauthorized manufacture and use of the protected product. The main arguments favoring patent protection of software-related inventions include the evolving nature of software, the fact that patents are necessary, the many positive effects resulting from patents, and the usefulness of patents in the evaluation of a company’s intangible assets. A. Errors in the Reasoning Leading to Non-Patenting Author Achmed N. Sadik, with regard to the U.S. Supreme Court decision Gottschalk v. Benson,138 stated: [t]he. . .Court seemed to imply in its reasoning that. . . any mathematical procedure . . . was akin or identical to a law of nature. That, of course, is not so, and it is more plausible to argue that any mathematical procedure or algorithm is not a discovery of a law of nature that is out there waiting to be discovered, but an invention in a deep sense.139 With regard to the Canadian decision, Schlumberger Canada Ltd. v. Commissioner of Patents,140 the same author stated: Mr. Justice Pratte’s conclusion that “the fact that a computer is or should be used to implement a discovery, does not change the nature of the discovery” is ironic. It is highly likely that, if it were not for the presence of the computer, the patent application would have issued without appeal even to the Patent Appeal Board. This assertion is supported by the fact that numerous patents have issued prior to Schlumberger in the field of active and digital filter technology, where most inventions reside in the devising of mathematical formulas and algorithms. The fact that an algorithm is at the heart of the invention does not make it a mere scientific principle or abstract theory. . . .141 137. Id. 138. 409 U.S. 63 (1972). 139. Sadik, supra note 3, at 42. 140. 56 C.P.R. (2d) 204 (1982). 141. Sadik, supra note 3, at 42.

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It is also interesting to note that Schlumberger left the door open for further development of the Canadian patent system in the area of computer software because the courts never specifically said that computer programs could not be patentable, but simply concluded that computer usage did not render patentable what was initially unpatentable.142 Furthermore, authors Charles W. Kent and Edward Cheung have suggested that the Canadian Patent Office and court system would be justified in looking to U.S. jurisprudence in computer-related technology.143 They observe that the definition of “patentability” in Canada is very similar to its definition in the United States.144 In the Canadian decision In re Waldbaum, the Patent Appeal Board acknowledged the similarity of Section 101 of the United States Code to Section 2(d) of the Canadian Patent Act and relied upon some of the earlier U.S. decisions from the United States Court of Customs and Patent Appeals.145 Finally, some authors attribute software exclusion from patentability to the failure of the European regime to underscore the dual aspect of software.146 With respect to their symbolic nature, programs should be protected by copyright as a type of aesthetic creation, like literary works.147 On the other hand, in their functional capacity, or the way that they behave, it may be more appropriate to protect programs as types of industrial property.148 B. Patents are Necessary Patents are necessary because other forms of protection may be inadequate vehicles for the protection of computer software-related inventions. The main argument promoting patents for the protection of software-related inventions is that, in contrast to the protection provided by copyright registration or trade secrets, patent protection is not disturbed by independent conception or reverse engineering of the claimed invention by a third party at a later date. Since the selection of the appropriate legal mechanism for the protection of the computer technology is dependent upon its usage and marketing objectives, an analysis of software’s use and marketing objectives is critical for any software developer. The U.S. Copyright Office has insisted, in cases of computer programs, that the source code be submitted, with the application, as the deposit copy to 142. See Schlumberger, 56 C.P.R. (2d) 204. 143. Charles W. Kent & Edward Cheung, Patent Protection in Canada for Computer Related Technology, 3 C.I.P.R. 249 (1987). 144. See id. 145. See id. (citing In re Waldbaum, 5 C.P.R. (2d) 162 (1971)). 146. See Joseph, supra note 46. 147. See id. 148. See id.

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permit its examination for authorship.149 A copyright examination, contrary to a patent examination, would not include a comparison with the operation or logic of prior programs.150 Patenting may be a better way of protecting software because it prevents copying as well as independent creation, which is a defense to a charge of copyright infringement.151 Additionally, the burden to prove infringement, which is a fundamental distinction between copyright and patent protection, is different. To prove patent infringement, it is necessary to show that the defendant has used, manufactured, or sold the software in question.152 To prove copyright infringement, on the other hand, it is necessary to show that the defendant has in fact copied the work from the owner of the copyright.153 It may be interesting to note that the case law is presently unclear as to what constitutes “substantial similarity” between the copy and the original program with regard to copyright infringement. As a result, caution should be taken to demonstrate independent development of a copyrighted program. Upon releasing a program with only the copyright laws as protection, a software developer may have potential competitors with more financial resources, who would be able to quickly rewrite the new software using the developer’s unprotected concepts. It is Kaltons’ view that copyright law does not protect the owners of software completely: In the development of intellectual property law, aesthetic creations (e.g., literary and artistic works) have traditionally been protected by the law of copyright on the basis that copyright’s main purpose is to encourage and reward original and creative works. While the protection of copyright is extensive and welcome, it does not protect the owners of software completely. For example, it is easy to ascertain the latent ideas and “copy” these without literal copying of any of the code used in the original. In this context, patent protection would clearly be welcome. This is because patent grants its holder monopoly protection against reproduction of the novel ideas that copyright simply does not protect.154 Another problem, raised by author Robert G. Howell in his book review of Computer Law: Acquiring and Protecting Information Technology, is that,

149. See Gable, supra note 69, at 225. 150. Id. 151. See Jonathan Rosenoer, Software Patents, CyberLaw (Aug. 1994), available at http://www.cyberlaw.com/cylw894.html (last visited Aug. 20, 2002). 152. See Barrigar, supra note 11, at 170. 153. See id. 154. Joseph, supra note 46.

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in some cases, a technology may fall outside the scope of the definition of “computer programs” in the Copyright Act.155 Trade secrecy also has important limitations when used as a means of protection. Primary among these is the requirement to impose strict corporate security measures, which would require the use of reasonable physical protection to prevent access to the computer technology as well as suitable written agreements with employees, licensees and others. In the case of software programs, access to the programs’ memory would have to be guarded at all times. Proprietary or confidential notices would have to be placed on all copies of the software program, user manuals, or other supporting documentation. Furthermore, trade secrets may not be suitable for protecting ownership in widely-distributed programs; considering the impossibility of simultaneously keeping the secret and selling the computer programs to the public, much of the computer technology cannot be kept hidden. Some believe that great research laboratories do not operate on the basis of secrecy but on openness; intellectual property protection allows such openness to flourish.156 Another argument that trade secret protection may not be suitable for software is that the law of trade secrets encourages independent development. For this reason, as long as the new developer uses fair means to gain access to the trade secret the owner has no recourse against such independent development. Finally, in a system without software patents, the developers who do not want their technical knowledge to benefit competitors can keep their software source code secret. But if the source code is not available, this may be harmful for the consumer—it would be impossible for a consumer to correct faults or to have them corrected by a third party. With the introduction of patents, a software author could publish the source code without jeopardizing its industrial secrecy. As previously mentioned, in order to be patentable in Canada, the subject matter must not lie within the computer program itself. If the computer technology is used as a means to achieve the end result, this fact should not prevent patentability of the subject matter.157 The language of a computer program is not patentable per se, so lawyers are drafting claims that do not look like a computer program: Legislating computer software outside the ambit of the patent system may be easier said than done. Those of us who spend some of our time drafting patents for a living might be inclined to say in 155. Robert G. Howell, Computer Law: Acquiring and Protecting Information Technology, 7 I.P.J. 101, 107 (1991) (book review). 156. Wharton School of the University of Pennsylvania, Patents: A Necessary Evil, CNET News.Com (Jan. 5, 2002), available at http://news.com.com/2009-1001801896.html (last visited Aug. 29, 2002). 157. See Barrigar, supra note 11, at 164.

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response to any such legislative measure that “we have our ways” of avoiding at least some of the adverse effects of any such legislation. Applicants for patents have actually been sneaking software applications past patent examiners, under the guise of hardware, for a long time, and there is no reason to suppose that this will not continue. After all, there are many different ways of claiming software. . . . It may therefore be possible for a patentee who obtains an appropriate set of claims which read upon a special-purpose hardwired computer, to assert his patent against the user of a general purpose computer programmed to achieve the same result. It may be rather difficult for legislation to be effective which will prevent a patentee from doing so.158 As author Raymond Trudeau outlined in his article entitled Software Patents, patent agents must continue the practice of drafting claims that do not look like computer program claims, forcing them to do indirectly what they are not permitted to do directly, and, at the end of the day, what they get is not necessarily good protection.159 C. Positive Effects of Software Patents Software patents provide obvious positive effects, such as rewarding the inventors and perpetuating the industrial tradition, the economy, and the legal system. Further, software patents may be useful in the evaluation of other intangible assets. The software field contains great inventions, so it would be natural to patent software in order to reward the work of the inventor. Entire sections of the mechanical and electronic industries are turning progressively into an information technology industry. Following the logic of the industrial tradition, it would seem natural to patent software. Author Robert H. Barrigar suggested that: Those who have argued that computer programs and the like should be patentable have pointed out that the same sort of skill, education and ingenuity is required to generate a new electric circuit, a new mechanical configuration or a new chemical process. The economic justification for granting a monopoly to the first person to divulge the contents of his new ideas to the public in return for a limited monopoly, arguably exists as much for software development as for any other type of useful industrial development. A computer program can be considered as a dynamic ongoing physical process within a computer (during the time it is running) or as the physical identifiable fine structure of a recording medium such as magnetic tape, disc, drum, punched pa158. See id. at 164-65. 159. See Trudeau, supra note 2, at 241.

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per tape or the like. On this rationale, a computer program has every bit as much right to patent protection as any other new and useful industrial development.160 Furthermore, the Respondents to the European Commission Consultation in favor of patenting software-related inventions argued that traditional patentability criteria should apply to software in the same way that it applies to other technologies.161 Howard R. Davis, defending software patents, wrote in a letter to the Software Patent Institute Database of Software Technologies that the countries that have had the best patent systems have been the ones with the most dynamic economies.162 The United States has long been the envy of the world in this regard and has afforded the lone inventor the greatest protection.163 There are very strong economic and commercial reasons why software should be made patentable in Europe. The impact on the attractiveness of a jurisdiction promoting software patents as a base for technology-based businesses, such as the U.S., is the most compelling commercial reason for giving serious consideration to the removal of the general exclusion of software from patentability. Many authors have raised this issue with regard to Europe: On the other hand, we have the far greater fear that the economic interests of the European Union are more likely to be adversely affected by the failure to encourage investment in technology within the EU. We consider the potential negative aspects of allowing software patent to be registered are totally outweighed by the potential benefits, namely in attracting forward-looking, innovative companies to the EU. Given a choice between Europe and another jurisdiction permitting software patents, why would anyone choose somewhere where the reward for their research and development would be exceedingly limited?164 Any country that desires to become more competitive in the world economy wants more business activity with a high content of added value. In order to achieve this goal, each country should create the conditions that will attract talented individuals from all over the world to do research and devel-

160. Barrigar, supra note 11, at 162. 161. See PbT Consultants Ltd., supra note 55, at 7. 162. Howard R. Davis, Letters: Patent Polemics, Software Patent Institute Database of Software Technologies (May 1992), available at http://m.spi.org (last visited Aug. 26, 2002). 163. Id. 164. Joseph, supra note 46.

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opment in the computer software field. The protection afforded by patents definitely provides incentives for research and development. On this issue, author Raymond Trudeau suggested that one such condition to promote international competitiveness in Canada would be a patent system that would be receptive to software inventions—”a system that could treat computer software inventions on an equal footing with all other categories of inventions.”165 Furthermore, Achmed Sadik is of the opinion that, given the size and importance of the U.S. market to Canadian companies and organizations, it is important to advise Canadian clients that computer programs and software are patentable in North America.166 Certainly, Canada does not want to be in the same position as Europe, where many associations believe that the current uncertainty and lack of clarity on software patentability in Europe puts European business at a competitive disadvantage. SMEs may actually benefit from a system in which patents would protect software-related inventions, becfause patents could provide collateral for start-ups and an opportunity for small companies to challenge big ones. Stac Electronics v. Microsoft Corp.167 is an example of an SME gaining substantial compensation by successfully challenging a patent infringement by a mega-corporation.168 Additionally, it would be beneficial to have a uniform legal framework for software patents. A liberalization of the practices of all of the Patent Offices in North America in connection with computer software is in perfect harmony with Article 1709 of the North American Free Trade Agreement (“NAFTA”). NAFTA imposes upon all three signatories the obligation to make patents available “for any inventions, in all field of technology,” subject to three exceptions, none of which are related to software.169 D. Evaluation of the Intangible Assets The protection of intangible inventions by patent answers a need, expressed by the financial world, to be able to evaluate the intangible assets of innovative companies in the new economy. Supporters of computer-implemented invention patents claim that patents are a key element in securing venture capital for software start-ups; nine SME Respondents to the European Commission Consultation, including a consortium of thirty SMEs and Start-ups, confirmed this fact: 165. See Trudeau, supra note 2, at 241. 166. See Sadik, supra note 3, at 43. 167. 38 F.3d 1222 (5th Cir. 1994). 168. See Three Significant Court Cases, Software Patent Institute Database of Software Technologies, available at http://www.spi.org/3cases.htm (last visited Jan. 27, 2003). 169. North American Free Trade Agreement, Dec. 17, 1992, U.S.-Mex.-Can., art. 1709(7).

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For small software companies patented intellectual property offers substantial business value: [d]ifferentiated product offering, with the added protection afforded by patented technology[,] [l]everage provided by the existence of a patent portfolio to initiate crosslicensing arrangements and gain access to technology that would otherwise be unavailable[,] [and] [s]ecuring of a steady stream of revenue from licensing patents to other companies.170 Finally, it would be natural to patent software in order to reward the work of researchers. As entire sections of the mechanical or electronic industries turn progressively into an information technology industry, it would be equally natural to patent software.171 IV. PROPOSED PATENT SYSTEM Software has become a dominant part of our society. The economic success of a given jurisdiction may depend on the success of its software industry. The goal of software patents is to encourage and protect innovation in the software industry. In addition, patented software can serve as collateral for the raising of venture capital. It appears that copyright and trade secret systems are inadequate protections for software-related inventions. Copyright does not prohibit independent development, and it would be difficult for a software developer to maintain as a trade secret software programs that are mass marketed. For this reason, patent protection should be utilized for computer software innovations, so long as the following considerations are taken into account. A. Volume and Quality of Patents Most software patents are trivial and broad. The reasons are to be found either in the patent system or in the insufficiencies of the examination process. As a matter of fact, the requirement of “non-obviousness” is difficult to define and tends to be formalized until it is meaninglessness. Far too many software-based patents granted in recent years actually meet the requirements of the patent laws. A solution must include create an effective mechanism of control, by official institutions and by the public, over the patent offices and their work. The Patent Offices, as carefully trained patent law examiners, should be severe in their analyses to ensure that too many patents are not granted. In this regard the “inventive step” standard should be raised, even so trivial ideas do not merit a patent. This means that part of the solution may be to restrict the granting of patents on software-based inventions to an absolute minimum and to protect only technical inventions that go far beyond what normal research and development work would achieve for a given problem. The solution should also 170. PbT Consultants Ltd., supra note 55, at 40-41. 171. See Smets, supra note 12, at 53.

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include software patents only for large pieces of software. For example, patents should be granted for software that required at least a few years of effort to develop because patents for smaller, trivial pieces of software may be inappropriate. B. Protection of SMEs The application of the patent system to the software industry may have a devastating effect on small and medium-sized software developers, who do not have the resources to defend patent claims filed against them or to benefit from filing and protecting their own patents. Conversely, large companies can indirectly protect themselves by filing many patent applications. This way, if a large company is accused of patent infringement by another company, the large company may be in a position to use another patent covering something else as leverage and offer the other company a cross-license in order to solve the dispute. In such cases, we may consider the main use of software patents to be the blocking-out of competition. Cross-licensing would then only benefit large companies that have large patent portfolios; these benefits would occur at the expense of the large companies’ smaller competitors. For this reason, patents could slow considerably the progress of the entire software industry and, as a result, could harm the interests of consumers and businesses. On the other hand, there is abundant evidence that the profitability and growth of independent and SME software developers in the U.S. has often been, to a significant extent, dependent on possession of patent rights. The Union of Industrial and Employers’ Confederations of Europe (“UNICE”) proposed an appropriate solution: lower patenting costs to make patents more accessible for SMEs.172 A new resolution process that is faster and cheaper should be established so that SMEs are not penalized in the case of patent infringement claim. Moreover, software regulation measures should protect small software development service companies. As a matter of fact, large development service corporations are likely to provide some kind of patent infringement insurance to their clients because they own an extensive patent portfolio and because their large patent portfolios allow them to negotiate flat rate licenses. This is not, however, the case for small service shops. For this reason, regulation measures should provide cheap or near-free insurance services to small and independent service shops in order to facilitate competition with large service shops.

172. Union of Industrial and Employer’s Confederations of Europe, Patentability of Computer-implemented Inventions Consultations Paper by the European Commission (Dec. 15, 2000), available at http://www.unice.be (last visited Aug. 29, 2002).

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C. Shortening the Time to Grant Patents and the Duration of Patents The duration of patents may be too long for the software industry, which changes every year. The patenting process as it presently exists may be inappropriate for application to software because of the market life of most of these software inventions and may be utterly out of line considering the rapidity with which innovation takes place in the domain of the Internet. Therefore, the lifespan of patents on software-based inventions should be shortened dramatically to somewhere between two and five years.173 On this issue Jeff Bezos, CEO of Amazon.com, suggested that a period of three to five years may be appropriate in the software industry: The Patent laws should recognize that business method and software patents are fundamentally different than other kinds of patents. Business method and software patents should have much shorter lifespan than the current 17 years – I would propose 3 to 5 years. . . . Especially in the age of the Internet, a good software innovation can catch a lot of wind in 3 or 5 years.174 The solution should cover not only a reduction in the patent’s term but also a shortening of the time to grant patents for software inventions. The examination period should be a few weeks instead of two to five years. Furthermore, the proposed resolution process should be shorter and faster in the case of a patent infringement claim in order to assess the market life of software-related technology. D. Promoting Open Source and Interoperability Between Standards Software patents monopolize an algorithm, a feature, or a specific technique so that only the patent holder can use them to develop a program. This makes software development dangerous because, in the event that a software developer writes a large program, uses many techniques, and implements many features, the likelihood is that some of these techniques or features may have already been patented by somebody else, unless the developer is using open source software. Open source software, which can be defined as software that developers are allowed to use, modify and redistribute, is a very important part of the industry. Unfortunately, the increased use of software patents threatens the future of this type of software. Without open source software, many services computer users presently benefit from may not be widely available. Perhaps even a worldwide network such as the Internet would not exist if such software did not exist. It can be argued that software patents have hindered the proliferation of open source 173. PbT Consultants Ltd., supra note 55, at 34. 174. Jeff Bezos, All Public www.amazon.com.

Statements

(March

10,

2000),

at

http://

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software in the past and that they could easily damage the future of open source software and the rest of the software industry. Manny Schechter, an intellectual property lawyer for IBM Research, recently noted that “when it comes to patents, high-technology companies are, out of necessity, interdependent. Whereas pharmaceutical companies can get a monopoly—a single patent that controls a product set—software companies have to license each other. If we didn’t, the industry would grind to a halt.”175 For this reason, software patent regulation measures should work to eliminate legal risks for individual developers and allow, at the least, the unhindered publication and distribution of Open Source software. The principles and the further development of Open Source software, a widely recognized form of technological advancement, must not be endangered by patent law regulations. Moreover, with regard to the interoperability issue, software patent regulation measures must enforce fair licensing practices on all patents required for interoperability. E. Competition and Innovation The involvement of the patent system is needed to provide incentive to develop new software technology. Developers of truly new software technologies do in fact have a right to a monopoly on these technologies because their inventions fall under the category of intellectual property. Incentive is important for software developers—to reward those who invest their time and money in technological invention and innovation, and thus to encourage such investments, has been the classic function of patents. In other areas of innovation, patents have encouraged substantial investment in research and development and have generally promoted innovation. There is no reason why the position should be any different for software developers or businesses. The new system also requires useful databases for patentability searches, both for Patent Offices and for third parties. This may ensure that Patent Offices are applying proper standards for patentability, particularly for unobviousness tests, while allowing safe publication of new results, which would discourage business secrecy and facilitate the creation of an efficient licensing market for new ideas. Businesses are beginning to develop such databases on their own. For example, Professor Rosemarie Ziedonis has noted that some companies are choosing, instead of patenting, to disclose their inventions in new online publication outlets, which some compare to the technical bulletins of IBM.176 Ziedonis does not think this phenomenon will replace patenting because companies would lose their patent portfolios, which may be used as valuable bargaining chips in legal negotiations.177 Still, it is interesting to see that 175. Wharton School of the University of Pennsylvania, supra note 156. 176. See id. 177. See id.

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some industries are trying to put together some alternative type of mechanism or system to facilitate the transfer and sharing of knowledge. Free software programmers could create a patent pool to initiate such a system of cross-licensing for free software. A patent pool is an agreement between two or more patent owners to license one or more of their patents to one another or to third parties, or to aggregate their patents. A typical pool makes all pooled patents available to each member of the pool. Pools also usually offer standard licensing terms to licensees who are not members of the pool. In addition, the typical patent pool allocates a portion of the licensing fees to each member according to a pre-set formula or procedure. It appears that many companies are considering entering a patent pool— companies would subscribe and have access to the pool and be able to examine the technologies that other companies are developing. Companies could learn of missing types of technology and software necessary to gain new functions. This solution may be useful if it is affordable for SMEs, and it would likely promote innovation. Finally, companies getting software patents should make a binding commitment to use patents only for defense, either to push for cross-licensing or to put such patent in a patent pool. V. CONCLUSION The legal landscape surrounding patentability of software-related inventions has changed dramatically over the last several years. As we enter the third millennium, the protection of technology and technological advancements cannot be achieved by looking backwards. The digital environment is one of the most promising in terms of innovation and economic developments; a country’s ability to position itself on this market will substantially impact its economics and wealth. Economists view patent protection as a trade-off between the need to encourage innovation and the necessary evil of allowing a temporary monopoly to the innovator. Although it is controversial, no one can deny the importance of software. There are those who argue that software is so fundamental that our society should not allow anyone to own it to the exclusion of others.178 Some are content to treat software as copyrightable literature, affording protection only to its expressive, but not its functional aspects. Some argue strenuously that the patent system, which has existed since the late eighteenth century, is outdated and cannot handle this new technology and that some different, sui generis, form of protection should be created for software technology.179 Others argue that the current patent system is working fine and that it will adapt to this new technology, just as it has done many times before.180 178. Gregory A. Stobbs, Software Patents, 2 SPI Rep. 7 (1995), available at http:// www.spi.org/spirepoa.pdf (last visited Aug. 28, 2002). 179. Id. 180. Id.

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In many countries, the patentability of software remains uncertain and often involves manipulation of the patent claims. Patenting inventions pertaining to novel industrial processes, installations, or equipment that incorporate computer technology has never been seriously questioned. But if the novelty resides solely in the computer programs, difficulties can be expected unless the claims are couched in proper terms. If the invention is pure software then the task of preparing a set of acceptable claims, while still providing the full measure of protection for the invention, becomes formidable, if not impossible. Yet some of the greatest inventions of our times reside in the field of computer software. The proposed solution has taken into consideration the positive and negative aspects of a system that would allow patent protection for softwarerelated inventions. In order to ensure that software developers will receive decent protection, the system would promote innovation while providing the necessary incentive to software developers. It is also important for the system to protect the interest of SMEs, which play a big role in the innovation. By allowing and controlling software patents, the proposal would allow the world to recognize the true importance of software.181

181. Trudeau, supra note 2, at 242.