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Thursday 21 June 2007

Software Patents: why should we have them ?

What should be the justification for software patents ?

Software patents are now emerging as a major influence on open source software. In 2003, there was SCO’s threatened litigation on Linux. Last November, Novell and Microsoft signed a major agreement in which Microsoft undertook not to dispute use of Microsoft’s patents in Novell’s SUSE Linux technology. More recently, Microsoft has claimed that Linux and open source technologies infringe 235 of its patents.

Major open source organisations like Eclipse and Apache scrutinise contributed source code to try and ensure there are no patent infringements. Furthermore, under some contribution agreements, an individual contributor may become personally liable if (s)he successfully inserts infringing code into such collaborations.

IMHO, software patents are sometimes granted by national patent offices with insufficient scrutiny regarding their originality. A patent should pass the “obviousness” test: the principles claimed in a patent should not be immediately obvious to normally skilled practitioners in the field at the time that those claims are made. Having said that, it is clear that many software patents do pass this test, and are sufficiently original.

It is also illuminating to note that even when a patent is subsequently over-turned by a national patent office, as being “obvious”, a litigant may still be successful. I understand that Research In Motion (who brought the Blackberry to market) settled their purported patent infringement case with NTP for over half a billion dollars, even after many of the patents were overturned by the patent office concerned: the Judge involved would not reconsider his judgement in the light of the overturning of the patents by the patent office.

While thinking about these issues, I was interested to see developments in the use of patents in the global pharmaceutical industry, in a recent Economist article, and wondered about parallels in the software industry.

Recently, the Government of Thailand invoked the compulsory licensing mechanism of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), negotiated globally as part of the Uruguay round of the World Trade Organisation.

Under TRIPS, a government can invoke compulsory licensing (see article 31 “Other Use”) in the interests of national emergency or extreme urgency, such as arising from national health concerns, and if efforts to negotiate with the patent owner (for example a pharmaceutical multinational) fail. As a result, a generic drug replacement for a patented drug can either be manufactured domestically, or imported from a third country.

A quick aside, just in case you are unfamiliar with generic drugs. A generic drug contains the same active chemical ingredients as its patented original, but is distributed without a brand name. It is bio-equivalent to the original. A drug patent publishes a chemical structure, which then readily copied as a generic: alternatively, a patented drug can be fairly easily reverse-engineered to produce a generic. Of course, normally a generic drug can only be legally produced once the patent for its original expires, or in territories where the patent does not apply. Compulsory licensing under the TRIPS protocol yields a further way of legalising the use of a generic drug within a specific country.

In general, bringing a new drug successfully to market requires extensive trials, under a rigorous procedure closely supervised by a national drug regulator. This is both time consuming and costly for the inventor, and hence patents are valuable in enabling their owners recoup not only the research and development costs involved, but also the costs of the clinical trials and regulatory procedures. Correspondingly, because a generic drug is bio-equivalent to its patented original, a generic can quickly gain regulatory approval, and therefore its cost is significantly lower.

The trade-off in invoking the TRIPS compulsory licensing mechanism is between a short term gain to obtain a beneficial treatment at lower cost, and a medium to long term disincentive for the industry to invest in research and development for new drugs, particularly for diseases more prevalent in the third world and emerging economies. Equally, the full costs of bringing a new drug to market will be even more met by those countries which do not invoke compulsory licensing: in practice, by the markets of the more wealthy nations.

It is also significant that a middle income country like Thailand – rather than an impoverished country – has invoked compulsory licensing. It is rumoured that other such countries – for example Brazil, India, and Malaysia – are also considering the mechanism. Some of these countries – in particular India – have their own blossoming drugs industries, including investment in research into new drugs: it will be very interesting to observe how a strengthening domestic industry in such a country can be reconciled with compulsory licensing.

Back to the software industry. I found it interesting to consider what if compulsory licensing under TRIPS were to be used in the software industry as well as the pharmaceutical industry ?

If this were the case, a national government might invoke TRIPS compulsory licensing of one or more software patents, in the national interest. This would probably be primarily as a result of economic and/or social, rather than health, concerns. Compulsory licensing might be seen as a legitimate response by a government to punitive action threatened by an aggrieved patent holder against users of a patented technology, whether those users be in nationally strategic industries, the civil service itself and/or the national education system.

The technical consequence of compulsory licensing of a software patent is clearly not equivalent to compulsory licensing of a pharmaceutical drug. As I noted above, a generic drug can quickly be derived as a bio-equivalent of a patented drug. It is not nearly as easy to produce a software program which is equivalent in all respects to another program which is built using one or more patents, assuming that the source code of the patented work is unavailable. That is, there is no direct software analogy of generic drugs. Nevertheless, compulsory licensing of a software patent would remove the ability of the patent holder to impose punitive licensing terms on infringing software, including in particular infringing open source software.

If there were no intellectual property protection, would there be innovation ? Some open source protagonists would claim ‘absolutely, of course there can be’. I personally think that although there can be innovation in software without intellectual property, nevertheless so far, innovative and intellectual property free open source software is unfortunately rare. More frequently, open source software is a replacement for well established main stream technology: Linux, JBOSS and MySQL are all examples.

So, if there were compulsory licensing of software, would commercial software organisations become disenchanted with investing in innovation ? I started this blog entry by musing what should be the justification for software patents ? In my view, the pharmaceutical industry points the way for us in the software industry.

Consider. In the pharmaceutical industry, a new drug has to be extensively proven in trials, before the national regulator will permit that drug be sold. The resultant product is thus reasonably expected to be safe and to address the medical problem for which it is claimed. In return for this investment and careful procedure, the drug inventor can be awarded a patent.

By analogy then, should therefore a software patent only be awarded once the software products which exploit it, are carefully proven to be safe and effective, via documented testing and trial use ? Should there be national Software Administration Agencies, to which a prospective software patent holder should apply, providing extensive evidence of testing and trials under an auditable procedure to verify that use of the technology described by the prospective patent is effective and safe ?

As I think about testing software, I recall a comment to me by Andrew O’Sullivan (the VP at IONA responsible for professional services) last week. The willingness of enterprise customers to accept even a single bug in a software product today is substantially less than during the late 90s and the frantic dotcom era. Today, software is fully expected to work first time, and every time: any bug which comes to light seriously adversely reflects on the vendor concerned.

So: maybe software patents should only be awarded to verified high quality software, in the same way in which patented drugs have to first prove themselves in trials.

If this situation were ever put in place, what of the role of compulsory licensing ? Could a software patent be overturned by a compulsory license issued by a national government for national social and economic reasons, despite the investment made by the patent holder in proving that the software concerned was safe ?

In the pharmaceutical world, the equivalent is happening today to patented drugs. However in the software world, we would not obtain the same result. If a software patent is compulsory licensed, the associated software program(s) exploiting the software patent would not in general be as readily reverse engineered as is a patented drug to a generic drug. Instead, compulsory licensing would inhibit litigation potentially taken by a software patent holder against alleged infringements by other software programs (including open source). But these other software programs would not be identical in effect as the patent protected works – unlike a generic drug which is bio-equivalent to its patented original. In particular, these other software programs would not, by virtue of the compulsory licensing alone, be implicitly as verifiably safe as the regulated products directly using the patents.

In summary, there are some interesting similarities but critical differences between software and pharmaceuticals. It appears to me that there is merit in only awarding software patents to verifiably tested, safe and effective cases. It also appears that there could be an argument for compulsory licensing of software patents. Unlike the pharmaceutical industry and generic drugs, a compulsory licensed software patent would not enable an exact equivalent to be produced. Thus compulsory licensing would simply remove the threat of litigation against infringements. The patented software would be verifiably “safe”: the infringing software would not necessarily be “safe” since it would not necessarily have been subject to the full rigor of regulation. In my view, the outcome would be that commercial enterprises would remain incented, perhaps even more so, to produce patented products, and to ensure that these are safe and fault-free.


rodney said...

Since most software licences have a CYA clause explictly stating that the software is not guaranteed to work, why would producing 'safe' software be an incentive to buyers or sellers?

I believe that investors in software, the people who put in the money and/or time up front, have to see a pay-off to make it worthwhile. A patent is one way of rewarding innovation - control over intelectual property is a large part of most software start-up's value proposition to potential funders.

I agree that the economics of software and drug development have a lot in common - a big up-front investment with lower cost of manufacture of the actual goods. Without patents, many, but not all, software investment business models break down.

However, I disagree that adding extra or 3rd-party certification to the already large up-front cost changes the fundamental equation, especially as customers don't value it beyond existing QA measures.

On the other hand, there are a lot of software patents that should be rescinded because of prior art, etc.

chris horn said...

I guess that was one of the points I was trying to make: if a patent is awarded, then it should only be given for technology which has been certified as highly likely to work.

Software, as you say, is currently frequently NOT guaranteed to work: if that is the case, why should any such software be awarded a patent ?

In return for innovation, carefully implemented and tested, then a reasonable period of exclusivity under patent protection seems fair. That is the basic way the drug industry works, and maybe our own industry needs to consider this approach too. It certainly would reduce the possibility of frivilous software patents..

Anonymous said...

You suggest that the drug industry works. I beg to differ and think the software industry should set it sights a little higher.

Drug industry money is devoted almost exlusively to solve "rich mens' problems", and is reputed to allow the deaths of tens of thousands in what could almost be called professional negligence.

Moreover, when a country invokes the exception clause a small number of drug companies have been known to find ways around it; usually punitive measures against the country in respect of other drugs sold by the company there.

So, let's agree to say that, politically, the drug industry is not a good model. As to reducing frivolous patents, a software patent certification authority sounds like a promising business opportunity and a means of boosting confidence in software products.

As to stimulating innovation, IMHO, there is already an over abundance of innovation in software.

As I said, the software industry should set it sights a little higher. And bear in mind that good engineering has extended life expectancy over the past few hundred years manifold times that achieved by medical intervention.

Jay Stein.

chris horn said...

Hi Jay,

I'm not sure that I claim "the drug industry works". My involvement elsewhere has made me all too aware of some of the negative impacts of that industry in specific locations.

However, what I did wish to point out is that frivolous patenting within the software industry is damaging it: if software patents were more difficult to obtain, and subject to much more diligence and verification - as is the case in most territories for the awarding of a drug patent - then IMHO the software industry would benefit.

I further observed that in enterprise software today, customers expect much higher standards than in the wild west of the dotcom era: today, even a single bug in an enterprise system is a cause for surprise and consternation. Thus, more rigorous testing and verification seems appropriate.

And finally to your last point: I am an engineer, not a medical doctor.

gjbrandon said...


Having spent 8 years in the pharma industry and the last 2 in software (though I did have a Sinclair ZX81 and a Commodore 64) I would suggest that patents can be detrimental to the health of innovation in any industry.

I accept that they are the reason for the billions of dollars profits in the drug industry where most companies made their billions on the back of 1 blockbuster drug. However they stifle competition leaving the high costs to consumers for patented drugs that would otherwise be treated with drugs that achieve the same result, but have fewer features. Big Pharma tend to promote their latest patented products as their older patents expire leaving generic competition to eat into their previous profit margins. Sounds great until you realise that out of the hundreds of drugs that have patents and are approved by the FDA each year less than 7 are new. 95% are 'Me Too' products which are slight variations on old drugs with litte or no advances, but capable of being promoted and supported by the marketing arm of BigPharma at a high cost to the consumer.

An analogy in the software world is where MS Word has many features users never use, nor even know how to use, yet the product sells for a higher price than competition such as Open Office or any of the online wordprocessors and a newer version comes out with more and more features that users never use, only to have the previous version lose support.

My point is not to run down Microsoft, but to highlight the lack of innovation that exists the higher up the protective patent or proprietary ladder you get.

Disruptive innovation tends to knock those at the top off their perch and is the greatest achievement, indeed advance, that can be seen in software today where it is possible to be the next Google, eBay, or Amazon.

Restricting access to creative individuals or teams would do more harm to software and the benefit to all than to preserve those who made it to the top early.

I may be shooting myself in the foot with more than 50 patents filed by my former company and indeed some granted to myself, but I do believe that patents are not the way forward, no matter what the industry is.

Quality control in the delivery of solutions to complex problems that will increase a users productivity rather than feature rich 'Me Too' products will always win.

Restrictive practices and protectionism serve merely to preserve the short term gains of a few and limit creativity by deferring, not reducing the longer term decline of monopolies, such as exist in the pharmaceutical industry.