[A2k] Obituary for software patents

"Gérald Sédrati-Dinet (Gibus)" gibus at april.org
Thu Dec 19 12:06:46 PST 2013

I haven't seen any recent news on this list about software patents. A
quick update is given in the article copied below from The Economist

In short, worldwide death of software patents is to be expected for the
next couple of years.

There are nevertheless some imprecisions and mistakes in this article.
For instance there is no specialised counterpart in Europe of CAFC
centralized patent court, the current project for a Unified Patent Court
(UPC) is under way, but bound to fail, which is great since, unlike
CAFC, the UPC would not have any Supreme Court above. Or the issue with
CAFC is not that it has no "adequate expertise in patent jurisprudence",
but on the contrary that it has only expertise for the patent microcosm...

But I do agree with the title and main argument of this article: we are
currently witnessing the necrosis of software patents. The death notice
is about to be published by the US Supreme Court in Alice vs. CLS Bank.

As a side not for our kiwi co-listers, note that The Economist has
clearly interpreted the NZ Patent Bill as we want it to be interpreted
(see my post in August about this

Happy New Year!


Obituary for software patents
Dec 13th 2013, 6:32 by N.V. | LOS ANGELES

AT LAST, it seems, something is to be done about the dysfunctional way
America’s patent system works. Two encouraging events over the past week
suggest the patent reformers are finally being heard.

First, defying expectations, the House of Representatives passed (by an
overwhelming majority) the Innovation Act, a bill aimed squarely at
defanging so-called “patent trolls”. The Senate is to take up the bill
within the next month or so (see “Trolls on the hill”, December 7th 2013).

Second, the Supreme Court agreed to rule on the most contentious issue
of all: namely, what inventions are actually eligible for patent
protection. In particular, do the trolls’ favourite cudgels—the
ridiculously vague and overly broad business-process and software
patents granted by the US Patent and Trademark Office (USPTO) over the
past decade—really qualify?

How vague and overly broad can patents get? One infamous patent covers
upgrading computer software over the internet. Another was awarded for
the everyday practice of buying goods online with the click of a mouse.
Both are admittedly useful, but hardly novel or non-obvious—the three
fundamental requirements for eligibility adopted by patent jurisdictions
around the world. Failure on two out of the three key counts, and yet
still qualifying for patent protection, shows just how ludicrous
patenting in America has become.

It is no laughing matter. Frivolous law-suits filed by trolls cost
American companies $29 billion in 2011 alone. Trolls (known in the legal
world as “patent assertion entities” or “non-practicing entities”) exist
solely to buy obscure patents, not to make anything, but to bully other
firms that allegedly infringe them into paying a settlement fee, or face
the punitive cost of litigation. Defending such law-suits costs a small
firm typically $2m these days.

Hiding behind shell companies, trolls prey mostly on small firms,
sending out thousands of “demand letters” at a time. Over the past
couple of years, the practice has reached epidemic proportions, as
trolls have broadened their targets to include not just high-tech firms,
but also universities, retailers, hospitals, charities and even
consumers themselves. With their lawyers working on a contingency basis
(ie, no award, no fee), trolls have low upfront costs and little to
lose. Most of their law-suits are filed in eastern Texas, where the
courts have a reputation for being troll-friendly.

It is plain and simple extortion. Two years ago, when the America
Invents Act sought (unsuccessfully) to put a stop to such shenanigans,
Babbage labelled the trolls’ shakedown tactics a “Tony Soprano”
protection racket (see “Programmed nonsense”, October 7th 2011). Then,
it was the ransom issue that was the principal concern. Today, there are
additional worries about the damage being done by the flood of frivolous
patent suits to innovation and competition. This, above all, is what has
caught the eye of Congress.

Startups threatened by such actions frequently find themselves having to
withdraw from the business or go bust. Big companies that choose to
fight can easily spend tens of millions of dollars on litigation that
could otherwise go on research and development. In other instances,
corporations have started deploying their portfolios of sloppily written
software patents to prevent rivals from entering their market—witness
the plethora of court cases between Apple and Samsung. Too often,
software patents operate not as an incentive for innovation, but as a
barrier to entry and a tax on new product development. This is not what
patent law was designed for.

In a sense, the legal bullying by trolls is a symptom of a wider
complaint: the abysmal quality of many of the patents circulating
today—especially those covering computer software and business
transactions (themselves often based on software algorithms). While the
USPTO has been mainly at fault, the courts have not helped.

One of the worst offenders has been the US Court of Appeals for the
Federal Circuit, the appellate court that rules on patent disputes,
among many other things. Unlike its specialised counterparts in Europe
and Japan, the Federal Circuit has never acquired adequate expertise in
patent jurisprudence. As a consequence, it has issued some bizarre
software rulings.

A corner-stone of any patent system is that laws of nature, natural
phenomena and abstract ideas cannot be patented. Were that not the case,
all manner of harmful monopolies could spring up based on common ideas
found in nature or everyday life—such as boiling water to make tea—that
could feasibly be used to prevent others from doing the same, or at
least to require them to pay a licence fee. Historically, the courts
have viewed software inventions as far too abstract to qualify for a patent.

That changed in 1998, when the Federal Circuit found, in the so-called
State Street Bank case, that a business method (ie, set of algorithms)
involving a practical application that “produced useful, concrete and
tangible results” was eligible for patent protection. A flood of equally
dubious patents followed.

A decade later, in the Bilski case, the Supreme Court revisited the
whole issue of whether a method for doing business could be patented. It
found the “invention” (a way of hedging commodity risks) too abstract to
be patentable, but failed to provide a clear test of what constituted an
abstract idea for judges in lower courts to apply.

As a result, Federal Circuit judges have been left to make up their own
minds. In a much-watched patent dispute dating back to 2007 between
Alice Corporation and CLS Bank, involving a way to avoid settlement
risks when closing financial transactions, a lower court found the whole
idea too abstract to be patented. But on appeal, two Federal Circuit’s
judges disagreed, arguing that implementing the invention on a computer
rendered it non-abstract—and thus patentable.

A ten-member panel of the Federal Circuit subsequently agreed to rehear
the case. Unfortunately, their opinion, issued in May 2013, has left the
situation more fractured than ever. Between them, the ten judges issued
seven different opinions. A majority agreed that the patent in question
was ineligible. But one dissenter on the panel, Judge Kimberley Moore,
warned that if the patent were ruled invalid, it would cause the death
of hundreds of thousands of similar patents for business methods,
financial systems and software. “[This] would decimate the electronics
and software industries.”

Last week’s announcement by the Supreme Court that it intends reviewing
the Alice versus CLS Bank case next spring means it will finally
confront the most fundamental of issues in patent law today: whether or
not software patents are impermissibly abstract. A ruling is expected by
July 2014.

Would it matter if software patents were judged too abstract to warrant
patent protection? Others have pointed out that, despite Judge Moore’s
misgivings, patent issuance is “a poor measure of innovation value”.
Patenting is strictly a metric of invention. Innovation is such a vastly
different endeavour—in terms of investment, time and the human resources
required—as to be virtually unrelated. Babbage believes the electronics
and software industries, rather than suffer, would flourish without
having to worry at every turn about being sued for infringing some
obscure patent.

New Zealand has recently overhauled its own patent laws, with the full
backing of the country’s IT community. The government has rewritten the
legalese covering patents to ensure that, in no circumstances, can
software ever be considered patentable. A computer program, it says, is
not an invention. Period.

With or without a Supreme Court ruling on whether abstract ideas (ie,
software or business methods) can be patented, there are simple,
grass-root ways of halting trolls in their tracks. For instance,
Nebraska’s attorney general recently warned the owner of a patent for
scanning documents directly to e-mail that it would suffer serious
consequences under the state's consumer-protection laws if it harassed
local businesses.

Nebraska was following the lead set by Vermont, which filed a law suit
against the owner of the scanner patent after it threatened numerous
firms and charities within that state. The Vermont legislature has now
passed an anti-troll bill, which gives recipients of a “bad faith”
accusation of patent infringement the right to counter-sue in a state
court. Because trolls rarely use the technology claimed by the patent to
make something themselves, they are especially vulnerable to accusations
of bad-faith litigation.

Could such a ploy prevail? It is so new that it has yet to be tested in
court. There is, of course, an issue of “pre-emption”—the principle that
stops states over-riding federal law. But that need not be a hindrance,
say legal scholars, provided state courts apply the same standards as
federal courts.

If the use of state consumer-protection laws to ward off frivolous
patent suits were to catch on, it could give the trolls serious pause
for thought—especially if their mass mailings of threatening letters to
businesses were met by dozens of law suits from attorneys general
demanding their presence in state courts across the land. One way or
another, things are beginning to look ominous for those who would
exploit the inadequacies of America’s patent system.
Gérald Sédrati-Dinet
http://pascontent.sedrati-dinet.net     http://www.april.org
http://www.unitary-patent.eu            http://laquadrature.net

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