PROJECT REPORT OF INTELLECTUAL PROPERTY LAW

I. Introduction
During the early days of computer industry, the software came integrated with hardware. The
issue of intellectual property remained confined to hardware only. All this changed during the
sixties when software was unbundled from hardware. This gave rise to independent software
vendors (ISVs) and the production of standard and custom operating systems, as well as
independent applications softwares. Rapid diffusion of low-cost desktop or personnel computer
(PC) in late seventies and eighties opened up huge opportunities for ISVs. The software industry
gradually increased in terms of overall trade, production and consumption. In 1990s, the
widespread diffusion of the Internet created new channels for low-cost distribution and
marketing of packaged software, reducing the barriers to entry into the packaged software
industry. It also expanded the possibilities for rapid penetration of markets by packaged software
products. This rapid increase in consumption of software and easy penetration of market through
Internet resulted in increased software piracy, creating a big market in pirated software.1
According to estimates the global rate of piracy was 59.9% in the year 2010 that means out of
the total software sold worldwide 59.9% was fake.2 Piracy causes huge losses of revenues to
software companies every year.
This has made the issue of intellectual property protection for software all the more important.
The software is a complex product, which has given rise to a totally different kind of industry in
which the input and the output consist of intangibles. The ownership of intellectual property in
software industry influences the returns to investments, and the market structure. How best to
protect and regulate ownership of intellectual property? The issue of software patenting has thus
attracted considerable attention and debate.
The objective of this paper is to highlight issues related to software patenting
and their implications for software industry. In the ongoing debate or controversy to the
patenting of the software. The Indian scenario is briefed upon in the last followed by the
conclusion.

Graham J H Stuart, Mowery David C, Intellectual Property Protection in US Software Industry, Paper presented at
STEP Board Conference on The Operation of the Patent System,
http://www7.nationalacademies.org/step/Mowery_et_al_paper.doc2001.
2
http://www.nationmaster.com/graph/cri_sof_pir_rat-crime-software-piracy-rate

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Trips and computer software

World Trade Organisation Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS), the details of which were finalised in the concluding Uruguay round in 1994,
specifies some minimum standards that must be adhered for protection of Intellectual Property
(IP) by the member countries. Eight types of IPRs including patents, copyrights, trademarks, etc.
have been specifically mentioned in the provisions of the TRIPS Agreement. The objectives of
the TRIPS Agreement have been clearly spelt out in the Article 7 of the Agreement that the
protection and enforcement of IPR should contribute to the promotion of technological
innovation. It should also promote the transfer and dissemination of technology, to the mutual
advantage of the producers and users, in a manner conducive to social and economic welfare. It
may also be noted that India is a signatory to TRIPS Agreement and so it is obligatory to
implement the same. Article 27 of TRIPS lays down that for any invention, whether product or
process, patents can be granted, provided the invention is new, involves an inventive step and is
capable of industrial application. Further Article 10 relating to Computer programs and
compilations of data specifically lays down that computer programs whether in source or object
code, shall be protected as literary works under the Berne Convention 1971, which relates to
protection of literary and artistic works. It also lays down that compilations of data shall be
protected as such, without any prejudice to any copyright subsisting in the data or material itself.
Hence it is difficult to conclude from the TRIPS Agreement whether computer programs are to
be predominantly protected under the copyright law and not under the patent law. It may be
stated that making claim to objects such as computer software as patentable items according to
TRIPS Agreement is a debatable issue. One view is: that Article 27 of TRIPS requires Member
Governments to grant patents on "any inventions, whether products or processes, in all fields of
technology, provided they are new, involve an inventive step [or are non-obvious], and are
capable of industrial application."3 Yet this does not authorise patents on obvious products or
processes, or on things that are not "inventions." Article 1 of TRIPS authorises members to
"implement in their law no more extensive protection than is required by this Agreement." This
might be read to permit patents, trademarks or copyrights on anything whatsoever, whether or
not new, obvious or original. Yet such a reading could have aberrant consequences, and does not
conform to the commonly understood definitions of patents, copyright, or intellectual property.
3

http://www.aful.org/pipermail/patents/2000-May/000472.html.

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The only other section of any WTO Agreement to mention patents, is Article XX(d) of GATT
1947, which authorises members to take measures "necessary to secure compliance with" patent
laws. Yet it is not "necessary" to issue an invalid patent, nor does doing so secure compliance
with the patent laws (and Article XX(d) applies only to goods, not services). It thus seems
possible that WTO Member Governments can ask the WTO to rule that an obvious patent issued
by the US (or possibly other countries) violates GATT 1947 or GATS. Also, the term
"invention" in TRIPS Art.27 should arguably be construed, as it would have been understood
when TRIPS was adopted in 1994. At that time, many thought that relatively "pure" software
patents were not "inventions" at all, but algorithms that were "discovered". A WTO member
might therefore ask the WTO to rule that many US software or other patents violate Art. II.4 of
GATT 1947 or Art. XVI.2 of GATS on this basis as well.4
The other view contends that software is patentable subject matter as per
TRIPS in light of the exceptions in Art. 27(3) of TRIPS, since it may not appear enforceable to
construe the term "inventions" in Art. 27(1) differently on a country-by-country basis, by using
the different legal definitions in the individual Member States. Article 27(3) specifies definitely
those areas of invention that a Member can exclude from patentability. The attempt to expand
artificially, the areas of exclusion permitted by Art. 27(3) by using a "national" legal definition of
the concept of the "invention" to exclude from patentability subject matter that is actually to be
patented pursuant to Art. 27(1), may thus represent an attempt to evade Art. 27(3) and may lead
to a conflict between the provisions of Art.27(1) and (3).5 It may also be mentioned that TRIPS
intends to "harmonies", as it was always called, not to "uniformise" the systems of various
countries. It also intends to allow the coexistence of diverse systems while minimizing frictions
that could arise from regional protectionism. The method of implementation of the provisions of
the TRIPS Agreement has, therefore, been left to the Member States.

Copyright Protection of Software

Copyright as an instrument in the protection of a computer program affords protection to the
original literary work inscribed in the program. Born out of the statutes, copyright protects the
software program by preventing further reproductions of the same thereby preserving the rights
4
5

http://docs.google.com/viewer?a=v&q=cache:Vjd_zbKusOgJ:www.worldtradelaw.net/articles/hudecrequiem.pdf
http://swpat.ffii.org/vreji/papri/iic-schiuma00/indexen.htm

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of the author in the software. The extent of application of this investment to a software program
was one of the disputed issues in the early court decisions on computer software protection in US
and UK.6 By the extent of application, what is meant, are the areas of a software program that
can be brought within the umbrella of copyright protection. The object code and the source code
being the core program areas, which affect the behaviour of the computer and where the
copyright rule applies. It is necessary to understand these concepts to delve into the issues arising
in relation to them. The functioning of a computers processor is based on the language of
instructions provided to it. These instructions which exist in a readable format (higher level) are
transformed using a compiler7 into binary form8 for feeding into the processor9. The high level of
instructions, which are non executable and composed using programming languages, is
commonly referred to as the source code of a computer program and the executable format of
instructions which control the working of the computer is known as the object code. From the
point of view of a consumer who aims at the use of the software for personal purposes, the
availability of the executable version of the software (CD) for running on the computer proves to
satisfy his needs. But for a programmer who looks at the software as a means to develop his
programming skills by working on the source code, the software does very little. The rationale
behind the approach of the software developers in withholding the source code and launching in
the market just the object code is based on the impossibility of recreating the source code from
the object code.10 The software developers preserve their rights even when the source code is
made available, with the aid of licensing restrictions. These licensing restrictions may restrict the
licencees right to copying, distribution and modification of the software program.11

Patent law and Computer Software

A patent is a transferable monopoly granted by government to the creator of a unique and useful
invention. Where copyright is automatically granted for arts and literature, obtaining patent for a
6

Stanley Lai, The Copyright Protection of Computer Software in the United Kingdom (Hart Publishing, Oxford,
Portland) April 2000, p 1
7
A compiler software automatically transforms an object code into a source code.
8
The Binary form refers to expression of the instructions in hexadecimal numbers.
9
Laddie, Prescott, Vitoria, Speck, Lane,The Modern Law of Copyright and Designs(Butterworths, London) 1995, p
1608
10
Mathias Strasser, A new pardigm in intellectual property law?: The case against open source, Stanford
Technology Law Review, 4, 2001
11
17 U.S.C 101; Halpern Sheldon W,Craig Allen Nard, Port Kenneth L, Fundamentals of United States Intellectual
Property Law: Copyright, Patent and Trademark (Kluwer Law International, The Hague 1999), p 12

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machine or processes is complicated, expensive and time consuming. The patent holder must
disclose how to replicate the invention and in return, is granted the right to exclude others from
making, using, offering for sale, or selling the invention throughout the United States or
importing the invention into the United States.12

Patents are granted by the United States Patent and Trademark Office (USPTO), and are valid for
20 years after their grant date. A patent application may be rejected or a granted patent may be
revoked if either fails to completely meet patentability criteria that
1. It is useful,
2. No one else invented it earlier,
3. The patent is not trivial and would not be assumed by experts in that field13
In addition, the U.S. Supreme court has ruled in Gottschalk v Benson14 and Diamond v.
Chakrabarty15 that algorithms, laws of nature, physical phenomena and abstract ideas are not
patentable. The most common way that patents are revoked is when someone documents prior
art where someone else created the invention before the original patent applicant.

I. The Software Patent Controversy

Patent software by Companies
Copyright does not prevent anyone independently creating a program to perform similar actions.
Someone can reverse engineer a binary and then, with moderate work, create a similar program
which will not infringe on the programs copyright. With a patent, a company can prevent
anyone else from copying any of their new, non-obvious algorithms for use in a competing
product. Obtaining a patent also helps shield companies from patent infringement lawsuits.
Another favored business practice among large technology companies such as IBM, SUN and
Microsoft is to cross-license some patents with each other without licensing fees. This allows the
partnering companies to utilize best-of-bread patents from each other while minimizing patent
infringement liability.
12

35 U.S. Code 154

35 U.S. Code 101-103
14
409 U.S. 63 (1972)
15
447 U.S. 303 (1980)
13

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And yes, companies do make money licensing software patents, so there is an incentive to create
new algorithms and processes. However, this innovation incentive is strongly offset by the
actions of companies known as a patent trolls. Reminiscent of the childrens stories where
trolls who camp under bridges and waylay passengers for a toll to cross, their sole business plan
is to obtain broad-ranging patents (often for technology they have not invented) and then sue
large technology companies with deep pockets for patent infringement. The most public instance
of this was when the patent holding company NTP, Inc. sued the makers of RIM, the makers of
the Blackberry Pda phones. NTP had several patents on wireless email. Even though NTP was
able to demonstrate prior art with System for Automated Messages (SAM), RIM was forced to
pay NTP $650 million to avoid a court ordering all Blackberry services shut down. Shortly after
the settlement, NTPs patents were invalidated.16
Although critics of software/Internet/business method patent patents contend such patents allow
large companies to drive small competitors out of the market, in practice, the effect is the
opposite: strong patent protection allows small organizations to compete with the largest
businesses. Unauthorized infringing use of a patented invention can drive the inventor out of the
market; often, small entities can compete with the vastly greater marketing and financial muscle
of large corporations only by having exclusive rights in their developments, a fact that is
recognized by the investment community. Historically, the software and e-commerce industries
have failed to recognize the benefits of broadly enforced patent rights.
Acceptance of business method patents evolved slowly from a recognition by the courts that such
patents were never really prohibited, and that the 1952 Patent Act cannot reasonably be
construed to exclude business methods from patentable subject matter.
The opportunities for unfettered business method patents ballooned with the decision by Court of
Appeals for the Federal Circuit in State Street Bank & Trust Co. v. Signature Financial Group,
Inc.,17 in which the Federal Circuit adopted the view that "business methods" were not statutorily
excluded from patentable subject matter. The genesis of the prohibition on business method
16
17

LaFuze, William L. Patent Trolls IP Litigator March-April 2007: p31

149 F.3d 1368, U.S.P.Q. 2d 1596 (Fed. Cir. 1998),

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patents is commonly said to have arisen in Hotel Security Checking Co. v. Lorraine Co.,18 case
containing dicta saying "no mere abstraction, no idea, however brilliant, can be the subject of a
patent irrespective of the means designed to give it effect." This was, according to the Hotel
Security court, because a "system of transacting business disconnected from the means of
carrying out the system is not, within the most liberal interpretation of the term, an art."
However, as the Federal Circuit noted in State Street, the decision in Hotel Security did not rely
on the "business method exception" to render the patent invalid. Hotel Security nevertheless
became the source of judicial statements that business methods were not patentable subject
matter, eventually resulting in the PTO's adoption of a policy against granting business method
patents. The exclusion of business methods from patentable subject matter was only half of the
mid-twentieth century legal obstacles to business method patents. The "Mathematical Algorithm
Exception" served for much of the century to place equally difficult obstacles to patenting such
inventions. Based upon the principle that patents cannot extend to "mere abstract ideas" the
mathematical algorithm exception operated to preclude patents involving a sequence of definable
steps, such as are typically carried out by software. Since many, if not most, modern
developments in business methods involve use of computers; the mathematical algorithm
exception gave courts additional ammunition to reject patents on commercial activity.19
The restraints on algorithm patents began to loosen with Diamond v. Diehr20 in which the
Supreme Court reiterated the prohibition against patents on mathematical algorithms so long as
the represent mere abstract ideas, but eviscerated that restriction by agreeing algorithms are
patentable when they produce a tangible result. With the decision in State Street, the Federal
Circuit removed all doubt as to the patentability of software systems conducting financial
activity. Under State Street, the analysis now focuses on "the essential characteristics of the
subject matter, in particular, its practical utility." Methods and systems having such practical
utility are patentable subject matter assuming exclusivity can be practically enforced.

18

160 F. 467 (2d Cir. 1908).

Gibbs,Colin. NTP Sets Its Sight on Carriers; Patent Holder Files Suit Against Big 4 RCR Wireless News Sept
17, 2007: p3
20
(450 US 175 (1981))
19

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Conceptual difference between Copyright and Patent

Software has traditionally been protected under copyright law since code fits quite easily into the
description of a literary work. Software Patenting has recently emerged (if only in the US, Japan
and Europe) as an alternative that software companies are increasingly employing to, in order to
protect their products.

The issues involved in conferring patent rights to software are, however, a lot more complex than
taking out copyrights on them. Specifically, there are two challenges that one encounters when
dealing with software patents. The first is about the instrument of patent itself and whether the
manner of protection it confers is suited to the software industry. The second is the nature of
software, and whether it should be subject to patenting.21

a) Different Subject Matters

Copyright protection extends to all original literary works (among them, computer programs),
dramatic, musical and artistic works, including films. Under copyright, protection is given only
to the particular expression of an idea that was adopted and not the idea itself. (For instance, a
program to add numbers written in two different computer languages would count as two
different expressions of one idea) Effectively, independent rendering of a copyrighted work by a
third party would not infringe the copyright.22
Generally patents are conferred on any new and useful art, process, method or manner of
manufacture, machines, appliances or other articles or substances produced by manufacture.
Worldwide, the attitude towards patentability of software has been skeptical. The Indian Patent
Act, as modified in 2002 had made non-patentable the following:
a mathematical method or a business method or a computer programme per se
or algorithms.

However, the recent amendment ordnance states instead:

21
22

http://www.sarai.net/research/knowledge-culture/critical-public-legalresource.pdf
http://www.legalserviceindia.com/article/l140-Software-Patenting.html

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a computer programme per se other than its technical application to industry or a
combination with hardware;
a mathematical method or a business method or algorithms.23

b) Who may claim the right to a patent/copyright?

Generally, the author of a literary, artistic, musical or dramatic work automatically
becomes the owner of its copyright.
Software developers are perfectly protected without patents. Everyone who writes a computer
program automatically owns the copyright in it. It's copyright law that made Microsoft, Oracle,
SAP and the entire software industry so very big. It's the same legal concept that also protects
books, music, movies, paintings, even architecture.

Many of the world's richest people owe their wealth to copyright law. Some examples are:
Bill Gates; Paul Allen and Steve Ballmer (Microsoft); Larry Ellison (Oracle); Hasso Plattner and
the other founders of SAP; Paul McCartney (Beatles); JK Rowling (Harry Potter).

The patent, on the other hand is granted to the first to apply for it, regardless of who the first to
invent it was. Patents cost a lot of money. They cost even more paying the lawyers to write the
application than they cost to actually apply. It takes typically some years for the application to
get considered, even though patent offices do an extremely sloppy job of considering.
c) Rights conferred
Copyright law gives the owner the exclusive right to reproduce the material, issue copies,
perform, adapt and translate the work. However, these rights are tempered by the rights of fair
use which are available to the public. Under fair use, certain uses of copyright material would
not be infringing, such as use for academic purposes, news reporting etc. Further, independent
recreation of a copyrighted work would not constitute infringement. Thus if the same piece of
code were independently developed by two different companies, neither would have a claim
against the other.

23

Gopakumar K M, The scope of reverse engineering of computer software under the copyright (Amendment) Act,
1999: A critque, Journal of Intellectual Property Rights, 6 (2), 94-108.

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A patent confers on the owner an absolute monopoly which is the right to prevent others from
marking, using, offering for sale without his/her consent. In general, patent protection is a far
stronger method of protection than copyright because the protection extends to the level of the
idea embodied by a software and injuncts ancillary uses of an invention as well. It would weaken
copyright in software that is the base of all European software development, because
independent creations protected by copyright would be attackable by patents.

Many patent applications cover very small and specific algorithms or techniques that are used in
a wide variety of programs. Frequently the "inventions" mentioned in a patent application have
been independently formulated and are already in use by other programmers when the
application is filed.

d) Duration of protectionThe TRIPS agreement mandates a period of at least 20 years for a product patent and 15 years in
the case of a process patent.
For Copyright, the agreement prescribes a minimum period of the lifetime of the author plus
seventy years.

III. Patentability and Validity of Software Inventions

In the beginning, United States courts treated software suspiciously: In the 1970s, the Supreme
Court held that software was essentially mathematical formulae, not patentable under US law.
However, in 1981, the Supreme Court decided in Diamond v. Dieh24r that an invention could not
be denied a patent solely because its claims contained mathematical formulae.
Instead, the court required a look at the invention as a whole. Two exceptions remained in place:
the mathematical algorithm exception and, arguably, the business method exception.

24

(1981) 450 US 175

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In State Street Bank & Trust Company v. Signature Financial Group25 the court found that the
mathematical algorithm test misleading and determined that software and business methods
should be examined like any other traditionally patentable subject matter. In 1999, the court
concluded that algorithms are patentable because they limit a general-purpose computer to a
specific purpose, performing functions pursuant to the software. This statement is narrower than
State Street's broad holding that mathematical algorithms were patentable as long as their
application produced a useful, concrete, and tangible result.
Courts have held that if a software process is not an abstract process but claims a "real world
activity", then even if the idea underlying an invention may be considered to reside in a
mathematical method, such a software claim is an abstract mathematical algorithm.
You should keep in mind that granted software/Internet/business method patents can be revoked
if found to be invalid, so development of new ideas is therefore not blocked by bad patents. If
members of the public feel that an examiner has allowed an overly general claim in a patent, they
may file an interpartes examination in the US, an opposition in Europe, or a lawsuit in Court, to
argue that claims are overly broad and should not be allowed. Thus, it is always a good idea to
have a professional patent novelty search performed to help avoid this issue before filing.
Despite

the

ever

increasing

volume

of

non-patent

prior

art,

the

average

software/Internet/business method patent is citing only 1 to 2 non-patent prior art items, which is
far too few. Worse yet, the vast majority of software patents (about 60%) still cite no non-patent
prior art. Thus, to strengthen your software/Internet/business method patent it is strongly
advisable to find at least 10 pertinent non-patent prior art reference to cite in your patent case and
design around in the specification.
Some software patents are particularly subject to invalidity findings based on lack of enablement
and/or utility. The first paragraph of26 requires an applicant to describe the claimed invention
sufficiently to enable one skilled in the art to make and use the invention27 requires that the
invention have a useful purpose, or Utility. Problems can arise when one or both of these
requirements are not met. In one situation, an applicant fails to disclose a credible utility in the
25

149 F.3d 1368

35 U.S.C. 112 http://www.bayareaip.com/IPinfo/Patents/General_info/101.htm
27
35 U.S.C. 101 Ibid.
26

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specification (referred to below as the "no utility situation"). In the other situation, an applicant
provides evidence to address doubts about a utility stated in the specification (referred to below
as the "no evidence situation"). Each of these situations has a different consequence. The
different consequences can be critical, especially in the context of interference.With regard to the
"no utility situation," it is well settled that an application must disclose a utility as required
in 101, and enable the utility as required in 112, as of the filing date. If a utility is not
disclosed and enabled in the application as filed, the application is in violation of 101 and 112,
and does not accord the benefit of its filing date to later continuing applications. With regard to
the "no evidence" situation, it is equally well settled that an applicant may provide evidence after
the filing date to further support a utility already set forth in the specification as filed, and still
maintain the original filing date.
In practice, almost no patents in the US are challenged in an interprets reexamination since it
weakens an infringer's ability to defend themselves if they fail in the interprets reexamination
and are then sued for patent infringement. Moreover, because software/Internet/business patents,
like all patents, are presumed valid there is a very high, often insurmountable, burden on
competitors to work the patent process towards invalidating your patent. The costs of
determining if a particular piece of software or business method infringes any issued
software/Internet/business method patents is almost always too high and the results are too
uncertain to be worth fighting.
Competitors (your potential licensees) usually find that spending time and money challenging
software/Internet/business method patents is a waste of valuable resources and tend to license
instead. Typically, they conclude that defending against the blocking patent requires that
significant funds be diverted away from their research and development and is not worth
fighting. This is in part due to the fact that patents can be obtained on relatively small
incremental improvements in software. Thus a new innovative product might require hundreds of
patents to protect and might in turn be covered, at least to some extent, by thousands of prior
issued patents. Any one of these prior issued patents could prevent a new product from being
made used or sold in the marketplace. As such, the small to mid sized player can leverage
significant opportunity to license even a patent of limited scope to large entities that require that
technology to roll out a new product or service.
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Scope of Software Patents

There seems to be an increasing trend over the past several years for reading patents narrowly
based on patent specifications. Historically, courts had not really addressed the scope of a
business method patent in light of potentially limiting language found in its patent specification.
Those whom you assert your patent against will immediately be poring over your patent
specification to locate limiting language, which remains a sound but tedious option when faced
with a process patent infringement suit.
Thus, Patentees should take care to include in their patent specifications as many embodiments
and permutations of their claimed processes as possible, and do so with language that describes
the claimed process with some specificity without reading too narrowly.

In re Bilski in 2008 - a landmark ahead

In a 9-3 majority decision authored by Chief Judge Paul Michel, the Federal Circuit declared the
machine-or-transformation test as the touchstone inquiry for determining patent-eligibility of
process claims under 35 U.S.C. 101 (" 101"). The court reaffirmed the patent-eligibility
for both business methods and software and carefully avoided overruling its own precedent
established in the State Street Bank' case. The majority decision also clarifies other areas of
uncertainty by affirmatively rejecting alternative 101 tests. The Patent Office rejected a petition
from applicants Bernard Bilski and Rand Warsaw because it decided that the process described
was not confined to a particular machine and amounted to patenting a "mental Leap" or an
"abstract idea". The invention at the heart of the Bilski appeal is a financial method for hedging
consumption risk for commodities sold at fixed prices. While the invention could be
implemented using a machine such as a computer, the claims are not so limited.
The Board of Patent Appeals and Interferences ("BPAI") found Bilski's claim unpatentable as
failing to recite statutory subject matter under three distinct 101 tests including (1) the
"transformation" test, (2) the "abstraction" test and (3) the "useful, concrete, and tangible result"
test. Bilski appealed the decision to the Federal Circuit who initially heard oral arguments on
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October 1, 2007. Soon thereafter, the Federal Circuit sua sponte ordered a rehearing on May 8,
2008 before an en banc court.
In Bilski, the Federal Circuit endeavored to realign its 101 jurisprudence with Supreme Court
precedent. Both the Supreme Court and the Federal Circuit have long recognized that
"fundamental principles" such as laws of nature, natural phenomena, or abstract ideas are not
patentable. However, the majority struggled to otherwise identify a unifying test common
throughout the Benson, Flook, and Diehr trilogy. Upon synthesizing the case law, the Federal
Circuit pronounced the machine -or-transformation test as the "definitive test to determine
whether a process claim is tailored narrowly enough to encompass only a particular application
of a fundamental principle rather than to pre-empt the principle itself."'
According to the machine-or-transformation test, a process claim is patent eligible subject matter
if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a
different state or thing. Thus, the question before the Federal Circuit was whether Bilski's "claim
recites a fundamental principle and if so, whether the claim would preempt substantially all uses
of the fundamental principle if allowed."
Applying the two pronged machine - or-transformation test to the Bilski facts, the court
immediately disregarded the "machine" inquiry as not being ripe for discussion given the
absence of machine limitations in Bilski's claims. Therefore, under current law, software is
patentable subject matter in the USA so long at is executed on a machine (e.g., a computer)
or stored on a computer readable medium.

IV. Nature of Software and Indian Software Industry

While there has been a lot of discussion on the impact that the latest amendment to the
Indian Patent Act will have on public health and the pharmaceutical sector in India, there has
been a disturbing silence about the impact that the amendment has on the software industry.

After the patents (second amendment) in 2002, the scope of non patentable subject matter in the
Act was amended to include the following: a mathematical method or a business method or a
computer programme per se or algorithms.
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The important phrase that was added was per se, and with the amendment we effectively
included Software patents into Indian Law. The latest amendment seeks to expand the scope of
software patents, and states a computer programme per se other than its technical application to
industry or a combination with hardware; a mathematical method or a business method or
algorithms.

This briefing note will addresses the larger question of why we should be concerned about
software patents, and the impact that it will have on the software industry in India.

Software is complex: The complexity of computer programs makes it difficult to be understood

by any one person. This capacity for complexity allows for the creation of highly sophisticated
products but also means that they are dependent on a vast range of technologies.
Software is free from the constraints of the real world that ensure a product does
not become too complex. Major software may comprise up to 10 million lines of code potentially
thousands of inventions, any of which might be patented.
For example, Apple was sued because its HyperCard program allegedly violates patent number
4,736,308, which covers a specific technique that, in simplified terms, entails scrolling through a
database displaying selected parts of each line of text. Separately, the scrolling and display
functions are ubiquitous fixtures of computer programming, but combining them without a
license from the holder of patent 4,736,308 is now apparently illegal.28
In its complexity, software is different from other engineering and mechanical
inventions for which patent protection was devised. The latter are often characterized by large
"building block" inventions that can revolutionize a given mechanical process. Software,
especially a complex program, seldom includes substantial leaps in technology, but rather
consists of adept combinations of many ideas. Whether a software program is a good one does
not generally depend as much on the newness of a specific technique, but instead depends on the
unique combination of known algorithms and methods. Patents should not protect such methods
of innovation.

28

http://www.people.hbs.edu/gllanes/exsoft.html

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Software Technology evolves rapidly: Software technology is evolving much faster than other
industries, even with its own hardware industry. Against this light, a patent that lasts upto 17
years is extremely alarming. Microprocessors double in speed every 2 years.
Research in software is galloping ahead of developments. In most industries, researching
new ideas often costs more money than bringing them to the market. The software industry is, on
the other hand, loaded with ideas.
The idea behind most software patents can be coded in just 20 lines of code, but any program
incorporating that idea - along with many others - will be a thousand times larger. It is the
writing of a program that takes all the time, not coming up with ideas.
What this means is that on an average of every two years, a product will have to be replaced in
the market. The idea underlying it will remain the same although the particular means and
variants of its applications may have changed radically. Coming out with a full-featured product,
every two years is costly especially in relation to the inexpensive idea that backs it. Theres more
novelty in the development and application of the same idea to new technology than with coming
up with the original raw idea.29

The objective of granting patent rights should be to foster the growth and evolution of the
industry. Granting a patent at this stage would be akin to unreasonably prolonging the life of a
product.
It is generally found that those who are investing time creating and lodging patents
are vastly outpacing those who are investing effort bringing such ideas to market. By the time an
immature technology develops to the point where it can be incorporated into products, it has a
dozen or more patents on it that render it commercially intractable.

Software doesn't wear out: In other industries, research continues up to a point where further
research costs too much to be feasible. At this stage, the industry's output merely consists of
replacing parts that have worn out.
However, in the software sector, a computer program that is fully debugged will
perform its function forever without requiring maintenance or modification. What this means is
that unlike socks that wear out, and breakfast cereal that is eaten, a particular software product
29

Gordan T T and Cookfair A S, Patent Fundaments for Scientist and Engineers (Lewis Publications, NY) 2nd edn, 2000.

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can be sold to a particular customer at most once. If it is to be sold to that customer again, it must
be enhanced with new features and functionality. This inevitably means that even if the industry
were to approach maturity, any software company that does not produce new and innovative
products will simply run out of customers! Thus, the industry will remain innovative whether or
not software patents exist.

Software has different economics: Most other major industries have medium to high research
and development costs and very high production costs. Most often, the production costs dwarf
the other two areas (because of the physicality that they involve) so that these costs can be added
on to the cost of the final product without any relatively major difference in the price.30
Software is unique in this aspect because
-The research costs very little because ideas are as abundant as air
-The development of an idea into a marketable product costs far more than the research.
-The production costs are minimal, often just a little more than the price of the medium,
which is typically a floppy or a CDROM.31
Patents affect the development stage of the process of manufacture of software. Thus the
threat exists that the price of software could be singularly determined by the number of patented
innovations that it incorporates.

Patent and Innovation in Software Industry

As argued before the process of software development by its very nature is incremental i.e.
developing of new software majorly consists of building upon existing ideas and rearranging the
processes devised by others, and hence has an inbuilt need for using existing algorithms and
mathematical formulae. Patent protection over software or over a set of algorithms within
patented software would inevitably create a thicket of patents which the subsequent software
developer might need to obtain clearance from before he can begin to work on it.32 The costs
involved in obtaining these clearances and those involved in case one finds oneself having
infringed a patent are usually very high, as in the case of biomedical patents. This would act as a

30
31
32

Bruce A. Lehman report, 1999 presented in Dacca Bangladesh

Study on The Economic Impact of Patentability Of Computer Programs, by Hart Robert, Holmes Peter and Reid John, 1999

www.sarai.net/research/legal/whysoftwarepatentsareharmful.pdf

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disincentive for an aspiring software developer and would adversely affect the growth of the
Indian software industry. Introduction of two bills- Genomic Research and Diagnostic
Accessibility Bill, 2002 and Genomic Science and Technology Innovation Act of 2002
though still pending before the US Congress show the real concerns involved for a patent and
innovation policy within genomics. Similar concerns are exist in the software and innovation
policy and need to be addressed adequately by the each national legislature.
Further there are substantial costs involved in verifying which patents one must obtain
clearance for as skimming through the huge patent databases has become a very costly exercise.
Unfortunately, conducting a patent search is a slow, deliberative process that, when harnessed to
software development, could stop innovation in its tracks. And because patent applications are
confidential, there is simply no way for computer programmers to ensure that what they write
will not violate some patent that is yet to be issued making survival a very important issue for
smaller player in the market.
Various large companies in US have obtained exemptions from going through patent
searches for standard work due to huge costs. In such a scenario in a small player software
industry like India, it would be unwise to allow software patents as they may have negative
impact upon the innovation within the industry.
By its nature software industry is innovation driven i.e. the only way a software
company can compete and improve its sales or grip over market is by making better and more
useful features available. This innovation which is the driving force behind the
Indian software industry is bound to get affected if a patent protection is provided to software
patents. If a company can easily sustain itself on its invention (by obtaining patents upon its
software) and need not remain innovation driven, which would mean that a patent monopoly
would inversely impact innovation and competition in software industry. It would further give
rise to monopolistic tendencies and a practice of quoting arbitrary price for the grant of
voluntary license. This lesson can be learnt by looking west where the idea of Public Key
Encryption was patented in the US. The patent expired in 1997 and until then, it largely blocked
the use of Public Key Encryption in the US. Similar instances can be found w.r.t. data
compression software and single click software patented by Amazon.com. A number of
programs that people started to develop got crushed. They were never really available because
the patent holders threatened them. This led to a lot of unrest in the software community which
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culminated into the public outrage against software patents. Similar pressures have prevailed in
European community where software patents found public opposition too immense to mount for
a long time.
A look at India's own development of its software industry would be of immense
help as India started its software industry only after IBM was driven out of country. Before that,
there was no software industry worth the name, with software and hardware being imported from
IBM. Once IBM left, Indian computer companies developed computers using the UNIX
operating system, which was in the public domain. This led to the presence of a large number of
skilled software professionals with experience of UNIX were also writing high-level applications
for making the entire computer system work.

Future Impacts
Software patents are a clear and present danger to the viability of software companies and online
businesses. The prevalence of patently self-evident patents and the preponderance of patent trolls
imperil the profit prospective of programmers. When think of the computer programs I require
daily to get my own work done, I cannot help but realize that none of them would exist today if
software patents had been prevalent in the 1960s and 1970s.... If present trends continue, the only
recourse available to the majority of America's brilliant software developers will be to give up
software or to emigrate. The U.S.A. will soon lose its dominant position33 20 years is an eternity
in the technology sector. The increase in patent numbers and patented domains will only serve to
increase the legal and financial burden on U.S. corporations.

Conclusion
Useful software is expensive to create, inexpensive to reverse engineer and has negligible costs
for duplication. In other words, it is cheaper to copy software than to create it. Without sufficient
legal intellectual property protections, commercial software would not be a viable business
model, as few would voluntarily pay for software they could legally get for free.
Software copyrights should be preserved as they protect finished works of software from
unauthorized copying, while software patents should be repealed since they grant monopolies for
33

Knuth, Donald. Letter to the Patent Office. 1994

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algorithms and cause greater economic harm than benefit. Software copyright is effective in that
it protects the rights of software creators without impeding the ability for others to write
software. Software patents on the other hand, allow companies to monopolize algorithms, the
basic building blocks of software. Every computer program then becomes a legal minefield,
where programmers cannot determine whether the algorithms they are using infringes on the
hundreds of thousands of existing software patents. In addition, software patents provide a
weapon where companies can amass large patent portfolios and then sue competitors and smaller
companies out of existence. Legal issues and costs are further compounded by the many software
patents which have been granted for obvious inventions. For these reasons, software patents
hamper innovation instead of encouraging it, and software patents should be abolished.

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