Intellectual Property and the Information Age

October 10, 2010

Abstract Intellectual property rights, particularly software patents, have been a hotly debated topic within the rapidly changing eld of computer science and software engineering. There are many proponents and opponents of software patents, each of whom believing they stand to benet with or without the presence of software patents. However, efforts from both sides tend to focus on strengthening or the complete abolition of software patents. In this essay, the authors seek to show that current intellectual property laws are inhibitive to innovation, and demonstrate the need for a more fair and balanced compromise that allows for some intellectual property protection without holding innovation to ransom.

1 Introduction
Intellectual property is fundamentally the product of a persons intellect or creativity that has commercial value; examples of intellectual property include patents, designs, copyrights and circuit layouts. Intellectual property law seeks to recognise and protect an owners property rights of these intangible, and potentially non-physical assets. It is a topic of reoccurring debate and its related legislation a consistent source of litigation. Current intellectual property laws are archaic and unsuitable in the Information Age, complicating software development and stiing innovation. Though the concept of these laws is not necessarily undesirable, in an age marked by the increase in production, consumption and subsequent reliance on information, laws such as those relating to copyright and patents are an anachronism of earlier days. These facts can be observed by examining the current legal situation in both the US and around the world and the impact it has on startups and small businesses looking to enter the IT market. The nighimpenetrable legal text of submissions, together with the high proliferation of non-practicing entities whose sole purpose is to exploit money out of patent monopolisation, undermines the value of the patent system as a whole. Through these arguments presented, we seek not to oppose the principle of intellectual property laws, but aim to demonstrate the compelling need for changes to the existing software patent framework.
This essay was submitted for assessment in the subject 433-343 Professional Issues in Computing, in the Department of Computer Science and Software Engineering, The University of Melbourne, 2010. The authors retain copyright (2010) of this essay. Permission is granted for non-commercial copying. The University of Melbourne is permitted to publish this essay in electronic or hard copy form.
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2 Background
Patents play a pivotal role in Intellectual Property law. A patent is usually obtained by a party as a means to prevent any other person from making, using, selling or importing/exporting the invention protected by the patent for a period of time that is normally 20 years. In order to enforce a patent, any infringement of the patent must occur within the country that the patent was issued in. Therefore, patents must be taken out in every country in which a person wishes to protect their invention. Patents have been widely used for hundreds of years throughout history. The rst instances of patents being granted can be traced back to as early as the 14th century, when the Republic of Venice decreed that new and sufciently inventive enough ideas would need to be patented through the Republic. Therefore software patenting is still in its infancy stages, having patentable with regards to computer software. only rst appeared on the 21st of May, 1962, when a British patent entitled A Computer Arranged for the Automatic Solution of Linear Programming Problems was led[17]. However, it was not until 1981 in the case of Diamond v. Diehr[5], that an invention utilising computer software would be granted a patent. Prior to this case, the Supreme Court of the United States of America, had denied patents that were largely based off mathematical algorithms[3][4]. The Diamond v. Diehr case would quickly become a landmark in the history of software patenting largely due to numerous courts being unable to clearly dene the distinction between what is and what is not patentable with regards to computer software. In response to this growing issue, another court named the Federal Circuit was created in the early 1990s. The FC would go on to determine that if a software invention was examined and found to be simply a mathematical algorithm, then it would not be patentable. The only patentable inventions would be those that used computers to represent and calculate real, concrete world values. This would include any form of interpretation of data such as in Diamond v. Diehr where the system was used to calculate correct temperatures to heat rubber and when to remove the nished product from heat. This concept was further claried in State Street Bank & Trust v. Signature Financial Group 1988[6], where the FC ruled against State Street Bank and emphasised that as long as a process, software related or not, yielded a tangible result, it should be patentable.

3 Software Patents and Market Entry

Current laws regarding patenting were designed with the intention to cultivate innovation by providing state assured protection against competitors from stealing a person or entitys invention. This has been shown to work in many industries, particularly those that require a design be protected. However, patents in an industry that relies heavily on speed and uidity is a awed concept that inhibits innovation by creating costly overhead and litigation issues for developers. Resources are often squandered dealing with legal issues that may otherwise have been committed to research and development of newer ideas. For startup companies, the scal and legal risks associated with entering the industry are far higher than if patents were not such an immediate issue. One common counter-argument is that in order to foster innovation within an industry, developers harbouring these new ideas must be granted the means to pursue development without fear of their competitors stealing their creations. Software patents attempt to provide this certainty, and in some respects they achieve this but they then fail elsewhere. The complexity of the system means that companies are virtually forced to liaise with patent lawyers during the development process to ensure that existing patents are not encroached on while producing a regular stream of their own. This

arrangement unfortunately sets up a solid basis from which larger existing companies can launch expensive, and often time consuming lawsuits against competitor startups. As a result, many ideas may be deemed too risky to create and are shelved permanently. Furthermore, the actual competitive advantage gained as a result of obtaining patents is questionable in the software industry. A study of established software development companies have rated patents as being one of the least important considerations with regards to capturing competitive advantage[7]. A large majority of startup companies even forgo obtaining patents altogether with only 24% bothering to do so. A major factor is simply the amount of time it can take for a patent to be approved. Currently, it can take anywhere upwards of 3 years for a patent to be approved in the US. This is simply too long for a developer to wait to be granted a patent. In the interim, it is likely that their idea will become obsolete, or they will denitely lose any competitive advantage that they would hope to gain from the patent. With so many companies opting to not obtain patents as well as numerous executives regarding patents as being the least important factor for competitive advantage, the question of what benet software patents have for new developers is often asked. As it stands today, patents are far more useful for patent trolls and lawyers as a means to launch litigation on entrepreneurs. Patent Trolls are persons or groups whose sole purpose is to amass a large quantity of patents for use against larger companies through patent infringement lawsuits with their goal being an award of damages. The costs associated with defending a software patent claim are staggering, regardless of whether the claim is legitimate or not. It costs companies thousands of dollars to merely demonstrate if a claim is justied, and then millions more in legal fees should they go to trial[19]. Startup companies are exposed to this astronomical risk from patent lawsuits yet there is almost no risk associated with ling a claim. This discrepancy results in a system open to abuse, ooded with countless entities who will ultimately seek to take advantage of companies that cannot afford to defend themselves. Consultations with various parties of the software industry have generally shown a consensus against software patenting. In 2000, the European Commission sought the views of interested parties with regards to the subject, The Patentability of computer-implemented inventions[2]. The results between those who practice software programming and those with a vested interest in Intellectual Property Rights, is very clear. Out of those who identied themselves as supporters of software-related patents, only 38% identied themselves as developers with another 44% as IPR (intellectual property rights) professionals. In comparison, nearly 60% of those against software patents were software developers themselves. These statistics demonstrate the clear, immediate need to assess and redesign our existing patent framework.

4 Software Patents and Legal Writing

Part of the process of ling for a patent involves the party submitting a patent specication, that is, a document describing the background of the invention and the invention itself, and denes the scope of protection the patent should provide. Initially it would seem that this innocuous documents purpose is to communicate all the necessary details of the subject of the patent, which is true. However, as a patent application is a legal document, it is not uncommon for these specications to use language reminiscent of legal writing - essentially verbose and borderline incomprehensible. Ironically, this obfuscates what the specication would have communicated if the writing had been in a more readable and explicit form in the rst place, thus allowing others to compare against it. As argued by software patent opponent Richard Stallman[18], any idea can be made to look nonobvious when over analysed and described with excessively obtuse writing. 4

United States Patent 5963916 Network apparatus and method for preview of music products and compilation of market data 1. A method for enabling a remote user to preview a portion of a pre-recorded music product from a network web site containing pre-selected portions of different pre-recorded music products, using a computer, a computer display and a telecommunications link between the remote users computer and the network website, the method comprising the steps of: (a) using the remote users computer to establish a telecommunications link to the network web site wherein the network web site comprises (i) a central host server coupled to a communications network for retrieving and transmitting the pre-selected portion of the pre-recorded music product upon request by a remote user and (ii) a central storage device for storing pre-selected portions of a plurality of different pre-recorded music products; (b) transmitting user identication data from the remote users computer to the central host server thereby allowing the central host server to identify and track the users progress through the network web site; (c) choosing at least one pre-selected portion of the pre-recorded music products from the central host server; (d) receiving the chosen pre-selected portion of the pre-recorded products; and (e) interactively previewing the received chosen pre-selected portion of the prerecorded music product. This is only a small excerpt from a 95-page patent. It is easy to see why this was awarded a patent; its non-obvious and is probably a new idea. However, once you get past the legalese of the writing, the trivial nature of the process is revealed: music samples stored on a server that can be accessed by a web browser over the Internet and tracked with the use of cookies - a rudimentary conguration.

5 Software Patents and NPEs

While its possible to argue that those applying for software patents are simply protecting themselves and their processes, there are also many instances of patent holders, both individuals and companies, who are overly litigious in defending their patents which they may or may not be using at all. These companies are known as NPEs - non-practising entities, and are effectively parties that do not actually use or distribute any products with their patents but maintain them often as their sole source of income. One such case of a non-practicing entity is Acacia Research Corporation. Acacia has led at least 337 patent-related lawsuits since it was started in 1992[15]. Acacia acquires patents from patent holders and litigates against those they contend infringe on those patents, generally mid-size or larger companies so that the damages of wilful infringement are greater (and successes against smaller, less defensive companies can be used as precedents against the largest). In 2010, one of Acacias subsidiaries was awarded US$6.6 million[20] in damages against Yahoo. For reference, the rst few lines of the contested patents abstract are as follows:

United States Patent 6205432 An advertisement system and method are provided for inserting into an end user communication message a background reference to an advertisement. In some embodiments, the background reference causes an advertisement image to be tiled, or watermarked, across an end user screen behind the text of an e-mail message or public posting. Yahoos instant messenger application utilised a technology deemed infringing on this patent - a technology that revolved around interactive backgrounds that users can choose to add to conversations on the application. In the instance of Paul Ware[11], Acacia acquired an inventors patent and successfully litigated against at least 30 companies that are now paying Ware and Acacia millions of dollars worth of licensing fees. Even though Acacia was defending Wares patent, this act highlights the aw in the patent system. Wares patent involved linking credit card readers with central computers through ber-optics. Wares patent was simply too broad and far-reaching such that other software technologies were concurrently, or at least independently, developed and implemented without anyone noticing Wares patent from 1987. These instances are a regular source of headaches for the industry as old patents re-emerge and can be twisted and shown to apply to future tech.

6 The Patent Monopoly

The situation as it stands today presents an interesting problem for the industry. Many patents are awarded for smaller, sometimes obvious features that are not genuine innovations as youd expect but just a design decision made during development. As it stands, the monopoly intertwined with these design patents essentially prevents other entities from creating similar designs despite there having been no algorithm or process used or created. Consider the example of US patent 5960411[8] which was awarded to Amazon.com in September 1999 for their 1-Click system. The patent describes a technique for an e-commerce website that allows the end-user to purchase items using a one-click button or process and reads as follows: A method and system for placing an order to purchase an item via the Internet. The order is placed by a purchaser at a client system and received by a server system. The server system receives purchaser information including identication of the purchaser, payment information, and shipment information from the client system. Essentially, the patent describes a use of the HTTP cookie system where the end-user is assigned a unique client ID which, when the button is clicked, is automatically sent, by the users browser, to the server which retrieves the users associated information and submits the order; in one-click. There-in lies the problem - this technique is extremely common over the web as its part of the basis of how the HTTP protocol itself behaves. Despite this and reexamination requests from other individuals and companies[9], the patent as it applies to a shopping cart model has been upheld. In October 1999, Amazon led a patent infringement lawsuit[21] against Barnes & Noble for providing a feature called Express Lane that allowed their customers to complete their order on their website with a single click. As ridiculous as it sounds, Amazons patent grants them a monopoly on this one-click model and the case was eventually settled[21] in 2002 after the design was changed so that shoppers had to click a second time to complete their purchase. 6

The patent still exists today, and even large companies have been forced to license it if they want to incorporate a one-click payment option for them systems. Apple licensed 1-Click from Amazon in 2000 and then later incorporated the feature into the iTunes store[10] and iPhoto. It would be a safe assumption to say that Apple, known for its meticulous design practices, wouldve created the interface for purchasing rst, and then the thought of patent clashes followed. This is an excellent example of where the current software patent system fails - if, what essentially boils down to, a simple GUI element can be patented. A more recent example is the case of Uniloc founder Ric Richardson, an Australian credited with the patent for a software registration system [16] aimed at preventing casual copying. On the surface, the description of the patent does sound interesting however once investigated further, it becomes clear that the patent is just a system commonly used by many software companies today. It describes an early form of the current license activation mechanisms whereby the user is provided with a license key with their purchased software, which is sent off to a remote server (or person via phone) during registration and an unlock code is sent back to conrm it is valid. This patent was led in 1993 and issued in 1996 - relatively early in the modern computing era, so the dilemma here is whether or not this kind of system would be obvious to anyone in the software industry. The issue being, is such a validation system so generic that it would likely have been a natural evolution of the software industry on its own. If so, then being the rst to patent it would be merely a stroke of luck rather than what can be considered a true or novel invention for which the patent system was intended to be used for. Over the past few years, Mr Richardson has been embroiled in a lengthy court battle against Microsoft for allegedly breaching his patent in their Windows and Ofce line of products. Courts had ruled in favour of Microsoft in most cases until one time Microsoft was found guilty of this breach. Following this, the judge vacated the jurys verdict and awarded victory to Microsoft once again[12]. The case is being appealed but its clear that there still exists confusion and ambiguity in this area as new technology and ongoing development starts to tread on early, nigh-forgotten software patents.

7 Software Patent Consortiums

Patent consortiums are an interesting concept in that their existence is essentially proof of the problems exhibited in the system currently. These groups are formed by two or more companies whose goal is to create so-called patent pools of related technologies and in doing so cross- license them between all participants. Essentially, what it is creating is a patent war chest that covers a broad range of similarly grouped ideas and methods that all companies in the consortium can use to save paying license fees to one-another. One group found in the media recently is the MPEG LA[13], an industry consortium that controls a large number of patents related to the media codec commonly known as H.264. Where this becomes an issue for people is that the group (and its members) are strongly pushing for the H.264 codec to become a standard on the web, an environment encompassing strong ideals of freedom. To settle these concerns, the group announced on August 26th, 2010 that the codec will remain loyalty free permanently provided that it is freely distributed[14]. While this may ease concerns of companies who were hesitant of incorporating the use of the codec themselves, the patent pool sitting behind the group is still valid. Prior to the announcement, Google unveiled their own competing codec called VP8, whose main premise was to be free, open and unencumbered by royalties and patents. Unfortunately, shortly after, 7

MPEG LA conrmed that it was already scouring through the design of the codec to ensure that it wasnt infringing on any of their own patents relating to H.264. While Google may be certain that it does not, it is ultimately up to the courts to decide should a case be brought forward. Had it been a smaller company, the mere threat of a lawsuit by such a powerful group would be enough to convince them to reconsider releasing their own, competing product hence, much innovation may often be lost.

8 Empirical Evidence Against Software Patents

In addition to all the points raised, Bessen[1] shows empirically and proves mathematically that patents inhibit innovation. The conventional take is that patents protect the original inventor by providing a means for preventing imitations. However, historically, the software industry has existed with limited patent protection yet produced one of the most active and thriving industries that exists today. Bessen describes that innovation in the software industry is sequential and complementary. That is, successive inventions build on their predecessors and that different inventors take different approaches to innovation which enhances the overall likelihood of newer breakthroughs. Some may argue that if a patented technology is popular enough, the patent-holder can simply license the use of it allowing further innovation to occur. However, Bessen shows that licensing creates competition for the patent-holder which then creates a prot-dissipating effect. The cost of of this effect may outweigh the benet of the licensing income which would lead the patent-holder to not license their innovation; thereby stiing innovation. This further strengthens the earlier arguments brought up - that patents are an overall scal drain on the industry.

9 Conclusion
It is clear that software patents are an ongoing problem for the technology industry as a whole, both for inventors who claim to invent new processes and for developers who may happen to unknowingly use patented techniques, leaving themselves open for legal liability. Patents, by design, create a monopoly on a invention in order for the creators to turn it in to a nancial product. For genuine inventions, this premise is not being contested. Software patents cannot necessarily be considered true inventions in the physical sense, as software evolves rapidly over time. New companies eager to break into the fast paced business often nd themselves hamstrung but the rift of software patents covering countless miscellaneous articles that often fall under common sense, virtually creating a requirement for a full time patent lawyer familiar with the environment. To further complicate matters, non-practising entities exist solely to harvest old patents as a springboard to launch patent infringement lawsuits at companies in an attempt to extract money for their owners. These patent trolls are often a formidable force, armed with strong legal teams designed to intimidates their targets. Whats worse is success against newer/smaller companies can set a precedent against larger companies where even more money can be fought after. Ultimately however, if you consider software development to be a form of art such as a music score or a painting, software patents are akin to patenting a particular underlying beat, drum sequence or drawing pattern - its not a novel idea or invention, and it would certainly inhibit innovation and continued creation of new music and art, or in our case, future software applications. 8

References
[1] J. Bessen and E. Maskin. Sequential innovation, patents, and imitation. RAND Journal of Economics, 40(4):611635, 2009. [2] P.T. Consultants. The results of the European Commission consultation exercise on the patentability of computer implemented inventions. Notts, UK: PbT Consultants Ltd, 2001. [3] US Supreme Court. Gottschalk v. Benson. http://scholar.google.com.au/ scholar case?case=14331103368635133702, 1972. [4] US Supreme Court. US Parker v. Flook. http://scholar.google.com.au/scholar case?case=12542933152070861616, 1978. [5] US Supreme Court. Diamond v. Diehr. http://scholar.google.com.au/scholar case?case=18347506438226183982, 1981. [6] US Supreme Court. State Street Bank & Trust Co. v. Signature Financial Group. http:// scholar.google.com.au/scholar case?case=4678936614949330705, 1998. [7] S.J.H. Graham, R.P. Merges, P. Samuelson, and T.M. Sichelman. High technology entrepreneurs and the patent system: Results of the 2008 Berkeley patent survey. Berkeley Technology Law Journal, 2009. [8] Peri Hartman, Jeffrey P. Bezos, Shel Kaphan, and Joel Spiegel. Method and system for placing a purchase order via a communications network, 09 1999. [9] S. Hutcheon. Kiwi actor v Amazon.com. Sydney Morning Herald, 2006. [10] Apple Inc. Apple Itunes Terms and Conditions. itunes/us/terms.html#SALE, 2010. http://www.apple.com/legal/

[11] J. Kirby. Patent troll or producer?: The evolution of intellectual property. National Post, 01 2006. [12] A. Moses. Aussie inventors $445m Microsoft windfall wiped out. The Age, 2009. [13] LLC MPEG LA. AVC/H.264 Introduction. programs/AVC/Pages/Intro.aspx. http://www.mpegla.com/main/

[14] LLC MPEG LA. MPEG LA.s AVC License Will Not Charge Royalties for Internet Video that is Free to End Users through Life of License. MPEG LA News Releases, 2010. [15] PatentFreedom. Current Research - Most Litigous. https://www.patentfreedom. com/research-ml.html, 2010. [16] Frederic B. Richardson III. System for software registration, 02 1996. [17] Patrick Vincent Slee and Pauline Margaret Joyce Harris. A computer arranged for the automatic solution of linear programming problems, 08 1966. [18] R. Stallman. The anatomy of a trivial patent. Linux Today website, 2000. [19] M.C. Tyler. Patent Pirates Search for Texas Treasure. Texas Lawyer, September, 2004. [20] Business Wire. Acacia Research Subsidiary, Creative Internet Advertising Corporation, receives jury verdict awarding $6.6 Million in patent infringement case. http:// acaciatechnologies.com/pr/051809Yahoo.pdf, 2009. 9

[21] T. Wolverton. Amazon, Barnes&Noble settle patent suit. CNET News, 2002.

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