Software patent reform needed to stop legal bullying

Microsoft/TomTom lawsuit sparks call to change a patent system that helps few, hurts many.

The recent Microsoft/TomTom patent infringement suit has sparked a renewed call for software patent reform.  

The subject has been under discussion by the last three sessions of Congress. On March 3, another attempt was made in the form of a bill aptly called The Patent Reform Act of 2009. The software industry's watchdog organization, the Business Software Alliance, has implored Congress to pass it.

"BSA members continue to be the targets of patent-related lawsuits and demand letters from entities that make no products and have no intention of engaging in commerce," the BSA said in a written statement. "The bill reported by the Committee addresses three key areas: making our laws more similar to those of other major patent-granting jurisdictions; improving patent quality by enabling the US Patent and Trademark Office (PTO) and inventors to challenge weak patents; and addressing some of the principal abuses increasingly associated with enforcement of patents."  

When it comes to abuse in the courts, the BSA is right. The typical patent lawsuit costs $5 million, according to Natalie Hanlon-Leh, a patent attorney with Faegre & Benson in Boulder. The initial electronic discovery portion of a software patent lawsuit can run $1.5 million alone.

For all that, patents are weak protection. "Software patents are four times more likely to be litigated than patents covering an industry for which patents work relatively well, chemical processes," says Michael Meurer, professor of law at Boston University.

But it's not just a problem for the software vendors. IT professionals have felt the FUD created by patent squabbles between IT vendors. Microsoft caused quite a stir two years ago with its patent-based threats against users of Linux (albeit no lawsuits ever materialized).

Research in Motion was nearly paralyzed by its patent fight with NTP -- a company unkindly characterized as a "patent troll."  Patent trolls acquire patents to earn license fees, not to make products. Vonage was also nearly paralyzed in its patent fight with Verizon.  

Beyond these high-profile cases, venture capitalists say that software patents have created legalized bullying. Bigger companies that own patents can use them to sue, thereby shutting the doors of promising young upstarts that may not have violated anything, but do not have the money to defend themselves. Some patent attorneys advise their clients that if they do not have assets of at least $50 million, they should not engage in patent litigation of any kind -- as plaintiff or defendant, sources say.

Software vs. other patents

Against this backdrop, patent attorneys recently joined with professors from Stanford University, George Washington University, Boston University, Tilberg University and the University of Colorado, among others, for a conference on software patent reform held by the Silicon Flatirons Center for Law, Technology and Entrepreneurship at the University of Colorado in Boulder.

While experts want to see the entire patent system overhauled, software is particularly ill served today. Patents do a bang-up job protecting hardware, drugs or chemicals -- any invention where the R&D costs are high, manufacturing is expensive and difficult to duplicate and where the intellectual property (a chemical formula, for instance) is easily identified. Infringement in these cases takes longer, costs more and can be easier to prove.

Contrast this with software. A programmer in the basement can invent, produce and distribute the next greatest thing with relatively no investment.

"In software, manufacturing costs are relatively low versus say an Intel that invests billions in factories. Distribution costs are low -- similar to the music industry today," Microsoft Associate General Counsel and technology patent expert Kevin Luo told attendees of the conference. "Do software patents even make sense compared to a hardware patent? Is software inherently abstract?"

Many more issues plague software patents, too. The result of a particular piece of code can be replicated in lots of ways. A patent would cover the code, the feature and new uses of the feature not yet conceived. For instance, if you patented software for voice recognition for a mobile application and someone used your code to make a voice activated child's toy, you would be entitled to license fees. Because software runs everything these days, a quarter of software patent infringement lawsuits are brought by companies that are not even in the same industry, Meurer says. Given that nearly 158,000 patents were issued in 2008 alone, searching years of active patents to ensure a new software invention would not infringe is impossible.

"If I am applying for a patent for a new hammer, I can search through all patents of hammers, look at pictures, verify that my newly invented hammer is significantly different and doesn't infringe," explains Russ Krajec, a software patent attorney in Loveland, CO. "With a piece of software code, there is no way to do that."

Open source advocates want to eliminate software patents altogether. But most others think patents do have value. Copyright protects unauthorized distribution of code, (i.e. pirated copies) and trade secret law protects it from being leaked by insiders. But only a patent protects the code from being reverse engineered or hijacked for use in a way not foreseen by its creator, Krajec says.

Because of the difficulty in discovering prior patents and the expense of these lawsuits, the threat of litigation can be enough to bully another company into signing a licensing agreement. Poorly written patents that vaguely define the scope of the claim are therefore heavily rewarded. So is patent volume. The more patents you have, the more bullying power you have.

Several proposed fixes

Legal experts question whether The Patent Reform Act of 2009, or any legislation by Congress, can fix these problems. Congress would have to understand the intricacies of the software business. "Congress doesn't do a good job of carving out different rules for different industries," says Mark Lemley, professor of law at Stanford University and author of six books on the patent system.Instead Lemley says that the courts should impose limits and guidelines for monetary awards -- making patent litigation less profitable. Perhaps outright reverse engineering would get bigger awards than infringement claims based on vague software descriptions. This will encourage patent attorneys to write better patents. And that would reduce the overall litigation, and the cost of e-discovery.

Lemley also believes that the courts can effectively craft industry-specific rules as they rule on individual cases. This is a process that has already begun. Prior to the eBay vs. MercExchange patent battle, settled by the Supreme Court in 2006, if a company was found guilty of patent infringement it would be forced to stop operating. But with the eBay case, the Supreme Court unanimously ruled that an injunction should not automatically be issued based on a finding of patent infringement.

Lemley has also proposed the idea of a "gold standard" patent, which is more costly to obtain but better researched, better written and harder to overturn. Patent lawyers such as Krajec are not fond of the idea. He believes that all lawyers will try to protect their clients by always using the gold standard, thereby raising the costs of patents. Patents applications can run a company thousands of dollars, and are already unaffordable for many start-ups.

John Duffy, professor of law at George Washington University, suggests that patent reform should include an expansion of the doctrine of obviousness. This doctrine says that an invention should be sufficiently unique -- i.e. not obvious -- to be granted a patent. A solution is obvious if many people would think of it to solve the problem. This would make it harder to obtain patents of all kinds, software especially.

Finally, these experts suggest that the Patent and Trademark Office rules be changed so that patent examiners are held more accountable for the patents that they grant. When patents are challenged and overturned, examiners today are out of the loop. Examiners with a low rate of overturned patents could perhaps be paid more, or be rewarded with other incentives.

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