1.  Throwing Software Patents Out With The Bathwater George Finney, J.D., PMP Information Security Officer and Director of Digital Interests Southern Methodist University January 5 th, 2010

2. What is a Patent?

3. Copyrights and Patents  US Constitution Article 1, Section 8:  Congress shall have power... To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.  Section 101 of Title 35 U.S.C. sets out the subject matter that can be patented:  Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

4. Copyrights vs. Patents  Copyrights Protect Against Literal Infringement  You need to prove access to your work  You need to show actual copying  Last for lifetime of the author plus 70 years  Patents Protect Against Use  No need to show access to your work  Just need to prove that the thing in use is what is covered under the Patent’s claims  Last for 20 years

5. Copyrights vs. Patents  Copyrights don’t cover  Ideas  Patents don’t cover  Algorithms or laws of nature

6. Method Patents  Software Patents are also referred to as “Method Patents” since they refer to a process or series of steps of carrying out instructions on a computer.  The case law forecloses a purely literal reading of § 101 (“ any new and useful process” ).  Courts read 101 more narrowly, usually applying some kind of test to determine patentability.

7. Arguments For Software Patents  Promotes Investment and Economic Development  Ensures Innovations Enter the Public Domain  Protects Intellectual Assets of An Entity  Patents Have A Built In Challenge Mechanism for Bad Patents

8. Arguments Against Software Patents  Inhibits Innovation  Copyright Protections Are Good Enough  Most Patents Are Worthless or Trivial  Legal Costs Are Bourn By The Industry  Open Source Minefield  Software Patents Don’t Lead to Code  Patent examination is too slow  Patent Trolls

9. Amazon One Click  The United States Patent and Trademark Office (USPTO) issued US patent 5960411 for this technique to Amazon.com in September 1999.  On May 12, 2006, the USPTO ordered a reexamination of the "One-Click" patent, based on a request filed by Peter Calveley. Calveley cited as prior art an earlier e-commerce patent and the Digicash electronic cash system.  On October 9, 2007, the USPTO issued an office action in the reexamination which confirmed the patentability of claims 6 to 10 of the patent. The patent examiner, however, rejected claims 1 to 5 and 11 to 26. In November 2007, Amazon responded by amending the broadest claims (1 and 11) to restrict them to a shopping basket model of commerce. They have also submitted several hundred references for the examiner to consider. The patent examiner has yet to determine if this more narrowly defined One-Click method is patentable.  In Europe, a patent application on the 1-Click ordering was filed with the European Patent Office, but was never granted.

10. Bilski Summary  Patent for a method of hedging risks in commodities trading.  Claims:  (1) initiating a series of sales or options transactions between a broker and purchaser-users by which the purchaser-users buy the commodity at a first fixed rate based on historical price levels;  (2) identifying producer-sellers of the commodity; and  (3) initiating a series of sales or options transactions between the broker and producer-sellers, at a second fixed rate, such that the purchasers’ and sellers’ respective risk positions balance out.

11. Bilski Timeline 10 April 1997 – Initial Patent Application Filed Date – Patent Examiner Rejects Patent Date – Applicants Appeal to Board of Patent Appeals and Interferences (BPAI) May 8, 2008– Federal Court Rehears case En Banc October 1, 2007– Oral Argument before Federal Court June 1, 2009 – Supreme Court Grants Cert November 9, 2009– Oral Argument Before Supreme Court March 8, 2006 – BPAI Rejects Patent 3 April 2003 – Appeal to Administrative Law Judge

12. Machine or Transformation Test  The Federal Circuit decision in Bilski changes the law by requiring a process either to be tied to a machine or to transform articles in order to be eligible for patenting. This “machine-or- transformation test” is inconsistent with the patent statute, which provides that “any new and useful process” is patentable. The Federal Circuit’s test is also contrary to prior decisions by the U.S. Supreme Court in which the high Court refused to adopt the machine-or-transformation test.  The Federal Circuit in Bilski recognized that the Supreme Court may decide to alter or even set aside the “machine-or-transformation” test to accommodate emerging technologies.

13. Patents over the last 300 years

14. Comparison of Patent Filings by Country

15. Software Patents Source: Wikipedia

16. Increases in Foreign Patent Filings  Over the last 50 years, Foreign Patents have been steadily increasing.  One issue is that if the US gets rid of Software Patents, other countries may not follow suit. This could lead to US companies being at a disadvantage.

17. Patent Filings vs. R&D

18. Software Patents in Open Source  The Preamble to GPLv2, written in 1991 contained a specific statement against software patents:  Finally, any free program is threatened constantly by software patents. We wish to avoid the danger that redistributors of a free program will individually obtain patent licenses, in effect making the program proprietary. To prevent this, we have made it clear that any patent must be licensed for everyone's free use or not licensed at all.  GPLv3 goes further, dedicating an entire section (section 11) to software patents, requiring:  Each contributor grants you a non-exclusive, worldwide, royalty-free patent license under the contributor's essential patent claims, to make, use, sell, offer for sale, import and otherwise run, modify and propagate the contents of its contributor version.

19. Software Patents in Open Source  “Our work with Novell reflects a recognition by both companies that new technologies require new, creative approaches to intellectual property. Microsoft would like to see more leaders in more industries working together to resolve potential disputes amicably through licensing instead of litigation. And we would like to see everyone participate in the patent system, playing by the same rules.” Brad Smith General Counsel for Microsoft 2007  “The value of software copyrights compared to patents is dramatically reduced by the fact that you must prove copying to enforce a copyright. The utilitarian nature of software also restricts the scope of copyright protection to only literal copying as opposed to non-literal copying of look and feel and functionality. In short, copyrights protect against thieves, patents protect against competitors.” Dallas Patent Attorney 2005

20. Patent Reform Act of 2009  Proposed Change would make the US a First to File system  Limits to Litigation  Requires infringement suits be brought only in states where the defendant has a physical place of business that constitutes a "substantial portion" of its operations.  Broadens the use and expediency of appeals.  Creates stricter rules and criteria for "willful infringement".  Proposes stricter rules about the criteria for "reasonable royalty" and creates a set criteria for measuring damages  Allows defendants to win with a "good faith" defense, if they believed the patent was invalid, unenforceable or not infringed when violating the patent.  Expanded Reexamination Proceedings  Additional Post Grant Review : Within 12 months of issuance, a third party can file a cancellation petition based on any ground of invalidity (rather than simply prior art). The post grant reviews would also be conducted by the administrative patent judges.  Pre-Issuance Submissions : Third parties can submit prior art during examination of the patent as well as a statement regarding the relevance of the art. The art should be submitted the latter of (1) six months after publication or (2) before the first office action on the merits.

21. Predictions  Patent Reform is more likely than the destruction of all software patents  The Supreme Court will most likely not get rid of method based patents.

22. A Word On Patent Trolls  Patent trolls won’t be going away anytime soon. Individual patents are probably worth more to a patent troll than to a small company. Large companies have thousands of patents (Microsoft has over 6,000).  A large company can use these patents defensively against a smaller company who produces software, since it is likely that the defensive portfolio may contain some patent covering a part of the smaller company’s software.  Patent Trolls are immune to this, since most produce no software, and therefore a defensive patent portfolio is less effective against them.  The Current Patent examination process is designed to let the costs of bad patents be bourn by the industry. While this is unfair to smaller companies, larger companies are the beneficiary of these monopolies, so they can bear the burden.

23. Don’t Throw The Software Patents Out With The Bathwater!  Intellectual Property makes up 80% of the book value of the Fortune 500 according to a study by the Brookings Institute.  Problems with bad patents don’t mean patents should go away. Better patent examination is needed. Open Source collaborative processes could be used for finding prior art, for example.  The most serious issue is whether Patents actually inhibit innovation in an area that is evolving rapidly.

24. References  Bilski  http://www.groklaw.net/staticpages/index.php?page=2009022 607324398 http://www.groklaw.net/staticpages/index.php?page=2009022 607324398  Microsoft’s Argument for Software Patents  http://news.cnet.com/Two-cheers-for-intellectual-property- law/2010-1014-6165353.html?part=dht&tag=nl.e703 http://news.cnet.com/Two-cheers-for-intellectual-property- law/2010-1014-6165353.html?part=dht&tag=nl.e703  Wikipedia  http://en.wikipedia.org/wiki/Software_patent http://en.wikipedia.org/wiki/Software_patent  http://en.wikipedia.org/wiki/Software_patent_debate http://en.wikipedia.org/wiki/Software_patent_debate  http://en.wikipedia.org/wiki/1-Click http://en.wikipedia.org/wiki/1-Click

25. References  Free Software Foundation  http://www.gnu.org/licenses/gpl.html http://www.gnu.org/licenses/gpl.html  Eliot Spitzer on Patents and Innovation  http://www.slate.com/id/2239986/ http://www.slate.com/id/2239986/  Patent Reform Act of 2009  http://www.patentlyo.com/patent/2009/03/patent-reform- act-of-2009.html http://www.patentlyo.com/patent/2009/03/patent-reform- act-of-2009.html

26. Questions? George Finney, J.D., PMP Information Security Officer and Director of Digital Interests Southern Methodist University gfinney@mail.smu.edu