Software Patents in Denmark: To Be or Not To Be?

Every week brings us new reports about the destructive effect of software patents in the US, and of a patent office there that is only too willing to grant them and other undeserving patents: an excellent if depressing article by Timothy Lee...


Every week brings us new reports about the destructive effect of software patents in the US, and of a patent office there that is only too willing to grant them and other undeserving patents: an excellent if depressing article by Timothy Lee points out that the “allowance rate” - the percentage of patents that are eventually granted by the USPTO – is now a staggering 92%.

There are very good grounds for fearing that the imminent new Unitary Patent system will bring exactly the same problems to Europe, and yet there has been almost no discussion about it, certainly not here in the UK. Similarly, British citizens have not been asked whether they want this new system foisted on to them. You might say that’s an unreasonable thing to expect, since patents by their very nature are complex, specialised subjects. That may be true, but the fact that Denmark will be holding a national referendum on the subject in a few weeks' time, shows that it can be done.

Because of this unique public debate on the theme, I was invited to give a talk in Copenhagen last week on software patents and the Unitary Patent Court. I’ve embedded below my slides, which can also be downloaded.

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I began by noting that patents were introduced half a millennium ago in a particular historical context: a dearth of inventions and inventors. What monarchs were keen to do at that stage was to bring skills into the country by offering a temporary monopoly – the first English patent was for stained glass-making. That was still true a few hundred years later, when inventions were more common, but still sufficiently rare to warrant a government-backed monopoly as an incentive for people to produce more of them.

Today, we live in a very different world. In 2012, 469,000 patent applications were filed with the USPTO; 258,000 in Europe; 11,000 in Denmark alone. That is a world of inventive abundance, not scarcity. Some might say that’s great, and that it shows that the patent system is doing its job well, encouraging lots of inventors to come up with lots of inventions. But we need to look more closely at both the benefits and costs of that patent system, and its overall impact on the economy.

That’s precisely what a new research paper from Bessen, Neuhäusler, Turner and Williams entitled simply "The Costs and Benefits of United States Patents" attempts to do. It’s fairly long and complex – it’s written by economists, for economists – but its results are entirely straightforward.

The research looked at the costs and benefits to US companies of patents from 1984 to 2009. That’s particularly useful, since it embraces quite distinct periods in patenting. Overall, it found that the total benefits accruing to US companies from patents was around $385 billion. Calculating the total costs, which include indirect losses as well as the more obvious ones, was harder, and the authors of the paper came up with two different estimates based on slightly different methodologies.

The first of these produced a total cost to US companies from patents of around $538 billion, while the second came up with $1,490 billion. As a rough average, we can say that this research indicates that patents over the 25 years starting in 1984 cost US companies around a trillion dollars, give or take a few billion.

That’s a pretty extraordinary figure, and gives the lie to the idea that the patent system is working fine, thank you very much. It does, however, beg the question: how did this come about, assuming the system was working at some point previously? The work of Bessen and his fellow researchers shows that until 1996, things were indeed ticking along nicely enough: the overall benefits of patents outweighed the overall costs (although not by much.) And then, something happened: the patent trolls arrived.

The paper’s figures show this clearly. From 1984 to 1999: 88% of the costs of patents was attributable to “Practising Entities” - companies that make stuff. Just 12% could be attributed to patent trolls. From 2000 to 2009 the picture changes dramatically: companies were responsible for 39% of costs attributable to patents, while trolls had shot up to 61% of the total.

Even more problematically, patent trolls have a distinct preference for using software patents in their trolling. According to more figures from Bessen et al., from 1984 to 1999, computer-related patents owned by companies were responsible for 17.2% of the total costs attributable to patents, while for patent trolls the figure was 5.4%. Again, things changed dramatically later on. From 2000 to 2009 costs from suits based on computer-related areas from companies represented 12.1% of total costs, while patent trolls bringing cases based on computer-related patents represented nearly a third of all patent costs – 32.6%. That shows the unlovely alliance between patent trolls and software patents. The real danger is that with the new Unitary Patent, trolls might decide to set up shop here in Europe as software patents become easier to obtain.

Now, it might be objected that we don’t have software patents in Europe, thanks to the European Patent Convention, where Article 52 on patentability states that the following in particular shall not be regarded as inventions:

schemes, rules and methods for performing mental acts, playing games or doing business, and programs for computers

which would be perfectly clear, were it not for this addition:

Paragraph 2 [on exclusion from patentability] shall exclude the patentability of the subject-matter or activities referred to therein only to the extent to which a European patent application or European patent relates to such subject-matter or activities as such.

Those two tiny words “as such” have opened up a huge loophole for clever lawyers to exploit. They have been aided and abetted by the European Patent Office, which introduced the concept of "Computer-Implemented Inventions":

one which involves the use of a computer, computer network or other programmable apparatus, where one or more features are realised wholly or partly by means of a computer program

By 2002, there were already 30,000 of them. Here’s a tiny selection of those “computer-implemented inventions”:

transforming file names (EP0800142)

tabbed software palettes (EP0689133)

generating buying incentives from cooking recipes (EP0756731)

pay per use (EP0538888)

online sales (EP0803105)

As you can see, definitely no software patents there...

Even the European Commission recognised that things were a mess, and drew up a Directive on the patentability of computer-implemented inventions to clear things up – and to bring in software patents once and for all. Furious lobbying in favour of the idea went on for several years, culminating in the famous vote in the European Parliament on 6 July 2005, when the proposed Directive was soundly defeated by 648 votes to 14 – an interesting pre-figuring of a similarly resounding slap in the face for the European Commission in 2012, when the ACTA was thrown out by MEPs.

The failure to bring in software patents through that particular back door led to Plan B: the Unitary Patent. Although the idea of a pan-European patent makes a lot of sense, it becomes deeply problematic when coupled with software patents. That’s because absent the Unitary Patent, each country gets to decide what it thinks qualifies for this strange “computer-implemented invention”; it also means that patent trolls wishing to use such patents must sue in multiple jurisdictions, each with their own interpretation. That makes it complicated and costly – two things patent trolls like to avoid.

Now consider how things look with the Unitary Patent in place. Patent trolls will be delighted to learn that with one patent they can sue in 25 different countries. Moreover, they will sue in a new Unitary Patent Court, which no longer pays attention to national sensibilities when it comes to things like software patents, but simply toes the line set by the European Patent Office (EPO) - and not the European Union Court of Justice, as originally suggested when the Unitary Patent was first discussed.

If the European Patent Office were an institution of the European Union, subject to its wishes and its laws, that wouldn’t necessarily be a problem. But it turns out that the EPO is a very strange body indeed. Here’s how Wikipedia puts it:

The premises of the European Patent Office enjoy a form of extraterritoriality. In accordance with the Protocol on Privileges and Immunities, which forms an integral part of the European Patent Convention under Article 164(1) EPC, the premises of the European Patent Organisation, and therefore those of the European Patent Office, are inviolable. The authorities of the States in which the Organisation has its premises are not authorized to enter those premises, except with the consent of the President of the European Patent Office.

The EPO is like a mini nation-state. The local police are not allowed to enter its premises without permission. It is literally above the law. That seems to have led to some major problems with the EPO staff, as a Web site on the subject makes clear. Here’s just one document [.pdf] of many complaining about the issues caused by its special status:

There is a serious problem of governance in the EPO. The opacity of its decision-making processes and the lack of accountability is anachronistic in Europe and in the 21st century, at a time when states require from their institutions and from each other financial transparency and accountability. While the EPO may still be a competitive employer (in terms of remuneration benefits), its internal human resources policies (in terms of interpersonal relationships) are antiquated and brutal.

Structurally, the President of the EPO acts as accuser, investigator, judge and final arbiter on all matters; there is no separation of power guaranteeing a healthy system of checks and balances. The nearly absolute power the current President enjoys and the manner in which he uses it has been the source of particular concern and dismay. Staff and their unions consider the limitations on the
freedom of expression and freedom of associations (embodies in the right to strike), and the right to effective access to justice as a breach of their fundamental rights as European Citizens.

Clearly, some people working at the EPO are deeply unhappy.

The other problem is that the EPO is funded by its services. Although that might seem a big plus, in practice it means that it is naturally keen to have as many patent applications as possible, and to do that it needs to issue plenty as well. It also has a vested interested in widening the scope of patents so as to increase the number it issues.

It therefore naturally sees software patents – sorry, I mean computer-implemented inventions – as an opportunity, not a threat. And that may be true, seen from its perspective. But the Unitary Patent means that it will be far easier for patent trolls to use computer-related patents to bring to Europe the same devastating attacks on companies actually making stuff that they have inflicted in the US, and which have largely led to that trillion-dollar deficit there.

The Danes are fortunate in that they have the chance to remain outside this dangerous new system. Indeed, if they do so, we might see European software houses relocating there so as to remain immune to the attacks of software patent trolls using Unitary patents. Here in the UK, we – of course – have no such option. Instead, the wise and beneficent UK government has decided that we are going to be part of the Unitary Patent system, whether we want it or not.

One consequence will be that the cost of devices that use software will increase in Europe, as a patent tax is imposed through awards to patent trolls – remember that most Android systems are already more expensive than they should be simply because Microsoft has extracted patent licensing deals from their manufacturers.

As the Internet of Things begins to take off (assuming it does) those costs will become more widespread and significant as complex software is embedded within more devices. The cumulative patent taxes we will be forced to pay through higher costs will add up to a considerable sum, most of which will end up in the pockets of US-based patent trolls that set up shop over here, and will thus be lost to the EU economy. Time to emigrate to Denmark...?

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