The Failed Experiment of Software Patents

I've noted before that we are witnessing a classic patent thicket in the realm of smartphones, with everyone and his or her dog suing everyone else (and their dog.) But without doubt one of the more cynical applications of intellectual...

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I've noted before that we are witnessing a classic patent thicket in the realm of smartphones, with everyone and his or her dog suing everyone else (and their dog.) But without doubt one of the more cynical applications of intellectual monopolies is Oracle's suit against Google. This smacked entirely of the lovely Larry Ellison spotting a chance to extra some money without needing to do much other than point his legal department in the right direction.

If that sounds harsh, take a read of this document from the case that turned up recently. It's Google's response to an Oracle expert witness's estimate of how much the former should be paying the latter:

Cockburn opines that Google, if found to infringe, would owe Oracle between 1.4 and 6.1 billion dollars — a breathtaking figure that is out of proportion to any meaningful measure of the intellectual property at issue. Even the low end of Cockburn's range is over 10 times the amount that Sun Microsystems, Inc. made each year for the entirety of its Java licensing program and 20 times what Sun made for Java-based mobile licensing. Cockburn's theory is neatly tailored to enable Oracle to finance nearly all of its multi-billion dollar acquisition of Sun, even though the asserted patents and copyrights accounted for only a fraction of the value of Sun.

It does, indeed, sound rather as if Ellison is trying to get his entire purchase price back in a single swoop.

Now, I may be somewhat biased against this action, since it is causing all sorts of problems for the Linux-based Android, and I am certainly not a lawyer, but it does seem to me that the points of Google's lawyers are pretty spot on. For example:

First, Cockburn has no basis for including all of Google's revenue from Android phones into the base of his royalty calculation. The accused product here is the Android softwareplatform, which Google does not sell (and Google does not receive any payment, fee, royalty, orother remuneration for its contributions to Android). Cockburn seems to be arguing thatGoogle's advertising revenue from, e.g., mobile searches on Android devices should be includedin the royalty base as a convoyed sale, though he never articulates or supports this justificationand ignores the applicable principles under Uniloc and other cases. In fact, the value of theAndroid software and of Google's ads are entirely separate: the software allows for phones tofunction, whether or not the user is viewing ads; and Google's ads are viewable on any softwareand are not uniquely enabled by Android. Cockburn's analysis effectively seeks disgorgement of Google's profits even though "[t]he determination of a reasonable royalty . . . is based not on thinfringer's profit, but on the royalty to which a willing licensor and a willing licensee wouldhave agreed at the time the infringement began."

Oracle's expert seems to be adopting the old kitchen-sink approach, throwing in everything he can think of.

Second, Cockburn includes Oracle's "lost profits and opportunities" in his purported royalty base. This is an obvious ploy to avoid the more demanding test for recovery of lost profits that Oracle cannot meet. ... Most audaciously, Cockburn tries to import into his royalty base the alleged harm Sun and Oracle would have suffered from so-called "fragmentation" of Java into myriad competing standards, opining that Oracle's damages from the Android software includes theoretical downstream harm to a wholly different Oracle product. This is not a cognizable patent damages theory, and is unsupported by any precedent or analytical reasoning.

Even assuming that Google has wilfully infringed on all the patents that Oracle claims – and that has still to be proved – it's hard to see how Oracle has really lost "opportunities" as a result. If anything, the huge success of Android, based as it is on Java, is likely to increase the demand for Java programmers, and generally make the entire Java ecosystem more valuable – greatly to Oracle's benefit.

So, irrespective of any royalties that may or may not be due, Oracle has in any case already gained from Google's action, and will continue to benefit from the rise of Android as the leading smartphone operating system. Moreover, as Android is used in other areas – tablets, set-top boxes, TVs etc. - Oracle will again benefit from the vastly increased size of the Java ecosystem over which it has substantial control.

Of course, I am totally unsurprised to find Oracle doing this. But to be fair to the Larry Ellison and his company, this isn't just about Oracle, but is also to do with the inherent problems of software patents, which encourage this kind of behaviour (not least by rewarding it handsomely, sometimes.)

Lest you think this is just my jaundiced viewpoint, let's turn to recent paper from James Bessen, who is a Fellow of the Berkman Center for Internet and Society at Harvard, and Lecturer at the Boston University School of Law. I've mentioned Bessen several times in this blog, in connection with his book "Patent Failure", which is a look at the US patent system in general. Here's the background to the current paper, entitled "A Generation of Software Patents":

In 1994, the Court of Appeals for the Federal Circuit decided in In re Alappat that an invention that had a novel software algorithm combined with a trivial physical step was eligible for patent protection. This ruling opened the way for a large scale increase in patenting of software. Alappat and his fellow inventors were granted patent 5,440,676, the patent at issue in the appeal, in 1995. That patent expired in 2008. In other words, we have now experienced a full generation of software patents.

The Alappat decision was controversial, not least because the software industry had been highly innovative without patent protection. In fact, there had long been industry opposition to patenting software. Since the 1960s, computer companies opposed patents on software, first, in their input to a report by a presidential commission in 1966 and then in amici briefs to the Supreme Court in Gottschalk v. Benson in 1972 (they later changed their views). Major software firms opposed software patents through the mid-1990s.6 Perhaps more surprising, software developers themselves have mostly been opposed to patents on software.

That's a useful reminder that the software industry was innovative before there were software patents, and didn't want them introduced. The key question that Bessen addresses in his paper is a good one: how have things panned out in the 15 or so years since software patents have been granted in the US?

Here's what he says happened:

To summarize the literature, in the 1990s, the number of software patents granted grew rapidly, but these were acquired primarily by firms outside the software industry and perhaps for reasons other than to protect innovations. Relatively few software firms obtained patents in the 1990s and so, it seems that most software firms did not benefit from software patents. More recently, the majority of venture-backed startups do seem to have obtained patents. The reasons for this, however, are not entirely clear and so it is hard to know whether these firms realized substantial positive incentives for investing in innovation from patents. On the other hand, software patents are distinctly implicated in the tripling of patent litigation since the early 1990s. This litigation implies that software patents imposed significant disincentives for investment in R&D for most industries including software.

It is hard to conclude from the above findings that software patents significantly increased R&D incentives in the software industry.

And yet this is one of the reasons that is often given to justify the existence of software patents despite their manifest problems.

Bessen then goes on to look at how things have changed more recently:

most software firms still do not patent, although the percentage has increased. And most software patents go to firms outside the software industry, despite the industry's substantial role in software innovation. While the share of patents going to the software industry has increased, that increase is largely the result of patenting by a few large firms.

Again, this gives the lie to the claim that software patents are crucial for smaller companies in order to protect their investments; instead, the evidence is that large companies are simply building up bigger and bigger patent portfolios, largely for defensive purposes, as Bessen notes in his concluding remarks:

Has the patent system adapted to software patents so as to overcome initial problems of too little benefit for the software industry and too much litigation? The evidence makes it hard to conclude that these problems have been resolved. While more software firms now obtain patents, most still do not, hence most software firms do not directly benefit from software patents. Patenting in the software industry is largely the activity of a few large firms. These firms realize benefits from patents, but the incentives that patents provide them might well be limited because these firms likely have other ways of earning returns from their innovations, such as network effects and complementary services. Moreover, anecdotal evidence suggests that some of these firms patent for defensive reasons, rather than to realize rents on their innovations: Adobe, Oracle and others announced that patents were not necessary in order to promote innovation at USPTO hearings in 1994, yet they now patent heavily.

On the other hand, the number of lawsuits involving software patents has more than tripled since 1999. This represents a substantial increase in litigation risk and hence a disincentive to invest in innovation. The silver lining is that the probability that a software patent is in a lawsuit has stopped increasing and might have begun a declining trend. This occurred perhaps in response to a new attitude in the courts and several Supreme Court decisions that have reined in some of the worst excesses related to software patents.

These comments come from an academic who certainly has no animus against patents. They hardly represent a ringing endorsement, but emphasise, rather, that very little is gained by granting such intellectual monopolies. Careful academic work like this, taken together with the extraordinary circus we are witnessing in the smartphone arena, strengthens the case for calling a halt now to the failed experiment of software patents.

Follow me @glynmoody on Twitter or identi.ca.

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