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There’s a lot wrong with America’s patent system — it often serves to undercut innovation, limits competition, and rewards trolls. But there’s a relatively easy short-term fix: Cap software patents at five years from issuance, a position adapted from the Electronic Frontier Foundation’s (EFF) Defend Innovation Project. While comprehensive legislation is needed to fix patent law, this first step is critical to reviving and protecting entrepreneurship, R&D, and technological progress in the United States.

Every year, new tech patents and court cases astonish the business world and reduce faith in the United States’ commitment to innovation. When Microsoft can patent page up and page down functions, Apple can patent the “Method for providing human input to a computer” (5-dimensional touch screens), and some random guy can patent a “Method of gravity distortion and time displacement” (read: time machine), we have to ask ourselves: What are tech and software patents actually accomplishing?

Many scholars and some judges, including some members of the Federal Circuit, (the appellate circuit that decides all patent cases), do not believe that software patents should be patent eligible subject matter under 35 U.S.C. Section 101 (“Section 101”).

For instance, in “CLS Bank Intl. v. Alice Corp. Pty. Ltd.,” decided May 10, 2013, the Court, sitting en banc, could not agree on how to test whether a software patent claim is too abstract to be patent-eligible under § 101. No single rationale enjoyed a majority, leaving only confusion for future courts as to the patent-eligibility of software.

The question of whether any software is patent eligible subject matter under Section 101 depends on which Federal Circuit judges are making the decision. The heart of the Section 101 challenge to software patents questions whether or not the software patents merely cover abstract ideas. Abstract ideas are not patent eligible subject matter under a judicially created exception to Section 101.

So when is a patent claim merely an abstract idea? You don’t know until all appeals have been exhausted because the Federal Circuit cannot even agree on the proper test.

A recent case demonstrates how extremely broad and abstract software claims have inexplicably survived judicial challenges. US Patent No. 7,346,545, “Method and system for payment of intellectual property royalties by interposed sponsor on behalf of consumer over a telecommunications network,” was granted to Ultramercial, Inc. in 2008.

Essentially, the patent covers the concept of showing a customer an ad instead of charging for content, and the trouble began when Ultramercial sued Hulu, WildTangent, and others for patent infringement in 2009. The Federal Circuit upheld the patent and both Hulu and WildTangent refused to roll over so the battle continued.

Hulu and WildTangent argued that Ultramercial’s patent was merely an abstract idea and not patent eligible subject matter. In 2011, the Federal Circuit denied their Section 101 challenge to the Ultramercial ruling, and in 2012, the Supreme Court asked the Court of Appeals to reconsider the decision. Still, on June 21, 2013, the Court of Appeals reaffirmed its earlier ruling that the claims were patent eligible subject matter. Ultramercial is now moving forward on its infringement claim in the District Court.

Of note, a Section 101 challenge does not decide the validity of the patent over the prior art – it determines if the method or system is even eligible for patent protection. If successful, Ultramercial will likely attempt to monetize the software patent against the likes of YouTube, Hulu, WildTangent and potentially thousands of other companies that display ads. Ultramercial could thereby drain much needed resources from the digital content world for years until the patent expires.

The basis for patent law is from the Constitution itself. Article I, Section 8, Clause 8 empowers Congress “to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writing and Discoveries.”

This raises many questions: What counts as a “Discovery”? How long should “limited Times” be? What is an “exclusive Right”? And how do we define “Progress”?

Naturally, the legal world continues to debate all these questions. Meanwhile, the US Patent and Trademark Office (USPTO) approves over 40,000 software patents per year and reviews each for a meager average of 18 hours, according to the EFF. We need only highlight a few statistics to recognize that current interpretations of the Copyright Clause are failing to support even the obtuse definitions of “progress.”

In 2011, researchers from Boston University found that direct and indirect costs of patent assertion entity litigation costs the US economy $80 billion each year. In the 5,842 defenses mounted against PAEs, 90 percent of the companies sued were small to medium-sized businesses.

In other words, PAEs seemed to disproportionately target startups and smaller businesses that lack the cash reserves for a protracted legal battle. Often, these are the same companies on the cutting edge of software innovation. We can imagine how different the world might be had PAEs targeted Google or Apple in their infancy. Now, the EFF reports that in 2011 both Apple and Google spent more on patent litigation and buying patents than they did on actual research.

In practice, the constitutional basis of patent law has been mistranslated by the legal and business world, and has thus failed to promote anything we might define as “progress.”

The appeal of starting and running a business in the United States is well known. The World Bank and International Finance Corporation’s 2012 Ease of Doing Business Index ranks the United States fourth after Singapore, Hong Kong, and New Zealand.

If we calculated patent law into the index alongside the ease of starting a business, dealing with construction permits, getting electricity and similar metrics, the picture might change rather dramatically — though not for New Zealand.

On May 14, 2013, the New Zealand House of Representatives put forth a bill that redefines software: “A computer program is not an invention and not a manner of manufacture for the purposes of this Act.”

Software is no longer an invention in New Zealand, but the amended laws will still permit the patenting of software when it is part of a novel piece of hardware. Thus, if a company invented a blender than required hardware-specific software, that software could be protected under the blender’s patent.

On June 7, 2013 the German Bundestag followed suit. The legislature issued a joint motion requiring the German government to ensure that computer programs are only covered by copyright and therefore cannot be patented.

This protects the ingenuity of source code, but not the purpose of the said code. So, the law supports competition by encouraging multiple companies to all produce software for a single, useful purpose.

Arguably, New Zealand and Germany’s amendments to patent law protect both startups and tech giants far more effectively than US law.

The question then is, why shouldn’t we simply abolish software patents now?

Perhaps that is the course this country will take, but in the immediate term, it may be prudent to see how such legislation affects New Zealand and Germany. The abolishment of software patents could deter capital-intensive software development, or companies may find clever ways around the law. Both countries have chosen to be in that experiment and the US may as well play scientist.

Short of abolishing software patents, switching from a 20- to a five-year limit could provide immediate benefits.

First, as Eric Goldman, a professor at Santa Clara University School of Law, pointed out in his three-part series in Forbes, software has a much shorter innovation cycle and lower capital requirements compared to pharmaceuticals and machinery, which require investments in laboratories and manufacturing facilities. Using the popularity of open source software as evidence, Goldman argues that software development would benefit from much shorter patent lives.

As in Germany, software developers could protect their source code, visual layouts and documentation with copyrighting. The five-year lifecycle would reward innovators for their hard work without putting a wrench in the global evolution of software.

Second, if highly vague and abstract ideas or overgeneralized and common sense “inventions” like Ultramercial’s patent on ad content continue to pass through the patent office, at least a five-year life can lay them to rest rather quickly.

A five-year lifecycle is only the first step in changing patent law to actually “promote the Progress of Science and useful Arts.”

[Image courtesy Wikimedia]

* The PandoDaily series “Patent Troll Smackdown” is brought to you by the Application Developers Alliance. To join the fight against patent trolls and tell Congress that innovators need patent reform please visit devsbuild.it/fightpatenttrolls. (Sponsored message.)