Software Patents are for the Lawyers – by “Matthew C”

In 1991 Bill Gates said “Some large company will patent some obvious thing” and use the patent to “take as much of our profits as they want.”  Soon the shoe would be on the other foot – and Microsoft would use that shoe to kick the little  guy with big fat lawsuits!  But, though he would later fail to heed his own advice, Gates also understood the consequences of over-patenting, saying:  “If people had understood how patents would be granted when most of today’s ideas were invented, and had taken out patents, the industry would be at a complete standstill today.”

Patents, like copyright, exist to spur new creations.

As a society, we trade the cost of a temporary monopoly for the benefit of incentivizing new and creative inventions. In the case of software, however, this goal seems to have fallen by the wayside.  Instead, software research and development has become like navigating through a field of landmines.  There are simply so many patents out there that everyone ends up infringing.  And it just does not make sense in this day and age to grant exclusive, legally enforceable rights to everyone (probably literally millions of people and potential patents) who comes up with a new (or not all that new) way to use a computer.

In their book Patent Failure authors Bessen and Meurer claim that the cost of patent litigation began to outstrip profits from patents in the mid 1990s.  Furthermore, two thirds of the profits are going to pharmaceutical and chemical companies.  In understanding the rising cost of patent litigation, it helps to know that a company like IBM has a patent department consisting of hundreds of lawyers.

The litigation is not just pervasive and costly, it is pernicious.    Most egregious are patent trolls, companies that collect portfolios of patents for the purpose of extorting expensive licensing fees with the threat of costly litigation.  Yet the litigation does not need to be so clearly exploitative to have negative effects.  DataTreasury recently won a $27 million victory against U.S. Bank for infringing a check imaging patent.

Apparently it didn’t particularly matter that the patent in question had originally been rejected by the patent office and accepted only after the “inventor” Claudio Ballard simply added a layer of encryption indicating from which ATM machine a check came.  What’s more the defense cited check scanning technology going back as far as 1981, albeit with different underlying mechanisms.

We can only hope that the Supreme Court recognizes the error in allowing business methods patents and rules accordingly.  (And by the way they questioned unfortunate Mr. Jakes during oral arguments, it seems they do) Until then, the cost of doing business will continue to include extravagant litigation, and business innovation will be held back.

Let’s just hope that when the Court finally decides the result is not like this quote from DataTreasury’s attorney Nelson Roach:

“Remember what Dr. [Jerry] Hausman, the defendants’ expert, told you would happen if we disregarded intellectual property rights?”  Roach continued. “That we’d end up like India and Egypt where people don’t invent things. Instead, they go around talking about ways they hate America and ways they want to fly airplanes into our buildings.”

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