Thesis: The patenting of software is harmful to the business interests of profitable market driven software companies. Action: Individual companies need to make known their opposition to software patents. There is considerable likelihood that individual companies may be able to collectively influence government policy on this issue. A hearing by the Commissioner of Patents to be held in late January regarding this issue provides the industry with what will probably be its one and only opportunity to do this. Caveat: It is vital to clearly differentiate between public policy arguing against the Patent Office granting patents on software, and a continuation of the now widespread industry practice of applying for such patents. Until Patent Office policy is changed companies that fail to obtain such patents are significantly increasing their exposure to the business risks they pose. ----------------------------------------------------------------------- The patenting of software is harmful to the business interests of profitable market driven software companies. SOFTWARE PATENT LAWSUITS ======================== Most companies that are threatened over patent infringement probably prefer to keep the matter quite. Therefore the true impact of patents on the software industry is largely unknown. The following examples probably heavily understate the true effect. The biggest news at Comdex this year was the announcement of the Compton's patent. Compton's, a spin off of Encyclopedia Britannica, claim their patent covers multi-media searching. Their announcement received a very hostile response from the press. Compton's had been threatening everyone with a 3% license fee before the Patent Office spontaneously decided to re-examine it. This decision must have been a result of all the media attention it was receiving. Other than that there was nothing particularly unusual about this patent. Hundreds more equally broad software patents currently lie dormant in the Patent Office. Lotus, Microsoft, and Aston-Tate have all been sued by Refac, a litigation company, for a patent it acquired, 4,398,249, that contains a very broad claim covering "natural order recalculation" used in spreadsheets. Fortunately the case got thrown out on a legal technicality. This patent in question was filed in 1970, but wasn't issued by the Patent Office until 1983. Paul Heckel has threatened Apple and IBM over HyperCard and ToolBook respectively. Patent 4,736,308. Cadtrak has collected large sums of money and successfully defended its patent on the concept of an "xor cursor", 4,197,590. XyQuest was forced to remove features from the latest release of the XyWrite word processor after being threatened by Productivity Software. Attempts to license the features proved unsuccessful as Productivity Software increased the fees every time XYQuest attempted to reach an agreement. AT&T is finding itself free to start exercising its muscle. It first threatened members of the MIT X consortium alleging that the X11 windowing system was in violation of patent 4,555,775 which it holds on the concept of backing store. AT&T is now suing MCI for alleged software patent infringement. Novell is being sued for $220 million dollars by Roger Billings for infringing his patent on the concept of a file server, 4,714,989. The fields of cryptography and data compression are essentially off limits to programmers on account of patents. Numerous companies have been forced to obtain licenses from RSA Data Securities who purchased key patents from Stanford and MIT to create an outright monopoly on public key cryptography. Unisys has threatened people over the data compression algorithm also used in the Unix "compress" program. Microsoft is being sued by Stac Electronics over Microsoft's incorporation of transparent data compression in MSDOS 6.0. SAMPLE SOFTWARE PATENTS ======================= You can get a patent on any alleged new technique. For all practical purposes no invention is too trivial. Here are some examples. Please do not assume these comprise the worst possible examples. Thousands more software patents exist exactly like these. Word Processors --------------- A word processor that with a separate mode that the user selects when they wish to type in a mathematical formula. [Canon 5,122,953]. A word processor screen layout that simultaneously displays the global page heading/footing and the contents of the current page, and permits you to edit either. [Brother 4,984,162]. A word processor that has a feature that allows you to specify that a portion of the text should be shaded, such as may be useful when revising a manual, by enclosing the relevant text with commands that turn shading on and off. [Hitatchi 4,924,411]. A word processor which marks and makes correction to a document using a different color. [Sharp 5,021,972]. A word processor that monitors the sequence of keys you type and tries to teach you about new features. If it notices you doing a particular sequence several times, will display information about a simpler command sequence that may help you do what you want. [Sharp 4,947,346]. Spreadsheets ------------ A spreadsheet that can automatically collapses rows that are hierarchically subordinate to another row. [Microsoft 5,255,356]. A spreadsheet in which a single cell can contain comprise multiple fields. [Emtek Health Care Systems 5,247,611]. Operating Systems ----------------- A file server that merges together multiple pending writes that require updating the same meta-data. [Epoch Systems 5,218,695]. Remembering file access behavior and using it to control the amount of read ahead the next time the file is opened. [Microsoft 5,257,370]. Altering the working set of a process based upon its paging behavior and how its paging behavior changes in response to changes in its working set size. [IBM 5,247,687]. Miscellaneous ------------- A document storage system that has a digital camera to scan in documents documents, stores the documents on an optical disk, and uses optical character recognition to construct and index. [Smithsonian 4,941,125]. Using condition code graph analysis in a cpu simulator to determine whether it is necessary to simulate the generation of the condition codes. [IBM 4,951,195]. Generation of random numbers by feeding the output of one random generator into the input of another random number generator. [J. Colin James III 5,251,165]. The computer graphics representing of a surface using array of dots, rather than the more traditional wire frame model. [GEC 5,257,347]. Quicksort implemented using a doubly linked list. If you don't believe me go and read the patent! [Toshiba 5,175,857]. BACKGROUND: PATENTS IN GENERAL ============================== What is a patent? ----------------- A patent is a monopoly right created by the government to a new invention. It provides the holder the right to exclude others from making, using, or selling the invention, or any product containing the invention for a period of 17 years. The holder has to go to court to enforce this right. Independent re-invention does not constitute a defense against the charge of patent infringement. Patent holders typically grant third parties license to make use of the invention in return for an agreed license fee or royalty. Licensing a patent does not automatically permit the licensee to produce the named invention. Frequently an invention will be covered by several patents and it is necessary to license each one. A patent is obtainable by a third party for an improvement to an already patented invention just as readily as on anything else. The patent office interprets the notion of what constitutes an invention very broadly. Important inventions and trivial applications are equally patentable. There is a requirement that prohibits the obtaining of a patent if ... the subject matter taken as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains. [35 USC 103.] However this means exactly what it says: "non-obvious". It does not mean the invention has to be in some sense above the norm, or in any way clever. The patent office takes the attitude that if something has never been built before, then presumably, the invention is non-obvious. This causes significant problems in the software industry due to the rapid rate of technological change. Brian Kahin, at Harvard's Kennedy School of Government, states the the nature of what is considered to be an invention is "often at a level of abstraction that is shocking to the uninitiated." This point is key to any understanding of the workings and potential impact of the patent system on the software industry. There are at least three important vantage points from which the patent system may be considered; law: as a matter of jurisprudence, economics: as a public policy issue, and business: as a matter of financial self interest. I wish to focus on the last, the direct business impact of patents. I will first briefly discuss the other two. Most people who deal with the patent system have some sort of legal background. It is not surprising then that the legal technicalities of the patent system gain the most study. For our purposes however the precise legal details of the patent system are only of marginal interest. Suffice to say patent legislation has a long history dating back to the English Statute of Monopolies of 1623. The U.S. constitution granted Congress the right to issue patents subject to certain constraints. The economic rationale for the patent system is that on account of the appropriable nature of inventions it is necessary to grant patents so as to provide an incentive to invent. Economists tend to be slightly uneasy about the patent system on account of its ability to stifle competition. From a business point of view all that really matters about the patent system is the bottom line. Would the existence of fewer patents increase or decrease profit margins? This is a difficult question to answer, but it is likely that the patent system is detrimental to much of the software industry. The reasons for this are discussed in much more detail below. Patents create uncertainty. --------------------------- Uncertainty is bad for business. It makes it difficult to decide the best strategy to pursue. Patents carry with them a great deal of uncertainty. Which patents might we be in violation of? Will the patent owners take any action? What royalties will they request? Will they sue? Will we be able to get the patent overturned? What damages might be awarded? These are not questions that can be incorporated into the smooth everyday running of a business. They are not questions comparable with concerns about tuning advertising or production inefficiencies or glitches. Rather they are issues that can kill a product stone dead and destroy companies. The penalties for patent infringement can be severe. The most famous case is Polaroid v. Kodak in which damages amounted to $900 million. A further $500 million was reportedly spent by Kodak buying cameras back from consumers. And slightly more recently, ... a US District Court jury in California awarded $1.2 billion in damages based on the company's claim that Honeywell, which developed the first laser gyros in the 1960s, had subsequently and "willfully" appropriated a special process Litton patented in 1978 for coating the instruments' high-precision mirrors. [Photonics Spectra, October 1993.] The fact that it is impossible to produce any new products in the computer industry without violating numerous patents is therefore cause for considerable concern. Most large hardware companies appear to recognize the threat patents can pose. Patent negotiations are conducted with the spectre of the intellectual property version of mutually assured destruction in the background. A company that attempts to fully assert its patent rights against a competitor is liable to find the competitor doing the same against it. The end result would be both companies going out of business. Since this is in neither parties interest an uneasy truce tends to prevail; in the hardware industry cross licensing tends to be the norm. As a game theoretic construct mutually assured destruction is known to significantly reduce the occurrence of hostilities, but when they do occur they tend to be far more bloody than they otherwise would. In the hardware industry large sums of money must be invested to be able to perform any sort of development. This limits the number of companies in the industry as well as tempering their desire to seek aggressive royalties. In the software industry very little capital is required to be able to be able to play a minor role in the software industry. Consequently many companies and individuals may hold important patents. Producing relatively little product they may be able to seek aggressive royalties without great fear of a counter suit preventing them from developing products themselves. It is sometimes argued that patents cause little harm to the hardware industry because license fees typically only amount to a few percent of sales. This neglects the fact that profits too often only amount to a small portion of total revenue. Therefore patent licensing can have a significant effect on the bottom line. Further, it ignores the fact that any one product in the computer industry is sufficiently complex that it may require many many patent licenses. Although this document contains much talk of software preventing the development of various products, this obviously isn't strictly true. It would be more accurate to say patents increase the cost of developing and producing various products. It may be possible to challenge the validity of a patent, or to find a way of working around it, but both of these incur costs, and cause time to market delays and which, given the rate of change in the computing industry, are still serious cause for concern. It is also obviously possible to license the necessary patents. However the rational patent holder will set license fees to just below their expectation of the profit margin on the product, making development of the product a marginal proposition at best. "Mutually assured destruction" prevents most hardware companies from being able to behave in this "rational" manner. The same may not be true of the software industry because the software industry has many small players. SOFTWARE PATENTS ================ Patent office policy. --------------------- While a few earlier examples can be found, essentially beginning in the early 80's and in response to supreme court decisions the patent office started to grant patents on inventions that included software. Different companies realized this at different times and started submitting applications accordingly. It is fair to say that by 1990 most in the computing industry were well aware of this policy and had applications pending. Since it typically takes 2-3 years for an application to be approved, it is only relatively recently that the full effects of this policy are becoming apparent. As a technical point the patent office maintains that algorithms per se are not patentable. This is indeed the case, although for all practical purposes algorithms may as well be. An algorithm in the abstract is not considered patentable. However an algorithm when used to solve some particular problem is considered patentable. Thus the "RSA algorithm" is not patentable, however "use of the RSA algorithm to encryption data" is patentable. If it turned out that you suddenly decided to use the RSA algorithm to, say, produce a string of random number, you would not be infringing the RSA patent. For all practical purposes algorithms are patentable. There are some difficulties in defining what precisely constitutes software, and what constitutes a software patents. I won't attempt to resolve this here. Common sense is enough to guide this discussion. As in most other fields, patents are granted for what constitute the straight forward solutions to simple every day programming problems. Many patents amount to no more than the direct application of standard programming techniques to some particular application domain. Some examples will be given later. The patent office grants roughly 2,000 software patents each year. This figure is extremely large in comparison to the number of major innovations that occur in the software industry. Nonetheless, it is not out of step with the standard of novelty that the patent office employs for other industries, which result in a total of 100,000 patents being granted each year. The marginal cost to produce software is very small. This is one of the main attractions of the software industry. If sufficient volume is attained profit margins can become very high. By requiring the payment of unavoidable royalties software patents could destroy this. Patents will hurt the software industry. ---------------------------------------- Software technology evolves at an extremely fast rate in response to underlying hardware price and performance advances, and an ever expanding market. The presence of patents lasting for 17 years is therefore extremely frightening. Think back 17 years. Computer graphics didn't exist, networking didn't exist, the 6502 and Z80 where the most popular microprocessors. x86 based PC's have only been around for 13 years. Processors are doubling in speed every 2 years. Compare this rate of progress to that of other industries such as the aircraft industry. Seventeen years is a very long time. The existence of patents back then on what might have seemed non-obvious or esoteric technologies could be extremely damaging today. Likewise much of what is considered non-obvious today may be seen as being fundamental tomorrow. Software is developed by building on the work of others. Seeing what products already exist and then trying to build something better. Patents will insert a timely or expensive legal delay in this previously intense innovative cycle. Software essentially occupies a realm free from the constraints of the physical universe. Consequently the "cost per invention" is very much lower than in many other fields. A single piece of software is liable to contain thousands of such "inventions", any of which may already be patented. The costs associated with handling this may be enormous. There are a very large number of people developing software. Consequently any novel idea is liable to have been thought of hundreds of times before. When the idea becomes appropriate for incorporation in a product the chances are it will already have been patented. Most disturbingly, as mentioned earlier, the cost to play a minor role in the software industry is extremely low. This makes it likely that people will be able to patent basic software techniques and latter threaten major software developers. Paul Heckel may be one such person. His own product having been a flop he appears to have a deep personal conviction that he was first to invent a technique, 4,736,308, that is used in Apple's Hypercard, and IBM's ToolTalk, and that these companies are therefore grievously harming him by not paying him large sums of money. Apple ended up signing a license agreement for his patent on terms not disclosed. He has been attempting to sue IBM. His book, "The Elements of Friendly Software Design" contains a 75 page epilogue attesting to the gross abuses he has suffered, and the injustice society has met out to inventors throughout history. Roger E. Billings is another such character. He has brought suit against Novell for $220 million dollars over patent 4,714,989 which he filed in 1982 on the concept of a file server. Newsgroups: comp.patents From: ernest@suntan.tandem.com.AU (Ernest Hua) Subject: File Server patent Date: Thu, 12 Mar 1992 19:08:17 GMT In the San Jose Mercury News, Wednesday, March 11, 1992, Section F: Apparently, this guy named Roger E. Billings claims that he invented the File Server concept and patented it (4,714,989). The patent was granted in December 1987 (applied for in February 1982). He claims he did most of his work during the late 1970s and early 1980s. Is this guy for real? How can the concept of a file server be patented? I mean, how about, if I patent the special way I walk across the street, or the way I sit on my chair. Heck, I bet no one has patented that one. This patent system is getting way out of hand. Client-server ideas have been around long before computers were invented. I think I will write a free DOS file server just to spite him. Ern -- Ernest Hua, Associate Design Engineer ernest@tandem.com Tandem Computers, 19333 Vallco Parkway, Cupertino, CA 95014 [XXX check article] Patents are viewed as valuable within other industries because of the monopoly positions they create. Your comb may be the only one with an inbuilt mirror for instance. Prevention of price competition permits the patent holder to reap much of the increase in value to the consumer that the product represents. However in the software field each product contains thousands of inventions. Would you prefer the word processor with inbuilt spelling checker, ability to format multi-column text, and an outline editor; or the word processor with proportional fonts, an equation editor, and Word Perfect key bindings; or how about the word processor that has style sheets, a page previewer, and document interchange facilities. The number of features contained in something as simple as a word processor is enormous. Therefore the legal risks and expenses associated with developing software become frightening. Software Patent Scorecard. -------------------------- IBM has a very strong software patent portfolio. It is over size even in proportion to the size of IBM itself. This is a result of IBM's patenting every single trivial idea every employee ever comes up with, rather than having any great propensity to be truly innovate. IBM has never been considered synonymous with innovative software. IBM even has a patent, 5,247,661, on a software application to permit employees to automatically document ideas for later patenting. Fortunately, when IBM was being investigated for anti-trust back in the late 70's and early 80's it issued a consent degree permitting the automatic licensing of its patent portfolio. As a result any one patent can be licensed for 1% of royalties, and the entire suite for 5%. In this regard the downsizing of IBM that is currently occurring is cause for considerable concern. If IBM ever feels free to start exercise its powers then its patent portfolio could pose a considerable threat to the entire computer industry. It has already recently increased the fee to automatically license its entire suit from 3 to 5%. The possibility of IBM selling off various divisions or deciding to break up is also cause for concern. A worst case scenario as far as the rest of the computer industry is concerned would involve some or all IBM's patents winding up in a company that produces few or no real products. None of the hardware or software companies that collectively constituted the "microcomputer revolution" hold significant numbers of software patents. That is companies such as Microsoft, Borland, Novell, Adobe, Lotus, NeXT, Intel, Apple, Sun, and SGI all have relatively weak software patent portfolios. These are the companies that have created wealth in the computer industry over the last 10 years through their developing of new and innovative products. They are very much responsible for turning the industry into the vibrant place it is today. Without these companies the software industry would be virtually non-existent. In what may be judged as either ironic or deeply disturbing most software patents are held by companies who history has proven to be totally unable to bring innovative software products to market. Interestingly, approximately 12% of all software patents are owned by IBM (roughly 1,000), and no other companies come close (the importance of this being that Microsoft just paid $20,000,000 to license IBM's software patents). Other American companies with many software patents include ATT and the Bell Laboratories, Xerox and DEC, while Hitachi has the most patents by a Japanese company (roughly 450), along with Toshiba, Fujitsu, Fanuc, Sharp and Mitsubishi. [Gregory Aharonian, Communications of the ACM, January 1993.] The following constitute my best estimates of the number of software patents granted to various companies between 1990 and 1992: Software patents granted 1990 - 1992 ------------------------------------ IBM 500 Fujitsu 50 Lotus 7 Hitachi 400 HP 50 Novell 1 AT&T/Bell 150 Sun 50 Borland 0 DEC 150 Unisys 30 NeXT 0 Toshiba 150 Apple 20 Oracle 0 Sharp 100 Texas Inst. 20 Pyramid 0 Xerox 100 Microsoft 13 SGI 0 Canon 70 Intel 10 Sybase 0 Motorola 70 Matsushita 9 Wang 60 Adobe 8 Total software patents granted (1990 - 1992): 5000 Entities with fewer than 5 s/w patents: 1000 Entities with 5 or more s/w patents: 60 [Because of the way patents are classified it is very difficult to gather accurate data on how many software patents exist. Differences of opinion as to precisely what constitutes a software patent also muddy things. The above data is indicative of the overall situation, but the individual figures may have errors of anywhere up to 50%.] The above table tends to suggest a significantly negative correlation between the number of software patents granted to a company and its ability to bring innovative software products to market. Companies that form the backbone of the software industry: Microsoft, Adobe, Lotus, Novell, Borland, Oracle, Sybase, have relatively few software patents. While companies that hardly market any software: Hitachi, AT&T, Toshiba, Sharp, and Xerox, have many. As an example of this consider Sun's Network File System, NFS, which Sun designed and developed, which for its time was a highly innovative product, and which went on to become the standard protocol throughout the Unix industry. Although far from conclusive a search for the string "NFS" on a small database of some 2000 patent abstracts which I maintain turned up five patents assigned to IBM, one to Auspex, and none to Sun. This is despite the fact that Sun developed NFS, and the other two companies have engaged in no more than the most trivial of tinkering around the edges. When asked to name some companies responsible for the production of innovative software, Hitachi isn't one of the companies most people immediately think of. Between 1990 and 1992 software patents were granted to roughly 1,000 different people and organizations. This tends to confirm the theory that entities that individually play only a very small role in the software industry will be able to obtain patents on various software techniques. HOW TO SUCCEED ============== What made today's software companies successful? ------------------------------------------------ Borland didn't invent compilers. Microsoft didn't invent DOS. Novell didn't invent networking. No, these companies simply came up with better implementations of already existing technologies. Sun didn't invent Unix. Apple didn't invent the GUI. Oracle didn't invent databases. Fundamentally, today's successful software companies have become successful because they are market driven, rather than a technology driven companies. These companies don't build a piece of software because they think it is going to be fun to do something no-one else has done so before. This companies try to build products that the hope will be able to solve the real problems that their customers are facing. These companies don't have a hoard of researchers working in obscure fields in the hope that one of them will discover something useful. Every employee is working on something that it is hoped will directly effect the bottom line. The focus is very much on "doing it right" rather than on "doing it first" or "doing it differently". This is why software patents are bad for today's software companies. By permitting other companies to monopolize new technologies patents strike at the very essence of their business philosophy. It is easy to have the right answer at the wrong time. These companies try to have the right answer at the right time. Patents prevent these companies from introducing better implementations of what were once half-baked technologies. This happens because these companies seek to introduce the technology at a later date, when the technology is sufficiently mature and the installed base justifies it. Moreover, it is easy to be the first to develop a technology, such as desktop video. The hard part is to make it useful. To produce a product that incorporates all the necessary features, is easy to use, works well, is bug free, and functions as an integral part of the overall system. Most importantly to produce a product that effectively solve a real customer need. The hard problems of this world, the problems these successful companies are able to solve have nothing to do with technology. The hard problems of this world have to do with building useful products - largely by choosing, implementing, and integrating already existing technologies. [Academia provides the example of a segment of society with a different perspective, that seem to view the hard problems of this world as having to do with the inventing new technologies. Academia is largely mistaken.] All of these companies have relatively few software patents. Further the patents they do hold are liable to have relatively narrow claims. For instance something like "enhanced file attribute caching mechanism" rather than "image storage and retrieval system". This is a result of their focus on developing the right product at the right time, rather than on trying to be the first to leap into every new technology. These companies opportunities to obtain important software patents are somewhat limited. These companies don't spend their time thinking what can we do that no one else has done before, but which techniques does it make sense to incorporate into products. Software patents will hurt these companies because they will prevent from doing what they do best: bringing technology to market not because it is new, but because it timing is right. Which companies will succeed in the future? ------------------------------------------- A vision of patents entrenched in the software industry is a vision of stagnation. A vision of IBM once again calling the shots. A vision of companies like Xerox and AT&T who have proven incapable of bringing their innovative products to market stealing profits from those companies can. Such a vision is particularly alarming to the successful software company of today, the company skilled in building and bring products to market. It should be clear that software patents can be viewed as presenting an extremely profitable opportunity. Unfortunately these profits are only likely to accrue to those outside the software industry. Those that have no real products to build. Companies that build products are going to have a much harder time. First, they can't aggressively seek royalties on their patents for fear of an equally aggressive counter suit on some other patent. Second, building products that don't infringe patents is likely to prove an extremely expensive business. Patented techniques may have to be identified, and either licensed, worked around, or development activities on the product discarded. Those that have few or no products to sell are likely to pose a significant threat to those that do. An example of a successful software company of the future might be RSA Data Securities. Instead of building and marketing a real product it purchased the patent rights to a technology. It now collects royalties from companies capable of integrating and marketing products containing this technology. Being property, patents can be bought and sold. Some companies specialize in acquiring and litigating patents. Such companies present another example of the software companies of the future. Lastly we might see the software equivalent of Gilbert Hyatt. His specialty appears to be to file a very broad patent relating to some emerging technology, contest the claims with the patent office for as long as possible, and when the patent finally issues attempt to collect sizable royalties for the next 17 years. See for example patent 4,942,516 originally filed in 1971 [XXX], finally issued in 1990, and titled "Single chip integrated circuit computer architecture". Newsgroups: comp.patents Approved: patents@cs.su.oz.au From: srctran@world.std.com (Gregory Aharonian) Date: Tue, 12 Nov 91 18:56:52 -0500 Subject: Hyatt's microprocessor has first license Last week, the Wall Street Journal had a short article stating that Hyatt, the guy who won the controversial patent on the basic microprocessor, had just had his microprocessor patent licensed by the US division of Philips Electronics (along with licenses to his other patents). This should boost the credibility of his microprocessor patent from a financial point of view, if not historical. Gregory Aharonian Source Translation & Optimization [XXX get article] Equally disturbing, such people tend to be viewed in the media and by juries, as being in some sense unsung heroes who have had their inventions misappropriated by "evil large corporations". As is the case with [XXX] who was recently awarded [XXX] for invention of the auto window wiper. [XXX get article, check wais?] OPTION FOR THE SOFTWARE INDUSTRY ================================ It's all a question of money. ----------------------------- Fundamentally, the effects of software patents boils down to a simple equation. Software patents are harmful if: profits we will profits we royalties loose if our royalties will gain if legal and other we + competitors < we + we are free + administrative receive are free from pay from our costs our patents competitors patents For companies that build and bring innovative software products to market the first and second terms will be relatively small. The third term will be quite large due to the likes of IBM. It also probably has a large positive uncertainty due to the likes of Gilbert Hyatt. The fourth term probably isn't very large yet, but as more and more fundamental technologies are patented it will rise rapidly. The fifth term is probably small, but non-trivial. These administrative costs include the costs of obtaining, maintaining, litigating, and defending patent suits. They entirely constitute destroyed wealth. Option A: Evolving with software patents. ----------------------------------------- Strong parallels can be drawn between the functioning of the markets and the notion of survival of the fittest from evolution theory. The successful software company of today has succeeded because of its ability to develop and bring innovative products to market. However software patents will make these traits far less desirable. The desirable traits will be those embodied in IBM, Hitachi, Xerox, and AT&T. An ability to produce software inventions without producing software products. These traits will be rewarded. Some companies may be able to adopt to these changes. While those that can't may become extinct. To survive software companies need to somewhat de-emphasize developing new products to solve real customer needs and emphasize activities more likely to result in obtaining broad patents in newly emerging fields. Companies that choose to develop and market significant products should expect and make contingencies for the suits alleging patent infringement. Having a large patent portfolio will prevent threats from competitors, but will only provide a limited defense against those who produce little. Option B: Eliminating software patents. --------------------------------------- Those companies that don't wish to evolve, or feel they will be poorly suited to the new environment have the option of attempting to change current patent office policy relating to the patentability of software - while at the same time obtaining as many such patents as possible. Because of the threat they pose to the business interests of the successful software company of today, such companies should publicly express their opposition to the granting of patents on software. There is currently a considerable opportunity for such an expression to influence government policy. In response to all the attention being focused on the issue of software patents, the Patent and Trademark Office has announced it will hold a public hearing. The hearing will discuss whether, and to what extent patents should be granted on software. It will be held on January the 26th and 27th in San Jose. This provides an excellent opportunity to make public any opposition to software patents. OPPOSITION TO SOFTWARE PATENTS ============================== Articles discussing the threat posed by software patents have appeared in numerous newspapers including the New York Times, Wall Street Journal, and Washington Post. Economists have in the past raised many unanswered questions regarding the functioning of the patent system. Their questions, doubts, and arguments could be of key value in providing what might be considered an independent outside voice on a matter of public policy. Pamela Samuelson, Professor at the University of Pittsburgh School of Law, and Brian Kahin, Adjunct Research Fellow at Harvard's Kennedy School of Government, are both speaking eloquently against the current patent office policy of patenting software. The American Mathematical Association [XXX] has issued a statement against the patenting of mathematical algorithms. Surveys by organizations such as the Association for Computing Machinery show a strong opposition to software patents amongst its members. Many academic computer scientists are willing to speak out against software patents. Wordperfect Corporation has expressed considerable concern regarding software patents. They currently receiving an average of about one letter a month alleging patent infringement and threatening legal action. Mitch Kapor, the original founder of Lotus recently attested before Congress as to the danger software patents pose. Dan Bricklin co-developer of VisiCalc, the first spreadsheet, has expressed similar concerns. As has Phillipe Kahn, president of Borland. Oracle Corporation recently issued a statement opposing the granting of patents on software. ORACLE CORPORATION - PATENT POLICY Oracle Corporation opposes the patentability of software. The Company believes that existing copyright law and available trade secret protections, as opposed to patent law, are better suited to protecting computer software developments. Patent law provides to inventors an exclusive right to new technology in return for publication of the technology. This is not appropriate for industries such as software development in which innovations occur rapidly, can be made without a substantial capital investment, and tend to be creative combinations of previously-known techniques. Even if patent law were appropriate for protection of software, due to the large volume of recently-granted software patents and the rising number of new applications, the current patent process would continue to be troublesome for the software industry. Software patent examinations are hindered by the limited capability of searching prior art, by the turnover rate among examiners in the Patent and Trademark Office, and by the confusion surrounding novelty and innovation in the software arena. The problem is exacerbated by varying international patent laws, which both raise the cost and confuse the issue of patent protection. Unfortunately, as a defensive strategy, Oracle has been forced to protect itself by selectively applying for patents which will present the best opportunities for cross-licensing between Oracle and other companies who may allege patent infringement.