Are software patents more trouble than they’re worth?

March 6, 2007, 7:31 PM UTC

We’re quite used to hearing that question posed (and answered “yes”) by champions of Linux and other forms of free and open source software (FOSS). But those people have an obvious axe to grind: users and developers of FOSS fear being sued for patent infringement by big corporations, like Microsoft (MSFT), that have amassed huge software patent portfolios.

Remarkably, however, those very folks with the huge software patent portfolios — Microsoft, the Business Software Alliance, the Software and Information Industry Association, Intel (INTC), Amazon (AMZN), Yahoo (YHOO), Autodesk (ADSK) and others — now seem to be posing that question themselves, although one has to read between the lines a little bit. I’m talking about the message that emerges from the array of briefs those companies and groups have filed in connection with the recently argued U.S. Supreme Court case Microsoft v. AT&T.

The focus of that case is a narrow one. It has to do with a provision of patent law that was enacted two decades ago in order to discourage a pretty obviously unfair practice. (See earlier posting here.) U.S. manufacturers who wanted to make here, but sell abroad, a hardware device that would infringe U.S. patents had been manufacturing all the components here and then shipping them abroad for final assembly–doing an end-run around our patent laws. A law was enacted that forbids that practice. The question posed by the Microsoft v. AT&T case, is whether that law should apply to situations where the only exported “component” in question is software written in the U.S. but copied and reinstalled in computers abroad. Interestingly enough, the near unanimous view in the software industry–judging from the briefs submitted by the parties I’ve listed above–is that it shouldn’t. (The specific facts of the case are these: Microsoft concedes that its Windows operating system infringes a U.S. patent belonging to AT&T (T) relating to coding and decoding human speech. It is willing to pay royalties on copies of Windows sold in the U.S., but contends that it shouldn’t have to pay for copies installed on computers abroad and sold there. AT&T, and the court below, say it should.)

In other words, all these parties with mighty software patent portfolios would rather, on balance, not be allowed to enforce those valuable assets abroad, so long as they could be assured that, in exchange, they also wouldn’t have to worry about being sued for infringing anyone else’s U.S. software patents abroad. That doesn’t sound like a ringing endorsement of the U.S. patent system, at least as it relates to software patents; it sounds like the opposite. (Patent law is supposed to benefit industry by spurring innovation; yet it sounds like the software industry regards it as a net drag on in its industry.)

Emery Simon, counsel to the Business Software Alliance, assures me that none of the software companies in his group agree with my reading of their position. “All of our members believe that intellectual property rights generally, and patents specifically, are essential to promoting their continued development and distribution of innovative products and services,” he writes in an email. “The problem is how the lower courts have interpreted [the statutory provision concerning exportation of components], it is not the fact that the patent law protects software.” He continues: “The way the law has been interpreted is inconsistent with the objective of the law: the purpose of the law is to promote innovation, the effect of the lower court’s decisions is to create disincentives to US-based innovation. So, if the current interpretation of the law stands, US tech companies will have a disincentive to do their development in the US.”

What he’s saying is that the law, as it’s currently being applied, may drive U.S. software makers to move their operations abroad to ensure that they can sell their products abroad without running afoul of the U.S. patent system. Still, it sounds to me like the “disincentive to US-based innovation” he’s complaining about is the burden of having to operate within the U.S. patent system itself. And a patent system is supposed to provide an incentive to innovate, not a disincentive.

I wonder if Simon’s position and mine might be compatible in this sense: Maybe the companies with big software patent portfolios believe that software should be protected by a patent system; they just don’t believe it should be covered by the patent system we happen to have in place in the United States at the moment.

Can others make sense of this situation?