By Ania Jedrusik, Consultant, IP and Innovation, Switzerland, and Phil Wadsworth, IP Consultant and former Chief Patent Counsel, Vice-President and Legal Counsel of Global IP at Qualcomm Inc., USA
Technology is the backbone of the digital economy and much of its value lies in software. Indeed, all economic sectors are becoming reliant on software to leverage growth. This has important implications for intellectual property (IP) laws.
Until the late 20th century, the functionality of most innovative products, particularly those relying on semiconductors, was primarily embedded in hardware. There was no doubt about their patentability. But today, increasingly sophisticated semiconductor technology and design tools mean that physical objects are no longer the sole basis of innovation. In other words, technical functionality is progressively migrating from hardware to software. And yet in many jurisdictions software-related inventions either do not qualify for patent protection or have a very limited scope of protection.
Today, increasingly sophisticated semiconductor technology and design tools mean that technical functionality is progressively migrating from hardware to software and yet in many jurisdictions software-related inventions enjoy only limited protection. Is the time ripe to rethink IP laws to bring them in line with present-day commercial realities (Photo: iStock.com/tcareob72).
The huge economic growth and innovative potential of technology companies that develop products that combine hardware and software, and of the software industry in general, suggest the time is ripe to rethink IP statutes and bring them into line with present-day commercial realities.
The advantages of software-intensive systems
The great advantage of software is that engineers and designers have more flexibility in developing – and launching, or licensing to others to launch – products with new technical capabilities, and in fixing errors and releasing new software with simple downloadable updates. In many cases, implementing an invention in software rather than in hardware is more rapid and is the faster and more cost-effective way to get a product to market.
Consumers benefit from seamless and affordable access to the latest advances. And the relatively low capital investment involved in creating software solutions makes market entry easier for small businesses and startups. However, these companies still need effective IP protection to secure a reasonable return on their R&D investments.
Which IP rights are relevant to software protection?
Historically, IP laws have influenced the success of the software industry by providing software developers with a legal mechanism through which to capture at least some of their innovation’s market value. Since at least the 1960s, the software industry has relied on three distinct IP protection regimes: trade secrets, copyright and patent law. The scope of protection offered by each has varied significantly over time, as has the software industry’s reliance on them.
History shows that patent law offers the most effective framework for protecting an invention’s functionality. In many countries, however, a distinction is drawn between inventions implemented in hardware, which are patentable, and inventions implemented in software (i.e. computer programs), which are protected by copyright law. But in a world in which the Internet – and not hardware such as CDs – is the prime channel for software distribution, this legal distinction makes it difficult for inventors of software-related inventions to effectively protect and leverage the commercial value of their inventions through IP systems.
These innovative contributions are no less significant than hardware-based innovations. Computer programs, including software-related inventions, are products in their own right regardless of how they are distributed. Would it not be reasonable for such inventions to enjoy effective protection under patent law?
The software industry today
Today, many technological innovations rely on software advances. Take the software-related innovations that have revolutionalized the smartphone. Between 2009 and 2013, the total aggregate lines of code in the chips – the brains of the smartphone – shipped by Qualcomm increased from 330 million to 3.3 billion. These phenomenal and unprecedented developments were the result of years of high-risk R&D investment.
Software-implemented functionality is making an expanding range of everyday products safer and more efficient with higher performance. It is creating entirely new offerings and capabilities, such as intelligent power grids, digital manufacturing, real-time farm management systems, smart cities powered by interconnected (Internet of Things) platforms, and digital healthcare.
Estimates suggest that the digital economy – which relies heavily on software-related innovations – already represents 22.5 percent of the global economy.
Global R&D spending on software offerings has also grown rapidly, rising from USD 86 billion in 2010 to USD 142 billion in 2015, an increase of 65 percent.
The United States has one of the most software-intensive industries in the world (see Robert J. Shapiro, The U.S. Software Industry: An Engine for Growth and Employment, SIIA, 2014). In 2014 alone, the industry directly added an estimated USD 475.3 billion – and USD 1.07 trillion indirectly – to the country’s GDP, directly employing 2.5 million people and indirectly supporting some 9.8 million jobs.
The benefits of patent protection
As a general rule, new inventions in any field of technology qualify for patent protection if they are novel, non-obvious and useful (criteria of patentability are set out in national patent laws). Patent protection offers significant benefits to innovators:
- ensuring inventors get a reasonable return on their commercially successful innovations;
- making it easier for innovation-based startups and small businesses to establish fruitful business collaborations;
- promoting the systematic sharing of knowledge through patent disclosure, itself an important driver of innovation; and
- helping attract investment partners and support business expansion.
Yet patent laws generally do not treat software-related inventions in the same way as other novel technology advances. This may be due to a lack of understanding of either the nature of software innovation or of the protection afforded by different IP rights.
Answering the critics of software patents
Some commentators claim that the R&D expenditure associated with developing software-related inventions is not the same as that for other technology fields. Yet many such innovations, for example systems to improve energy efficiency, advanced medical diagnostic tools, smart car safety solutions and surgical robots, take years to research, develop and commercialize.
Others argue that software patents are of low quality or that they effectively grant protection to “mathematics”, and that copyright and trade secrets provide adequate and substantial IP protection for software.
While the advantage of copyright is that protection is automatic and free of charge as long as a work is original, reliance on copyright as a sole protection system only safeguards against the literal copying of the source or object code; it does not protect the underlying invention implemented by the software.
Similarly, trade secrets require no formal registration beyond non-disclosure agreements. But trade secret protection is one of the least developed areas of IP law. Even in jurisdictions that have trade secret law, it does not protect against innovations that are easily ascertainable by the public through independent discovery or reverse engineering. Moreover, trade secret protection is not appropriate for standardized technologies that facilitate interoperability such as smartphone communications technology, because standard-setting organizations require the nonconfidential exchange of technical information. Trade secret protection does not enable such information sharing.
So while copyright and trade secrets are complementary forms of protection, they do not provide the same benefits as patents nor the same incentives to invest in the underlying innovation.
The quality of an invention, rather than its mode of implementation, should be the litmus test for patent protection. The decision to employ an invention using software or hardware is often a design choice that should be left to technical experts, not circumscribed by patent laws. Relying on a distinction between software-related and non-software-related inventions to justify discriminatory treatment frustrates the purpose of patent law and could hamper technological progress.
If quality is the concern, the patent examination process is already designed to ensure that legal protection only extends to inventions that fulfill certain stringent criteria. Would-be inventors must present an idea that is novel, useful and non-obvious to someone “skilled in the art”. Patent examiners are empowered to consider whether the proposed invention represents a technical step forward. The focus should be on ensuring that examiners have the right tools to make that evaluation, not on excluding software-related inventions from patent protection.
A variety of national approaches
A glance at the international patent landscape reveals a variety of approaches in handling the patentability of software-enabled inventions.
In Europe, the European Patent Convention (EPC) (Articles 2(c) and 3) state that a computer program claimed “as such” is excluded from patentability. But an appeal by IBM (Case number T 1173/97) before the Board of Appeals for the European Patent Office provided useful guidance. The Board stated that a narrow reading of the relevant articles meant that not all computer programs should be excluded from patentability to comply with Article 27 of the TRIPS Agreement which deals with patentable subject matter. The Board concluded that “computer programs as such” referred only to those that were non-technical in character. It also acknowledged that “it does not make any difference whether a computer program is claimed by itself or as a record on a carrier”. In other words, as long as a computer program is technical, the medium in which it is recorded is irrelevant and is, in fact, patentable. Given the current widespread online commercial distribution of software, this is an especially important finding.
In the United States, patent protection for software-related inventions is limited to those on recordable media, not to computer programs themselves (see In re Beauregard, 53 F.3d 1583 (Fed. Cir. 1995)). This protection falls short when it comes to the online distribution of software. Unfortunately, the Supreme Court’s decision in Alice Corp. v. CLS Bank Int’l (134 S. Ct. 2347 (2014)) and some subsequent cases have failed to provide clear boundaries for the patent eligibility of software-related inventions.
Japan’s Patent Act (Article 2(3)(i)), on the other hand, explicitly refers to computer programs as patentable subject matter. The Act states that the claimed subject matter must be recognized as a “creation of technical ideas utilizing the law of nature” to qualify as a patentable invention. In general, according to the Examination Guidelines of the Japan Patent Office, to be patent-eligible, a claim for a software-related invention must demonstrate that software and hardware resources work cooperatively.
Risks of maintaining the status quo
Considering the extraordinary pace at which technology is developing, excluding software from patent protection may hamper technical development and lead to inefficient technical choices, reducing opportunities for technology transfer and collaboration. It may also disproportionately impact small businesses, whose only assets are generally intangible. What, beyond their IP assets, will protect them from copycats or free riders with greater resources at their disposal? Moreover, current variations in national IP laws can make it difficult for the software industry to flourish, particularly if businesses choose to relocate to jurisdictions where their IP interests are better served.
Final thoughts on software-related inventions
Patent protection is a proven means of supporting innovation, improving living standards and boosting employment. As the global economy becomes ever more digitized, with software increasingly forming the basis of innovation and business competition, can we afford to exclude or limit patent protection for software-related inventions?
The aim, surely, is to create conditions that allow innovators and engineers to dedicate resources to software development to find new ways to help us connect and do business. As digitization gathers pace in all areas of our lives, the time is ripe for the global community to re-examine the current state of play and to weigh up the merits of enhancing patent protection for computer programs that embody software-related inventions.