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PROJECT REPORT OF INTELLECTUAL PROPERTY LAW

I. Introduction
During the early days of computer industry, the software came integrated with hardware. The issue of intellectual property remained confined to hardware only. All this changed during the sixties when software was unbundled from hardware. This gave rise to independent software vendors (ISVs) and the production of standard and custom operating systems, as well as independent applications softwares. Rapid diffusion of low-cost desktop or personnel computer (PC) in late seventies and eighties opened up huge opportunities for ISVs. The software industry gradually increased in terms of overall trade, production and consumption. In 1990s, the widespread diffusion of the Internet created new channels for low-cost distribution and marketing of packaged software, reducing the barriers to entry into the packaged software industry. It also expanded the possibilities for rapid penetration of markets by packaged software products. This rapid increase in consumption of software and easy penetration of market through Internet resulted in increased software piracy, creating a big market in pirated software.1 According to estimates the global rate of piracy was 59.9% in the year 2010 that means out of the total software sold worldwide 59.9% was fake.2 Piracy causes huge losses of revenues to software companies every year. This has made the issue of intellectual property protection for software all the more important. The software is a complex product, which has given rise to a totally different kind of industry in which the input and the output consist of intangibles. The ownership of intellectual property in software industry influences the returns to investments, and the market structure. How best to protect and regulate ownership of intellectual property? The issue of software patenting has thus attracted considerable attention and debate. The objective of this paper is to highlight issues related to software patenting and their implications for software industry. In the ongoing debate or controversy to the patenting of the software. The Indian scenario is briefed upon in the last followed by the conclusion.

Graham J H Stuart, Mowery David C, Intellectual Property Protection in US Software Industry, Paper presented at STEP Board Conference on The Operation of the Patent System, http://www7.nationalacademies.org/step/Mowery_et_al_paper.doc2001. 2 http://www.nationmaster.com/graph/cri_sof_pir_rat-crime-software-piracy-rate

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Trips and computer software


World Trade Organisation Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), the details of which were finalised in the concluding Uruguay round in 1994, specifies some minimum standards that must be adhered for protection of Intellectual Property (IP) by the member countries. Eight types of IPRs including patents, copyrights, trademarks, etc. have been specifically mentioned in the provisions of the TRIPS Agreement. The objectives of the TRIPS Agreement have been clearly spelt out in the Article 7 of the Agreement that the protection and enforcement of IPR should contribute to the promotion of technological innovation. It should also promote the transfer and dissemination of technology, to the mutual advantage of the producers and users, in a manner conducive to social and economic welfare. It may also be noted that India is a signatory to TRIPS Agreement and so it is obligatory to implement the same. Article 27 of TRIPS lays down that for any invention, whether product or process, patents can be granted, provided the invention is new, involves an inventive step and is capable of industrial application. Further Article 10 relating to Computer programs and compilations of data specifically lays down that computer programs whether in source or object code, shall be protected as literary works under the Berne Convention 1971, which relates to protection of literary and artistic works. It also lays down that compilations of data shall be protected as such, without any prejudice to any copyright subsisting in the data or material itself. Hence it is difficult to conclude from the TRIPS Agreement whether computer programs are to be predominantly protected under the copyright law and not under the patent law. It may be stated that making claim to objects such as computer software as patentable items according to TRIPS Agreement is a debatable issue. One view is: that Article 27 of TRIPS requires Member Governments to grant patents on "any inventions, whether products or processes, in all fields of technology, provided they are new, involve an inventive step [or are non-obvious], and are capable of industrial application."3 Yet this does not authorise patents on obvious products or processes, or on things that are not "inventions." Article 1 of TRIPS authorises members to "implement in their law no more extensive protection than is required by this Agreement." This might be read to permit patents, trademarks or copyrights on anything whatsoever, whether or not new, obvious or original. Yet such a reading could have aberrant consequences, and does not conform to the commonly understood definitions of patents, copyright, or intellectual property.
3

http://www.aful.org/pipermail/patents/2000-May/000472.html.

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The only other section of any WTO Agreement to mention patents, is Article XX(d) of GATT 1947, which authorises members to take measures "necessary to secure compliance with" patent laws. Yet it is not "necessary" to issue an invalid patent, nor does doing so secure compliance with the patent laws (and Article XX(d) applies only to goods, not services). It thus seems possible that WTO Member Governments can ask the WTO to rule that an obvious patent issued by the US (or possibly other countries) violates GATT 1947 or GATS. Also, the term "invention" in TRIPS Art.27 should arguably be construed, as it would have been understood when TRIPS was adopted in 1994. At that time, many thought that relatively "pure" software patents were not "inventions" at all, but algorithms that were "discovered". A WTO member might therefore ask the WTO to rule that many US software or other patents violate Art. II.4 of GATT 1947 or Art. XVI.2 of GATS on this basis as well.4 The other view contends that software is patentable subject matter as per TRIPS in light of the exceptions in Art. 27(3) of TRIPS, since it may not appear enforceable to construe the term "inventions" in Art. 27(1) differently on a country-by-country basis, by using the different legal definitions in the individual Member States. Article 27(3) specifies definitely those areas of invention that a Member can exclude from patentability. The attempt to expand artificially, the areas of exclusion permitted by Art. 27(3) by using a "national" legal definition of the concept of the "invention" to exclude from patentability subject matter that is actually to be patented pursuant to Art. 27(1), may thus represent an attempt to evade Art. 27(3) and may lead to a conflict between the provisions of Art.27(1) and (3).5 It may also be mentioned that TRIPS intends to "harmonies", as it was always called, not to "uniformise" the systems of various countries. It also intends to allow the coexistence of diverse systems while minimizing frictions that could arise from regional protectionism. The method of implementation of the provisions of the TRIPS Agreement has, therefore, been left to the Member States.

Copyright Protection of Software


Copyright as an instrument in the protection of a computer program affords protection to the original literary work inscribed in the program. Born out of the statutes, copyright protects the software program by preventing further reproductions of the same thereby preserving the rights
4 5

http://docs.google.com/viewer?a=v&q=cache:Vjd_zbKusOgJ:www.worldtradelaw.net/articles/hudecrequiem.pdf http://swpat.ffii.org/vreji/papri/iic-schiuma00/indexen.htm

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of the author in the software. The extent of application of this investment to a software program was one of the disputed issues in the early court decisions on computer software protection in US and UK.6 By the extent of application, what is meant, are the areas of a software program that can be brought within the umbrella of copyright protection. The object code and the source code being the core program areas, which affect the behaviour of the computer and where the copyright rule applies. It is necessary to understand these concepts to delve into the issues arising in relation to them. The functioning of a computers processor is based on the language of instructions provided to it. These instructions which exist in a readable format (higher level) are transformed using a compiler7 into binary form8 for feeding into the processor9. The high level of instructions, which are non executable and composed using programming languages, is commonly referred to as the source code of a computer program and the executable format of instructions which control the working of the computer is known as the object code. From the point of view of a consumer who aims at the use of the software for personal purposes, the availability of the executable version of the software (CD) for running on the computer proves to satisfy his needs. But for a programmer who looks at the software as a means to develop his programming skills by working on the source code, the software does very little. The rationale behind the approach of the software developers in withholding the source code and launching in the market just the object code is based on the impossibility of recreating the source code from the object code.10 The software developers preserve their rights even when the source code is made available, with the aid of licensing restrictions. These licensing restrictions may restrict the licencees right to copying, distribution and modification of the software program.11

Patent law and Computer Software


A patent is a transferable monopoly granted by government to the creator of a unique and useful invention. Where copyright is automatically granted for arts and literature, obtaining patent for a
6

Stanley Lai, The Copyright Protection of Computer Software in the United Kingdom (Hart Publishing, Oxford, Portland) April 2000, p 1 7 A compiler software automatically transforms an object code into a source code. 8 The Binary form refers to expression of the instructions in hexadecimal numbers. 9 Laddie, Prescott, Vitoria, Speck, Lane,The Modern Law of Copyright and Designs(Butterworths, London) 1995, p 1608 10 Mathias Strasser, A new pardigm in intellectual property law?: The case against open source, Stanford Technology Law Review, 4, 2001 11 17 U.S.C 101; Halpern Sheldon W,Craig Allen Nard, Port Kenneth L, Fundamentals of United States Intellectual Property Law: Copyright, Patent and Trademark (Kluwer Law International, The Hague 1999), p 12

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machine or processes is complicated, expensive and time consuming. The patent holder must disclose how to replicate the invention and in return, is granted the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States.12

Patents are granted by the United States Patent and Trademark Office (USPTO), and are valid for 20 years after their grant date. A patent application may be rejected or a granted patent may be revoked if either fails to completely meet patentability criteria that 1. It is useful, 2. No one else invented it earlier, 3. The patent is not trivial and would not be assumed by experts in that field13 In addition, the U.S. Supreme court has ruled in Gottschalk v Benson14 and Diamond v. Chakrabarty15 that algorithms, laws of nature, physical phenomena and abstract ideas are not patentable. The most common way that patents are revoked is when someone documents prior art where someone else created the invention before the original patent applicant.

I. The Software Patent Controversy Patent software by Companies


Copyright does not prevent anyone independently creating a program to perform similar actions. Someone can reverse engineer a binary and then, with moderate work, create a similar program which will not infringe on the programs copyright. With a patent, a company can prevent anyone else from copying any of their new, non-obvious algorithms for use in a competing product. Obtaining a patent also helps shield companies from patent infringement lawsuits. Another favored business practice among large technology companies such as IBM, SUN and Microsoft is to cross-license some patents with each other without licensing fees. This allows the partnering companies to utilize best-of-bread patents from each other while minimizing patent infringement liability.
12 13

35 U.S. Code 154 35 U.S. Code 101-103 14 409 U.S. 63 (1972) 15 447 U.S. 303 (1980)

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And yes, companies do make money licensing software patents, so there is an incentive to create new algorithms and processes. However, this innovation incentive is strongly offset by the actions of companies known as a patent trolls. Reminiscent of the childrens stories where trolls who camp under bridges and waylay passengers for a toll to cross, their sole business plan is to obtain broad-ranging patents (often for technology they have not invented) and then sue large technology companies with deep pockets for patent infringement. The most public instance of this was when the patent holding company NTP, Inc. sued the makers of RIM, the makers of the Blackberry Pda phones. NTP had several patents on wireless email. Even though NTP was able to demonstrate prior art with System for Automated Messages (SAM), RIM was forced to pay NTP $650 million to avoid a court ordering all Blackberry services shut down. Shortly after the settlement, NTPs patents were invalidated.16 Although critics of software/Internet/business method patent patents contend such patents allow large companies to drive small competitors out of the market, in practice, the effect is the opposite: strong patent protection allows small organizations to compete with the largest businesses. Unauthorized infringing use of a patented invention can drive the inventor out of the market; often, small entities can compete with the vastly greater marketing and financial muscle of large corporations only by having exclusive rights in their developments, a fact that is recognized by the investment community. Historically, the software and e-commerce industries have failed to recognize the benefits of broadly enforced patent rights. Acceptance of business method patents evolved slowly from a recognition by the courts that such patents were never really prohibited, and that the 1952 Patent Act cannot reasonably be construed to exclude business methods from patentable subject matter. The opportunities for unfettered business method patents ballooned with the decision by Court of Appeals for the Federal Circuit in State Street Bank & Trust Co. v. Signature Financial Group, Inc.,17 in which the Federal Circuit adopted the view that "business methods" were not statutorily excluded from patentable subject matter. The genesis of the prohibition on business method
16
17

LaFuze, William L. Patent Trolls IP Litigator March-April 2007: p31 149 F.3d 1368, U.S.P.Q. 2d 1596 (Fed. Cir. 1998),

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patents is commonly said to have arisen in Hotel Security Checking Co. v. Lorraine Co.,18 case containing dicta saying "no mere abstraction, no idea, however brilliant, can be the subject of a patent irrespective of the means designed to give it effect." This was, according to the Hotel Security court, because a "system of transacting business disconnected from the means of carrying out the system is not, within the most liberal interpretation of the term, an art." However, as the Federal Circuit noted in State Street, the decision in Hotel Security did not rely on the "business method exception" to render the patent invalid. Hotel Security nevertheless became the source of judicial statements that business methods were not patentable subject matter, eventually resulting in the PTO's adoption of a policy against granting business method patents. The exclusion of business methods from patentable subject matter was only half of the mid-twentieth century legal obstacles to business method patents. The "Mathematical Algorithm Exception" served for much of the century to place equally difficult obstacles to patenting such inventions. Based upon the principle that patents cannot extend to "mere abstract ideas" the mathematical algorithm exception operated to preclude patents involving a sequence of definable steps, such as are typically carried out by software. Since many, if not most, modern developments in business methods involve use of computers; the mathematical algorithm exception gave courts additional ammunition to reject patents on commercial activity.19 The restraints on algorithm patents began to loosen with Diamond v. Diehr20 in which the Supreme Court reiterated the prohibition against patents on mathematical algorithms so long as the represent mere abstract ideas, but eviscerated that restriction by agreeing algorithms are patentable when they produce a tangible result. With the decision in State Street, the Federal Circuit removed all doubt as to the patentability of software systems conducting financial activity. Under State Street, the analysis now focuses on "the essential characteristics of the subject matter, in particular, its practical utility." Methods and systems having such practical utility are patentable subject matter assuming exclusivity can be practically enforced.

18 19

160 F. 467 (2d Cir. 1908). Gibbs,Colin. NTP Sets Its Sight on Carriers; Patent Holder Files Suit Against Big 4 RCR Wireless News Sept 17, 2007: p3 20 (450 US 175 (1981))

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Conceptual difference between Copyright and Patent


Software has traditionally been protected under copyright law since code fits quite easily into the description of a literary work. Software Patenting has recently emerged (if only in the US, Japan and Europe) as an alternative that software companies are increasingly employing to, in order to protect their products.

The issues involved in conferring patent rights to software are, however, a lot more complex than taking out copyrights on them. Specifically, there are two challenges that one encounters when dealing with software patents. The first is about the instrument of patent itself and whether the manner of protection it confers is suited to the software industry. The second is the nature of software, and whether it should be subject to patenting.21

a) Different Subject Matters

Copyright protection extends to all original literary works (among them, computer programs), dramatic, musical and artistic works, including films. Under copyright, protection is given only to the particular expression of an idea that was adopted and not the idea itself. (For instance, a program to add numbers written in two different computer languages would count as two different expressions of one idea) Effectively, independent rendering of a copyrighted work by a third party would not infringe the copyright.22 Generally patents are conferred on any new and useful art, process, method or manner of manufacture, machines, appliances or other articles or substances produced by manufacture. Worldwide, the attitude towards patentability of software has been skeptical. The Indian Patent Act, as modified in 2002 had made non-patentable the following: a mathematical method or a business method or a computer programme per se or algorithms.

However, the recent amendment ordnance states instead:


21 22

http://www.sarai.net/research/knowledge-culture/critical-public-legalresource.pdf http://www.legalserviceindia.com/article/l140-Software-Patenting.html

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a computer programme per se other than its technical application to industry or a combination with hardware; a mathematical method or a business method or algorithms.23

b) Who may claim the right to a patent/copyright? Generally, the author of a literary, artistic, musical or dramatic work automatically becomes the owner of its copyright. Software developers are perfectly protected without patents. Everyone who writes a computer program automatically owns the copyright in it. It's copyright law that made Microsoft, Oracle, SAP and the entire software industry so very big. It's the same legal concept that also protects books, music, movies, paintings, even architecture.

Many of the world's richest people owe their wealth to copyright law. Some examples are: Bill Gates; Paul Allen and Steve Ballmer (Microsoft); Larry Ellison (Oracle); Hasso Plattner and the other founders of SAP; Paul McCartney (Beatles); JK Rowling (Harry Potter).

The patent, on the other hand is granted to the first to apply for it, regardless of who the first to invent it was. Patents cost a lot of money. They cost even more paying the lawyers to write the application than they cost to actually apply. It takes typically some years for the application to get considered, even though patent offices do an extremely sloppy job of considering. c) Rights conferred Copyright law gives the owner the exclusive right to reproduce the material, issue copies, perform, adapt and translate the work. However, these rights are tempered by the rights of fair use which are available to the public. Under fair use, certain uses of copyright material would not be infringing, such as use for academic purposes, news reporting etc. Further, independent recreation of a copyrighted work would not constitute infringement. Thus if the same piece of code were independently developed by two different companies, neither would have a claim against the other.

23

Gopakumar K M, The scope of reverse engineering of computer software under the copyright (Amendment) Act, 1999: A critque, Journal of Intellectual Property Rights, 6 (2), 94-108.

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A patent confers on the owner an absolute monopoly which is the right to prevent others from marking, using, offering for sale without his/her consent. In general, patent protection is a far stronger method of protection than copyright because the protection extends to the level of the idea embodied by a software and injuncts ancillary uses of an invention as well. It would weaken copyright in software that is the base of all European software development, because independent creations protected by copyright would be attackable by patents.

Many patent applications cover very small and specific algorithms or techniques that are used in a wide variety of programs. Frequently the "inventions" mentioned in a patent application have been independently formulated and are already in use by other programmers when the application is filed.

d) Duration of protectionThe TRIPS agreement mandates a period of at least 20 years for a product patent and 15 years in the case of a process patent. For Copyright, the agreement prescribes a minimum period of the lifetime of the author plus seventy years.

III. Patentability and Validity of Software Inventions In the beginning, United States courts treated software suspiciously: In the 1970s, the Supreme Court held that software was essentially mathematical formulae, not patentable under US law. However, in 1981, the Supreme Court decided in Diamond v. Dieh24r that an invention could not be denied a patent solely because its claims contained mathematical formulae. Instead, the court required a look at the invention as a whole. Two exceptions remained in place: the mathematical algorithm exception and, arguably, the business method exception.

24

(1981) 450 US 175

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In State Street Bank & Trust Company v. Signature Financial Group25 the court found that the mathematical algorithm test misleading and determined that software and business methods should be examined like any other traditionally patentable subject matter. In 1999, the court concluded that algorithms are patentable because they limit a general-purpose computer to a specific purpose, performing functions pursuant to the software. This statement is narrower than State Street's broad holding that mathematical algorithms were patentable as long as their application produced a useful, concrete, and tangible result. Courts have held that if a software process is not an abstract process but claims a "real world activity", then even if the idea underlying an invention may be considered to reside in a mathematical method, such a software claim is an abstract mathematical algorithm. You should keep in mind that granted software/Internet/business method patents can be revoked if found to be invalid, so development of new ideas is therefore not blocked by bad patents. If members of the public feel that an examiner has allowed an overly general claim in a patent, they may file an interpartes examination in the US, an opposition in Europe, or a lawsuit in Court, to argue that claims are overly broad and should not be allowed. Thus, it is always a good idea to have a professional patent novelty search performed to help avoid this issue before filing. Despite the ever increasing volume of non-patent prior art, the average

software/Internet/business method patent is citing only 1 to 2 non-patent prior art items, which is far too few. Worse yet, the vast majority of software patents (about 60%) still cite no non-patent prior art. Thus, to strengthen your software/Internet/business method patent it is strongly advisable to find at least 10 pertinent non-patent prior art reference to cite in your patent case and design around in the specification. Some software patents are particularly subject to invalidity findings based on lack of enablement and/or utility. The first paragraph of26 requires an applicant to describe the claimed invention sufficiently to enable one skilled in the art to make and use the invention27 requires that the invention have a useful purpose, or Utility. Problems can arise when one or both of these requirements are not met. In one situation, an applicant fails to disclose a credible utility in the
25 26

149 F.3d 1368 35 U.S.C. 112 http://www.bayareaip.com/IPinfo/Patents/General_info/101.htm 27 35 U.S.C. 101 Ibid.

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specification (referred to below as the "no utility situation"). In the other situation, an applicant provides evidence to address doubts about a utility stated in the specification (referred to below as the "no evidence situation"). Each of these situations has a different consequence. The different consequences can be critical, especially in the context of interference.With regard to the "no utility situation," it is well settled that an application must disclose a utility as required in 101, and enable the utility as required in 112, as of the filing date. If a utility is not disclosed and enabled in the application as filed, the application is in violation of 101 and 112, and does not accord the benefit of its filing date to later continuing applications. With regard to the "no evidence" situation, it is equally well settled that an applicant may provide evidence after the filing date to further support a utility already set forth in the specification as filed, and still maintain the original filing date. In practice, almost no patents in the US are challenged in an interprets reexamination since it weakens an infringer's ability to defend themselves if they fail in the interprets reexamination and are then sued for patent infringement. Moreover, because software/Internet/business patents, like all patents, are presumed valid there is a very high, often insurmountable, burden on competitors to work the patent process towards invalidating your patent. The costs of determining if a particular piece of software or business method infringes any issued software/Internet/business method patents is almost always too high and the results are too uncertain to be worth fighting. Competitors (your potential licensees) usually find that spending time and money challenging software/Internet/business method patents is a waste of valuable resources and tend to license instead. Typically, they conclude that defending against the blocking patent requires that significant funds be diverted away from their research and development and is not worth fighting. This is in part due to the fact that patents can be obtained on relatively small incremental improvements in software. Thus a new innovative product might require hundreds of patents to protect and might in turn be covered, at least to some extent, by thousands of prior issued patents. Any one of these prior issued patents could prevent a new product from being made used or sold in the marketplace. As such, the small to mid sized player can leverage significant opportunity to license even a patent of limited scope to large entities that require that technology to roll out a new product or service.
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Scope of Software Patents


There seems to be an increasing trend over the past several years for reading patents narrowly based on patent specifications. Historically, courts had not really addressed the scope of a business method patent in light of potentially limiting language found in its patent specification. Those whom you assert your patent against will immediately be poring over your patent specification to locate limiting language, which remains a sound but tedious option when faced with a process patent infringement suit. Thus, Patentees should take care to include in their patent specifications as many embodiments and permutations of their claimed processes as possible, and do so with language that describes the claimed process with some specificity without reading too narrowly.

In re Bilski in 2008 - a landmark ahead In a 9-3 majority decision authored by Chief Judge Paul Michel, the Federal Circuit declared the machine-or-transformation test as the touchstone inquiry for determining patent-eligibility of process claims under 35 U.S.C. 101 (" 101"). The court reaffirmed the patent-eligibility for both business methods and software and carefully avoided overruling its own precedent established in the State Street Bank' case. The majority decision also clarifies other areas of uncertainty by affirmatively rejecting alternative 101 tests. The Patent Office rejected a petition from applicants Bernard Bilski and Rand Warsaw because it decided that the process described was not confined to a particular machine and amounted to patenting a "mental Leap" or an "abstract idea". The invention at the heart of the Bilski appeal is a financial method for hedging consumption risk for commodities sold at fixed prices. While the invention could be implemented using a machine such as a computer, the claims are not so limited. The Board of Patent Appeals and Interferences ("BPAI") found Bilski's claim unpatentable as failing to recite statutory subject matter under three distinct 101 tests including (1) the "transformation" test, (2) the "abstraction" test and (3) the "useful, concrete, and tangible result" test. Bilski appealed the decision to the Federal Circuit who initially heard oral arguments on
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October 1, 2007. Soon thereafter, the Federal Circuit sua sponte ordered a rehearing on May 8, 2008 before an en banc court. In Bilski, the Federal Circuit endeavored to realign its 101 jurisprudence with Supreme Court precedent. Both the Supreme Court and the Federal Circuit have long recognized that "fundamental principles" such as laws of nature, natural phenomena, or abstract ideas are not patentable. However, the majority struggled to otherwise identify a unifying test common throughout the Benson, Flook, and Diehr trilogy. Upon synthesizing the case law, the Federal Circuit pronounced the machine -or-transformation test as the "definitive test to determine whether a process claim is tailored narrowly enough to encompass only a particular application of a fundamental principle rather than to pre-empt the principle itself."' According to the machine-or-transformation test, a process claim is patent eligible subject matter if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. Thus, the question before the Federal Circuit was whether Bilski's "claim recites a fundamental principle and if so, whether the claim would preempt substantially all uses of the fundamental principle if allowed." Applying the two pronged machine - or-transformation test to the Bilski facts, the court immediately disregarded the "machine" inquiry as not being ripe for discussion given the absence of machine limitations in Bilski's claims. Therefore, under current law, software is patentable subject matter in the USA so long at is executed on a machine (e.g., a computer) or stored on a computer readable medium.

IV. Nature of Software and Indian Software Industry


While there has been a lot of discussion on the impact that the latest amendment to the Indian Patent Act will have on public health and the pharmaceutical sector in India, there has been a disturbing silence about the impact that the amendment has on the software industry.

After the patents (second amendment) in 2002, the scope of non patentable subject matter in the Act was amended to include the following: a mathematical method or a business method or a computer programme per se or algorithms.
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The important phrase that was added was per se, and with the amendment we effectively included Software patents into Indian Law. The latest amendment seeks to expand the scope of software patents, and states a computer programme per se other than its technical application to industry or a combination with hardware; a mathematical method or a business method or algorithms.

This briefing note will addresses the larger question of why we should be concerned about software patents, and the impact that it will have on the software industry in India.

Software is complex: The complexity of computer programs makes it difficult to be understood by any one person. This capacity for complexity allows for the creation of highly sophisticated products but also means that they are dependent on a vast range of technologies. Software is free from the constraints of the real world that ensure a product does not become too complex. Major software may comprise up to 10 million lines of code potentially thousands of inventions, any of which might be patented. For example, Apple was sued because its HyperCard program allegedly violates patent number 4,736,308, which covers a specific technique that, in simplified terms, entails scrolling through a database displaying selected parts of each line of text. Separately, the scrolling and display functions are ubiquitous fixtures of computer programming, but combining them without a license from the holder of patent 4,736,308 is now apparently illegal.28 In its complexity, software is different from other engineering and mechanical inventions for which patent protection was devised. The latter are often characterized by large "building block" inventions that can revolutionize a given mechanical process. Software, especially a complex program, seldom includes substantial leaps in technology, but rather consists of adept combinations of many ideas. Whether a software program is a good one does not generally depend as much on the newness of a specific technique, but instead depends on the unique combination of known algorithms and methods. Patents should not protect such methods of innovation.

28

http://www.people.hbs.edu/gllanes/exsoft.html

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Software Technology evolves rapidly: Software technology is evolving much faster than other industries, even with its own hardware industry. Against this light, a patent that lasts upto 17 years is extremely alarming. Microprocessors double in speed every 2 years. Research in software is galloping ahead of developments. In most industries, researching new ideas often costs more money than bringing them to the market. The software industry is, on the other hand, loaded with ideas. The idea behind most software patents can be coded in just 20 lines of code, but any program incorporating that idea - along with many others - will be a thousand times larger. It is the writing of a program that takes all the time, not coming up with ideas. What this means is that on an average of every two years, a product will have to be replaced in the market. The idea underlying it will remain the same although the particular means and variants of its applications may have changed radically. Coming out with a full-featured product, every two years is costly especially in relation to the inexpensive idea that backs it. Theres more novelty in the development and application of the same idea to new technology than with coming up with the original raw idea.29

The objective of granting patent rights should be to foster the growth and evolution of the industry. Granting a patent at this stage would be akin to unreasonably prolonging the life of a product. It is generally found that those who are investing time creating and lodging patents are vastly outpacing those who are investing effort bringing such ideas to market. By the time an immature technology develops to the point where it can be incorporated into products, it has a dozen or more patents on it that render it commercially intractable.

Software doesn't wear out: In other industries, research continues up to a point where further research costs too much to be feasible. At this stage, the industry's output merely consists of replacing parts that have worn out. However, in the software sector, a computer program that is fully debugged will perform its function forever without requiring maintenance or modification. What this means is that unlike socks that wear out, and breakfast cereal that is eaten, a particular software product
29

Gordan T T and Cookfair A S, Patent Fundaments for Scientist and Engineers (Lewis Publications, NY) 2nd edn, 2000.

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can be sold to a particular customer at most once. If it is to be sold to that customer again, it must be enhanced with new features and functionality. This inevitably means that even if the industry were to approach maturity, any software company that does not produce new and innovative products will simply run out of customers! Thus, the industry will remain innovative whether or not software patents exist.

Software has different economics: Most other major industries have medium to high research and development costs and very high production costs. Most often, the production costs dwarf the other two areas (because of the physicality that they involve) so that these costs can be added on to the cost of the final product without any relatively major difference in the price.30 Software is unique in this aspect because -The research costs very little because ideas are as abundant as air -The development of an idea into a marketable product costs far more than the research. -The production costs are minimal, often just a little more than the price of the medium, which is typically a floppy or a CDROM.31 Patents affect the development stage of the process of manufacture of software. Thus the threat exists that the price of software could be singularly determined by the number of patented innovations that it incorporates.

Patent and Innovation in Software Industry


As argued before the process of software development by its very nature is incremental i.e. developing of new software majorly consists of building upon existing ideas and rearranging the processes devised by others, and hence has an inbuilt need for using existing algorithms and mathematical formulae. Patent protection over software or over a set of algorithms within patented software would inevitably create a thicket of patents which the subsequent software developer might need to obtain clearance from before he can begin to work on it.32 The costs involved in obtaining these clearances and those involved in case one finds oneself having infringed a patent are usually very high, as in the case of biomedical patents. This would act as a

30 31
32

Bruce A. Lehman report, 1999 presented in Dacca Bangladesh


Study on The Economic Impact of Patentability Of Computer Programs, by Hart Robert, Holmes Peter and Reid John, 1999

www.sarai.net/research/legal/whysoftwarepatentsareharmful.pdf

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disincentive for an aspiring software developer and would adversely affect the growth of the Indian software industry. Introduction of two bills- Genomic Research and Diagnostic Accessibility Bill, 2002 and Genomic Science and Technology Innovation Act of 2002 though still pending before the US Congress show the real concerns involved for a patent and innovation policy within genomics. Similar concerns are exist in the software and innovation policy and need to be addressed adequately by the each national legislature. Further there are substantial costs involved in verifying which patents one must obtain clearance for as skimming through the huge patent databases has become a very costly exercise. Unfortunately, conducting a patent search is a slow, deliberative process that, when harnessed to software development, could stop innovation in its tracks. And because patent applications are confidential, there is simply no way for computer programmers to ensure that what they write will not violate some patent that is yet to be issued making survival a very important issue for smaller player in the market. Various large companies in US have obtained exemptions from going through patent searches for standard work due to huge costs. In such a scenario in a small player software industry like India, it would be unwise to allow software patents as they may have negative impact upon the innovation within the industry. By its nature software industry is innovation driven i.e. the only way a software company can compete and improve its sales or grip over market is by making better and more useful features available. This innovation which is the driving force behind the Indian software industry is bound to get affected if a patent protection is provided to software patents. If a company can easily sustain itself on its invention (by obtaining patents upon its software) and need not remain innovation driven, which would mean that a patent monopoly would inversely impact innovation and competition in software industry. It would further give rise to monopolistic tendencies and a practice of quoting arbitrary price for the grant of voluntary license. This lesson can be learnt by looking west where the idea of Public Key Encryption was patented in the US. The patent expired in 1997 and until then, it largely blocked the use of Public Key Encryption in the US. Similar instances can be found w.r.t. data compression software and single click software patented by Amazon.com. A number of programs that people started to develop got crushed. They were never really available because the patent holders threatened them. This led to a lot of unrest in the software community which
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culminated into the public outrage against software patents. Similar pressures have prevailed in European community where software patents found public opposition too immense to mount for a long time. A look at India's own development of its software industry would be of immense help as India started its software industry only after IBM was driven out of country. Before that, there was no software industry worth the name, with software and hardware being imported from IBM. Once IBM left, Indian computer companies developed computers using the UNIX operating system, which was in the public domain. This led to the presence of a large number of skilled software professionals with experience of UNIX were also writing high-level applications for making the entire computer system work.

Future Impacts
Software patents are a clear and present danger to the viability of software companies and online businesses. The prevalence of patently self-evident patents and the preponderance of patent trolls imperil the profit prospective of programmers. When think of the computer programs I require daily to get my own work done, I cannot help but realize that none of them would exist today if software patents had been prevalent in the 1960s and 1970s.... If present trends continue, the only recourse available to the majority of America's brilliant software developers will be to give up software or to emigrate. The U.S.A. will soon lose its dominant position33 20 years is an eternity in the technology sector. The increase in patent numbers and patented domains will only serve to increase the legal and financial burden on U.S. corporations.

Conclusion
Useful software is expensive to create, inexpensive to reverse engineer and has negligible costs for duplication. In other words, it is cheaper to copy software than to create it. Without sufficient legal intellectual property protections, commercial software would not be a viable business model, as few would voluntarily pay for software they could legally get for free. Software copyrights should be preserved as they protect finished works of software from unauthorized copying, while software patents should be repealed since they grant monopolies for
33

Knuth, Donald. Letter to the Patent Office. 1994

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algorithms and cause greater economic harm than benefit. Software copyright is effective in that it protects the rights of software creators without impeding the ability for others to write software. Software patents on the other hand, allow companies to monopolize algorithms, the basic building blocks of software. Every computer program then becomes a legal minefield, where programmers cannot determine whether the algorithms they are using infringes on the hundreds of thousands of existing software patents. In addition, software patents provide a weapon where companies can amass large patent portfolios and then sue competitors and smaller companies out of existence. Legal issues and costs are further compounded by the many software patents which have been granted for obvious inventions. For these reasons, software patents hamper innovation instead of encouraging it, and software patents should be abolished.

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