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Background - Software Patentability

A. The Economics:

Economics are what drive the filing of patent applications. Software patents are used by firms to gain a competitive advantage vis-à-vis competitors in that they represent a government sanctioned monopoly permitting the patent holder to exclude a competitor from a lucrative market. The holders of these patents may be entitled to injunctions, which can stop competition in their tracks, as well as court awarded damages. To a certain extent, software patents level the playing field. This is evidenced by the victory of Eolas (a one man company) against the software giant Microsoft.

IBM obtains 1800 patents and $1 Billion each year in royalty income (averaging $555k per year, per patent). Success stories help spur the growth in software patenting. Today, in the U.S. alone, there are 20,000 software patents filed each year for a total of more than 200,000, and, although only 15% of all patents, software inventions represent 25% of the growth in total patent applications filed. Ten years ago, only a few thousand software applications were filed each year.

B. Legal—International: GATT/TRIPS

In 1995, the World Trade Organization passed the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) to reconcile the world’s patent laws by imposing uniform minimal standards modeled after the laws of industrialized nations. TRIPS is part of the General Agreement on Tariffs and Trade (GATT), the purpose of which was to eliminate trade barriers.2 Under TRIPS, signatory countries are required to make patents available for "any inventions in all fields of technology" (Article 27(1)). Further, they can’t discriminate against technologies (except, in some respects, in the field of biotech). This would seem to require the patentability of software, even business methods, under international law. However, TRIPS is subject to interpretation.

C. Legal--United States

1. Procurement in the U.S.: The issue of the patentability of software and business methods has been resolved for years

In the United States, the statutory scope of patent protection is defined in the U.S. Constitution and the Patent Statutes. As far as software protection in the U.S. is concerned, case law plays a significant role. In 1981, the first major case dealing with the patentability of software was decided. In Diamond v. Diehr, a mathematical algorithm of a well-known formula was held patentable when applied in a novel and inventive way, to cure rubber in a mold. The court in this case emphasized that one must "look to the invention as a whole" in determining whether an invention is statutory.

Given its long established practice of granting software patents, the U.S. has developed a body of jurisprudence that makes software patenting more predictable. For example, as in Diamond v. Diehr, traditional inventions enabled by software are patentable. Pure software operating on an ordinary computer is patentable. See Beauregard, Intra. Later cases, such as In re Lowry, defined the scope of protection for data structures. Even pure business methods are patentable. State Street Bank & Trust v. Signature Financial Group, Inc held that there is no "business methods" exception, "instead such claims should be treated like any other process claim, and that mathematical algorithms are patentable if applied to a practical application yielding a "useful, concrete and tangible result"

2. Enforcement in the U.S.:

In the United States, there is one harmonized body of jurisprudence for patent enforcement: the case law of the Federal Circuit Court of Appeals. The Federal Circuit was formed in 1982 to bring a greater degree of predictability to the resolution of patent appeals. This effort appears to have been successful. The number of cases upholding patent validity has increased, with the result being an increase in the number of patent cases brought and an increase in reliance upon patent protection by technology based companies.

D. Legal-Europe

1. Procurement in Europe:

The European Patent Convention (the "EPC") and the rules of practice of the European Patent Office (the "EPO") govern European patent practice, including Jurisprudence as to statutory subject matter.

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