Down to Business: Are Patents for Software and Business Processes Reasonable?

Some lesser companies do little more than traffic in intellectual property. Acacia Research, for one, increased revenue more than 40,000 percent between 2000 and 2004 by acquiring patents and collecting royalties on everything from video transmission to bar-code technology.

The U.S. Patent and Trademark Office receives more than 350,000 applications each year, triple the number in the 1980s. To be granted a patent, an invention must be novel, useful and non-obvious, and not based on "prior art." But these criteria sometimes escape the overwhelmed (and underqualified) patent authorities, especially when it comes to software and business processes.

One fellow managed to get a patent for software that recognizes vowels in text. Microsoft wants a patent for a programming technique that allows a comparison of two variables to determine if they point to the same location in memory. Another outfit holds the rights to the electronic tracking of suppliers and their products, tantamount to owning a patent on the concept of supply chain management.

How Reasonable?

OK, so no system is perfect; the patent office notes there's a remedial facility for incorrectly issued patents. But is the very concept of patenting software and processes even reasonable?Microsoft argues that IP protection is more important than ever in today's knowledge economy, where a company's most valuable assets are "intangibles" such as brands and programming techniques. It argues that software, in particular, needs legal protection to encourage developers to share information to make their products compatible.

The flip side of the interoperability issue is that an egregious patent on just one element of a complex network can bring down that entire digital ecosystem. And if IBM, Microsoft and other dominant vendors were to corner the market on basic software and process techniques, more nimble innovators would face insurmountable barriers to market entry.

Overly broad patents can also drive jobs overseas. A spate of legal actions against U.S. enterprises that use call centers based on suspect software and process patents has forced some enterprises to relocate their call centers abroad, notes Tom DeMarco, a Cutter Consortium analyst. (Most countries in Europe and Asia don't recognize software or process patents. Changes to the U.S. guidelines for issuing such patents are forthcoming.)

Meantime, patent profiteering isn't the steady business it's cracked up to be. Walker Digital, which burst onto the scene in the dot-com years, never did monetize the hundreds of process patents its inventor-lawyers cooked up. SCO Group, hemorrhaging red ink from its protracted court battle against the Linux community, is back to touting itself as a software and services company. Forgent Networks, which derived almost 90 percent of its revenue from IP royalties a year ago, saw its licensing revenue tumble 47 percent in its latest fiscal year.

The problem for these and other patent traffickers is that the litigate-and-license racket is unpredictable. Lawsuits and countersuits drag on. SCO, which has spent millions suing Linux vendors and customers for allegedly infringing its Unix rights, won't have its day in court until 2007, four years after its crusade began. Meantime, it has distracted an entire industry from productive work.So much for patents encouraging creativity and invention.

Rob Preston is editor in chief of Network Computing. Write to him at [email protected].