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Software Patents Abused

According to Web site Bitlaw, software as a class can be patented under U.S. law if it's used to control a process (like curing rubber) that's external to the software routine; if it manipulates numbers representing real-world values (such as seismic measurements); or if it applies to specific patentable products or machines. So there's plenty of room for interpretation.

So much so that patents have become an end in themselves for some tech companies. It's one thing for IBM, which now rakes in almost $2 billion a year from patent licenses, to bank royalties as a tidy side business (as well as to make cross-licensing deals); it's another to build an entire company around patents.

Take Forgent Networks, whose Compression Labs unit filed suit last month against 31 companies for alleged infringement of its patent on JPEG image compression. Although Forgent says its main business is developing scheduling software, a look at its recent financials reveals a company hooked on patent licensing. In Forgent's latest quarter, its software revenue was a mere $800,000, down 20 percent from the previous quarter, while its intellectual property revenue more than doubled to $5.8 million. Why expend your energy and resources on developing software when steady, predictable revenue is just a royalty or lawsuit away?

Likewise, if there was any doubt that SCO Group's financial backers were interested in more than an easy buck, it was dispelled last month when BayStar Capital Management threatened to withdraw its $50 million infusion if SCO didn't focus even more on Linux litigation and less on developing Unix. So much for creating something of value.

The problem for Forgent, SCO and like-minded patent litigants--and for the competitors that get in their way--is that the sue, license and collect business doesn't scale well. The only way to keep expanding is to pad your patent portfolios or go after more licensees, a formula for ever more specious claims and suits.

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