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Letter of Concern · 2005-05-22

Dear Member of European Parliament,

this email a few days ago asked me to express my concern about software patentability in my own words. Well, that seems like a school task, but well, it might be a good exercise to sharpen my arguments and might give you hints on the impact of software patents. So, let us try:

The following section will be divided into two parts. The first gives my conceptual reasons of concern and the second gives very practical economic reasons, why software patents are not desirable.

The Algorithm is Free.

This is the first and very basic concept I 'd like to explain. What you do, when implementing software, is describing an algorithm to a machine. Hence, software is a description a machine can read and follow. Let me give a little example: For the moment please asume that you could patent algorithms not only for machines but for human beings as well. This asumption is not weird. There are already organisations demanding that as well. Ok, say, you'd live in a town, which is divided by a little river. Citizens would walk through the river to reach the other side, which is quite unpleasant. Furthermore, suppose the citizens of the town did some fund raising and actually build a bridge. Question is now: How to get rich without doing anything productive in the presence algorithm-, hence software-, patents?

Well it is quite easy. You take a piece of paper and a pen and describe: "A new way to get on the other side of the river without soaking your clothes". In that article you describe, how to use the new bridge. Then you have to hurry to reach the patent office, to be the first to file this algorithm as yours. Done! Since the bridge is new, there is no prior art, therefore patent protection will be granted to you. From now on you can charge licence fees from everybody, who wants to use the new bridge. Please notice, that you do not own the bridge, you did not build the bridge and you haven't been involved with any 'useful' activity concerning the new bridge whatsoever.

Patents Interfere with Innovation.

Patents are often used to block research. Basically, if you have got patent protection for an algorithm, you can block any activity to further enhance or proof this particular concept. So, if you have patent protection for an algorithm, you can block any attempt to further enhance your patent. Let's take our bridge example to show the effect. You have patent protection for "A new way to get on the other side of the river without soaking your clothes". Furthermore, suppose you have described how to cross the bridge by bicycle. Your actual business is selling bicycles. Now there is a young student in your town, who is writing a paper on "How to walk the new bridge". Actually, your patent grants protection against such attempts because it says: "A new way to get on the other side of the river without soaking your clothes", which clearly includes any kind of crossing the bridge. Actually, you can block any further research on your patented algorithm, hence you can limit the freedom of research without being some elected authority. This clearly is bizarre but true already for 'old school patents'.

Now for my more practical reasons of concern:

Software-development in Europe

In Europe, software development is largely done by small companies . They employ the majority of IT workforce in Europe (Small and Medium-Sized Enterprises and IT Diffusion Policies in Europe). Having a lot of small businesses that do not act in concert implies that there is a lot of competition in the software development market. This, in turn, implies that prices for software development in Europe are relatively low. Furthermore, innovation is spreading very fast in this business, since a lot of those small scale firms make a living using open source software or software components. The business model is not writing, owning and licensing software, it is rather providing expertise and services for particular software components. Those companies normally do not have law departments or law service providers in the field of patent recherche and they normally do not have the financial power to go through patent trials, even if they'd had patent protection. Most of them wouldn't even have the capacity to file a patent.

So, when you exercise software patentability laws, what would happen? Small highly innovative firms would need to file any innovation they have made. This is costly, prices for software development in Europe would rise. Software developer would need to do a patent recherche every time, they want to write the smallest pieces of software. To do this, they'd need to hire assistance. Again software development prices would go up. Consider the following graphical representation, which is of course very simple. Cost curves are labelled C and C'. Demand is labelled D. The picture shows effects on prices set and quantity sold when costs rise and demand remains constant.

price and quantity effects for rising costs

When prices go up, and they probably will raise, the amount of software services sold will surely go down. Customers, mostly industrial, financial and service businesses, could not afford the same amount of software services anymore. So the effect would be a concentration in the software business, with fewer, yet larger firms, with less output and fewer employees. Notice that IT services lead to increasing productivity in the fields they are applied to. So, fewer services sold lead to less productivity on the customers side in the long run. The firms that actually benefit from patent laws are very large IT corporations, who can afford to file patents for almost any trivial algorithm. They can use patents to block competitive activity as described above. These firms will remain, they will be less innovative, therefore productivity effects on customer side will decline and, last but not least, these corporations will sell at higher prices ... By the way, they will charge higher prices in the public sector as well.

This was only a quick introduction on software patentability. There are far more arguments, but almost none of them is in favour for software patents from the viewpoint of small and medium-sized enterprises. I hope this letter gives further assistance in finding a economically desirable and reasonable position in the current patent law debate.

Best regards

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