How the US patent mess affects European tech and startups

If you’ve paid even the slightest bit of attention to technology news of late, you can’t have failed to have noticed that patents are a hot story right now. However, much of what is being discussed relates to US companies; what’s the situation on the other side of the Atlantic?

Software patents have been at the core of a number of high-profile battles lately. We’ve seen a number of companies banding together to buy up swathes of mobile patents in a move that could bring down Android as a popular operating system; it seems like just about every smartphone manufacturer is suing someone, if not all the others; meanwhile patent holding company Lodsys has threatened a wide range of targets, including small independent iPhone and Android developers, over alleged infringements of its patents, threatening their livelihoods.

It’s a situation that has added weight to the argument that software patents shouldn’t exist. VC Fred Wilson, for example, wrote in June this year:

I believe that software patents should not exist. They a tax on innovation. And software is closer to media than it is to hardware. Patenting software is like patenting music.

The mess around the Lodsys patents should be a wake up call to everyone involved in the patent business (government bureaucrats, legislators, lawyers, investors, entrepreneurs, etc) that the system is totally broken and we can’t continue to go on like this.

Well-known developer Mike Lee (who spoke at this year’s The Next Web conference – dressed as a pirate no less) has announced a legal team and fund to help developers fight back against “patent trolls” like Lodsys. He takes a balanced view on software patents and tells me, “One can make purely theoretical arguments either way. We have to look at reality, how software patents are actually used. The reality is, the same patent system that has failed to keep Apple from being ripped off wholesale is being used to harass its developers. You cannot look at that and honestly say this is a system that works.”

Lee describes patent trolls as ‘thugs’ and says “They use flaws in the patent system—the fact the patent office will grant a patent on toast, and that it can cost a million dollars to defend against a lawsuit—to shake honest businesses down for protection money in the form of licensing fees, suing anyone who refuses to be intimidated. Patents are intended to protect inventors and encourage innovation, but patent trolls are attacking inventors and hindering innovation.”

It’s clear that things seem to be coming to a head in the US with the situation being a hot topic on tech blogs of late, but what about Europe? What’s the state of play here?

How are European developers affected by the US patent mess?

The US market is a huge opportunity for European startups and developers, but they could well be put off by the software patent situation there, says Joanne Flack, Associate Solicitor in the Intellectual Property and Copyright Team at UK law firm Martineau. “The existence of a significant patented area around software technology in the US can act as an effective barrier for the expansion of the European software industry into the US,” she explains.

Stephen Pattison, Director and CEO of the International Chamber of Commerce UK, which promotes UK business interests abroad, adds, “Some UK software developers are reconsidering their position in the US market because of the perceived high risk of what they regard as unreasonable patent infringement actions being taken against them. This is obviously bad for the growth of international trade.”

Steve Kuncewicz, an IP, Media and Social Media Lawyer at UK law firm Gateley LLP, explains that software patents are newer to the UK and EU and harder to obtain than in some other parts of the world. However, that still leaves European developers vulnerable to be targeted by US patent holders, simply for offering their software in US app stores. For example, Lodsys has targeted Finland-based developer Rovio for allowing in-app purchases in Angry Birds. “In the US obtaining a software patent is much more straightforward and the number of infringement claims has gone through the roof, especially in the smartphone market – many developers are already withdrawing from the US market to avoid the risk of being sued and just don’t think the risk is acceptable.”

Jane Lambert, Head of Chambers at NIPC Law in Huddersfield, UK, adds that it can even be difficult for developers to work out whether their apps put them at risk or not. “One of the problems of finding any type of patent in the USA is that patents and patent applications are not necessarily published. Even when they are published, software patents that could pose a problem are not always easily identified in a search.”

“This certainly isn’t what anyone had in mind when the patent system was developed and is a cynical business model,” says Steve Kuncewicz. “Apps are big business and a key part of the knowledge economy – patent trolling threatens all that and I wouldn’t imagine that it’ll be too long before the major players step in and lobby for changes to the US and UK system – we can only hope that the developers are still around to benefit from it.”

Could the software patent mess spread to Europe?

Where America leads, Europe often follows. So, could we see a culture of suing over software patents hit Europe?

At present, software patents are largely non-existent in Europe. “The UK and most other countries in Europe are party to the European Patent Convention (“EPC”),” explains Jane Lambert. “The EPC excludes a number of things from the definition of patentable inventions including computer programs “as such”. That means that a patent cannot be granted for most computer software in the UK or rest of Europe but there are a few exceptions.”

As the Wikipedia entry on software patent in Europe notes, “Computer-implemented inventions which only solve a business problem using a computer, rather than a technical problem, are considered unpatentable as lacking an inventive step. Nevertheless, the fact that an invention is useful in business does not mean it is not patentable if it also solves a technical problem.”

“Patent trolls (or not practising entities as I prefer to call them) are mainly a US problem though they do exist here,” continue Lambert. “They have a harder life here partly because it’s harder to get a software or business method patent and because they risk paying the other side’s costs if their action fails”

Joanne Flack notes that this provides comfort to developers who only operate in Europe, however, it also means that US developers don’t face the same risks entering the European market that their European counterparts do from trading in America. “The US software industry has to pick through less patent protection to launch in Europe (although there is weaker copyright protection to protect against copying of the actual software code). Many larger European software companies will say that this disparity puts them at a considerable competitive disadvantage.”

However, the situation in Europe is complicated by differences in approaches between different organisations across the continent. Stephen Pattison explains, “There are emerging differences between the UK approach to software patents and that of the European Patent Office. The current position is that the UK severely restricts patents for non-technical computer programmes. The European Patent office, having started from a similar position, has recently shifted towards granting more such patents.”

The recent Hargreaves Report into intellectual property in the UK (see our previous coverage here) called for the European position to become more in line with what happens in the UK.

However, despite the UK being seemingly a good place to be with regard to software patent, a spokesperson for the UK’s Intellectual Property Office, which grants IP rights like trademarks and patents in Great Britain, explained that there is still work to be done to improve the situation:

“The Hargreaves review of intellectual property highlighted the strong growth of patenting in the computer programme and telecommunications sector. This includes patents currently subject to court proceedings involving major players in the industry.

“One of the drawbacks of this rise in patents, reported in the review, is the creation of concentrated ‘thickets’, where many patents with multiple owners exist in a single area of technology. A current generation smartphone, for example, may well be covered by hundreds of patents owned by multiple rights holders. Hargreaves concluded that ‘thickets’ can impact negatively on business and innovation.

“The Government shares the review’s concern and will investigate patent thickets, exploring options for addressing any problems identified.”

The bottom line

So, the prospects for Europe following the USA’s lead and entering a new age of messy lawsuits and counter suits between software firms over patents seems slim. Jane Lambert says “There are no plans to change the law on software patents here. A proposal from the European Commission to amend the law on software patents in the EU was voted down by the European Parliament in 2005. Prof Hargreaves advised against it his recent report and the UK government has announced that it accepts his recommendations.”

Still, European developers continue to be at risk from the US system if they offer their apps for sale there – a situation that will only be resolved in America sorts out its own mess.