Law and technology

The Government has cleared up the recent uncertainty about software patent reform by confirming that the proposed exclusion of software patents will proceed. A press release from Commerce Minister Simon Power said:

“My decision follows a meeting with the chair of the Commerce Committee where it was agreed that a further amendment to the bill is neither necessary nor desirable.”

During its consideration of the bill, the committee received many submissions opposing the granting of patents for computer programs on the grounds it would stifle innovation and restrict competition… The committee and the Minister accept this position.

Barring any last-minute flip-flop – which is most unlikely given the Minister’s unequivocal statement – s15 of the new Patents Act, once passed, will read:

15(3A) A computer program is not a patentable invention.

Lobbying

It is clear that the lobbying by pro-software patent industry group NZICT was unsuccessful, although Computerworld reports that its CEO apparently still holds out hope that “[IPONZ] will clarify the situation and bring this country’s law into line with the position in Europe and the UK, where software patents have been granted”. Hope does indeed spring eternal: the exclusion is clear and leaves no room for IPONZ to “clarify” it to permit software patents (embedded software is quite different- see below).

As I wrote earlier, it remains a mystery as to why NZICT, a professional and funded body, failed to make a single submission on the Patents Act reform process – they only had 8 years to do so – but instead engaged in private lobbying after the unanimous Select Committee decision had been made. It also did not (and still does not) have a policy paper on the subject, nor did it mention software patents once in its 17 November 2009 submission on “New Zealand’s research, science and technology priorities”. It is not as though the software patent issue had not been signalled – it was raised in the very first document in 2002. Despite this silence, it claims that software patents are actually critical to the IT industry it says it represents.

The New Zealand Computer Society, on the other hand, did put in a submission and has articulated a clear and balanced view representing the broader ICT community. It said today that “we believe this is great news for software innovation in New Zealand”.

Left vs right?

Is there a political angle to this? While some debate has presumed an open-vs-proprietary angle (a false premise) some I have chatted with have seen it as a left-vs-right issue, something Stephen Bell also alluded to (in a different context) in this interesting article.

Thankfully, it appears not. The revised Patents Bill was unanimously supported by the Commerce Committee, comprising members National, Labour, Act, the Greens, and Maori parties. It reported to Commerce Minister Simon Power (National) and Associate Minister Rodney Hide (Act). Unlike the previous Government’s Copyright Act reform, post-committee industry lobbying has not turned the Government.

What about business? NZICT apart, the exclusion of software patents has received the wide support of the New Zealand ICT industry, including (publicly) leading software exporters Orion Health and Jade, which as Paul Matthews notes represent around 50% of New Zealand’s software exports. The overwhelming majority of NZCS members support the change. Internationally, many venture capitalists and other non-bleeding-heart-liberal types have spoken out against software patents, on business grounds.

Some pro-software patent business owners might be miffed at a perceived lack of support from National or Act, perhaps assuming that software patents are a “right” and are valuable for their businesses. The reality is that only a handful of New Zealand companies have New Zealand software patents (I did see a figure quoted somewhere – will try to find it). Yes, they can be valuable if you have them but that is a separate issue (and remember, under the new Act no one loses existing patents). A capitalist, free market economy (and the less restrictive the better) abhors monopolies, and this decision benefits the majority of businesses in New Zealand. Strong IP protection is essential in modern society – including patents – (see my article “Protecting IP in a post-software patent environment“) but the extent of statutory protection when being reviewed will always come down to a perceived balance, not just for the minority holders of a patent (a private monopoly) but for the much larger majority artificially prevented from competing and innovating by that monopoly.

I have always taken pains to note, like NZCS, that there are pros and cons to software patents. And I am a fan of patents generally. Patents are good! But for software patents, the cons outweigh the pros. There are sound business reasons to exclude them. This specific part of the reform targets one specific area, has unanimous political party support (how rare is that?), and wide local business support. The last thing it can be seen as is an anti-business, left-wing policy (if it was, I’d have to oppose it!)

Embedded software

Inventions containing embedded software will remain, rightly, not excluded under the Patents Bill. Minister Power confirmed that IPONZ will develop guidelines for embedded software, which hopefully will set some clear parameters for applicants.

Software is essential to many inventions, and while that software itself will not be patentable, the invention it is a component of still may be. Some difficult conceptual issues can arise, but in most cases I don’t expect difficulties would arise. This “exception” (if it can be described as such) will not undermine the general exclusion for software patents.

The US Supreme Court has released its long-awaited Bilski decision involving business method patents. Many commentators had hoped that the case would provide a definitive statement on the patentability of business methods, and possibly other subject matter such as software patents, compression techniques and biotechnology. Instead, it seems the court has kicked for touch – or “taken a knee” in the American equivalent, I am informed.

The court ruled that the “machine or transformation” test was not the only criteria for determining patentability, but that there should not be “broad patentability” of business methods. Lower courts could continue developing limiting criteria. It upheld the lower court’s decision to reject Mr Bilski’s attempt to patent a method of financial hedging. But it left many questions, and some confusion, by not giving clear guidance on what’s patentable and what’s not.

Some comments:

Forbes.com:

The practical effect of the Bilski ruling will be limited, lawyers said, but it will definitely mean more lucrative patent litigation.

New York Times:

There were high hopes that the Supreme Court would clear things up in the mushy, litigation-filled realm of patents on methods of doing business.  [Bilski] was anything but a landmark decision. Still, there was a clear message for patent trolls, patent brokers and licensing companies, patent lawyers and lobbyists: Play on!

“The court is certainly not shutting the door on business method patents, as some thought it might,” said Josh Lerner, a patent expert at the Harvard Business School. “This preserves a fair amount of ambiguity.”

Patently-O:

Although not rejected by the majority opinion, it is clear that the broad “useful, concrete, and tangible result” test is dead. That test is conclusively rejected by what I term the Anti-State-Street Majority — a majority created by the combining the two concurring opinions in Bilski and their five-justice majority. The result is that the scope of patentable subject matter is certainly narrowed from its 1998 high-water-mark.

Glyn Moody:

So, the long-awaited US Supreme Court ruling on Bilski vs. Kappos has appeared – and it’s a mess. Where many hoped fervently for some clarity to be brought to the ill-defined rules for patenting business methods and software in the US, the court instead was timid in the extreme. It confirmed the lower court’s decision that the original Bilski business method was not patentable, but did little to limit business patents in general.

AP:

Scott Bain, lawyer for The Software & Information Industry Association, said the decision “preserves a delicate but important balance.” “It keeps the door closed to patenting mere abstract ideas, which many ‘business method’ patent applications have been,” he said. “But just as importantly, it affirms the continued viability of patenting useful software applications, which will allow software companies to continue in their role as a driver of economic growth.”

Nature:

For those who were looking to the Supreme Court to provide clarity on a contentious issue, however, the court’s limited ruling was a bitter disappointment. “The decision is incredibly unhelpful,” says Steven Bauer, head of litigation at the law firm Proskauer Rose in Boston, Massachusetts. “Nothing in their decision can be used to decide what’s patentable or not.”

The decision had potential ramifications for New Zealand companies who have (or hope to get) business method patents. If such patents were unavailable in the US, the value of having them in NZ and other countries could be somewhat undermined. Unfortunately, though, the recent New Zealand patent law review also didn’t address business method patents in much detail, and it will probably be many years, if ever, before the NZ Appeal Court or Supreme Court hears a similar case. The net result for all is the status quo, and business method patents will remain murky for some time.

It also will not affect the ongoing software patent debate in this country, which is also somewhat up in the air.

Reports are emerging that the proposed ban on software patents may be dropped. There are certainly a small number of organisations and lawyers who were most upset by the proposal – including NZICT, who apparently instigated the lobbying effort to reverse the change – although it appears to have received broad industry support.

It is too early to tell whether the reported comments of Ministry of Economic Development officials represent Government policy. If they do, it would represent a significant change from the Government’s earlier position as stated publicly by senior Ministers and MPs following the Select Committee report.

It would not be a major surprise, though, for the final bill to be substantially “tweaked”. The proposed exclusion came as a surprise to many, including some who had submitted in favour of it. The fact is there is not a large “anti-software patent vote”, and the Government is not going to upset too many people (relatively) over such an arcane technical issue. For those reasons, the proposal was always susceptible to lobbying.

The suggestion is that the ban might be scaled back to the lesser, “somewhat restricted” position of the European Union – the MED’s view being that if something is patentable in the EU it should be patentable here. There is merit in that suggestion, although in the US and the EU software patents are contentious and somewhat in flux themselves.

Whatever the final outcome is – banned, allowed, or restricted – it is hoped it will at least provide clarity for the market (and not just opporunities for lawyers!). Many of the alleged problems with the current system arise from uncertainty and loopholes. The new law is an opportunity to establish a clear framework for the future. It is also hoped that an explanation for any departure from the Select Committee’s unanimous report (if indeed that occurs) is provided.

Software patents and venture capital

An argument often made in support of software patents is that attracting investment will be harder without them. Clearly this isn’t always the case. US venture capitalist Brad Feld has written an open letter against software patents:

In more recent years, patents on software have been granted – hundreds of thousands of patents. These patents cover essential techniques in computer programming, and their existence is having a chilling effect on the startup companies that I work with… Venture capitalist like me, who work with new innovative start-ups can testify that software patents have a chilling effect on the market.

He joins a number of other venture capitalists who have expressed similar sentiments. Now, this is not an either/or situation. There is no doubt that many investors have been, and will continue to be, attracted by a potentially lucrative software patent. But comments such as Feld’s highlight the potential “chilling effects” of software patents, as seen by some investors, and also (further) dispel the myth that software patents are necessary for investment – as reflected by the fact that a huge amount of IT investment has always occurred in situations without software patents.

See also: Protecting IP in a post-software patent environment

Waiting for Bilski

Feld’s letter also highlights the long-awaited Bilksi decision. The case has attracted attention for the potentially major implications on the US patent system – of relevance to all patent-holders including in New Zealand – as well as the long wait for judgment.

Defamation by hyperlink

A US court ruling that “forwarding a link to defamatory material can be considered defamation” has caused some consternation, showing again that, thanks largely to constitutionally protected free speech, US defamation laws are rather less stringent than in New Zealand. Under New Zealand / English common law, such actions have long been capable of being defamatory. For example, in the old case of Hird v Wood (1894) 38 SJ 234, a Court found that a man sitting in a chair and pointing at another person’s defamatory sign contributed to the defamation. If linking is “innocent”, however, the publisher has a defence.

My recent Computerworld article is now online:

• Protecting IP in a post-software patent environment, Computerworld 10 May 2010

The article briefly summarises some of the ways developers can protect valuable intellectual property if, as expected, New Zealand bans software from patentability. I avoided the pros-vs-cons debate, because the decision has been made (after an 8 year long review). For developers operating in New Zealand, software patents will not be an option. Software patents in other countries still are, though.

Meanwhile in a new development, a German appeals court has reversed a lower court and upheld a software patent:

… the highest German appeals court in matters of civil and criminal law overruled the country’s highest patent-specialized court and decided that a client-server software for the automatic generation of structured documents (such as XML or HTML) is an example of a patentable software invention… This decision has the effect that in Germany, a country in which software patents were previously only considered valid under relatively strict criteria, all software ideas are now potentially patentable as long as they are innovative from a purely formal point of view, meaning they’re at least marginally different from how a technical problem was solved before.

If this is a change in position (change being the only constant), does it represent a change in European policy? No – Courts do not (or should not) make policy. They interpret and apply law.  But if Europe does change its position (politically or judicially) on software patents, will New Zealand need to follow suit and reverse its expected software patent ban? Pressure to conform with international norms (if one emerges) and trading partner requirements may force a change down the track, but the New Zealand decision was born of widely supported policy, not judicial opinion (or judicial fiat for that matter).

Another judicial development still pending is the US Supreme Court’s ruling in Bilski, expected to be released in the near future. That decision could impact on the ability to patent business methods, which underlie many software patents (and vice versa).

IT industry supports ban on software patents

InternetNZ, the New Zealand Computer Society and the New Zealand Open Source Society issued press releases yesterday in support of the ban on software patents:

• InternetNZ agrees – no to software patents
• ICT Profession Supports Removal of Software Patents
• NZ Open Source Society Congratulates Government on Patents Bill Stance

The Labour Party also issued a press release supporting the decision and Minister Simon Power’s earlier endorsement:

• Software exclusion will encourage Kiwi innovators
• Power to delete software patents

Meanwhile law firm Chapman Tripp issued a press release criticising the decision:

• Excluding Software Patents Will Stifle Innovation

Privacy Commissioner slams Google’s “experiment”

New Zealand’s Privacy Commissioner, Marie Shroff, has criticised Google Buzz as being a “commercial experimentation on New Zealanders and other internet users, involving the release of significant personal information”:

[Google's actions] violated the fundamental, globally accepted principle that people should be able to control the use of their personal information.

The comments follow Ms Shroff’s signing of a joint letter to Google, stating:

It is unacceptable to roll out a product that unilaterally renders personal information public, with the intention of repairing problems later as they arise. Privacy cannot be sidelined in the rush to introduce new technologies to online audiences around the world.

These comments, including constructive requests that organisaions collects and process “only the minimum amount of personal information necessary” and create “privacy-protective default settings”, are admirable. Ms Shroff does a great job in standing up for New Zealanders’ privacy rights.

The difficulty, as I have written previously, is that people happily trade privacy for functionality. Millions of people willingly pour personal information into different websites every day. To what extent can Google be criticised for finding new, creative uses of information it has been willingly given, in accordance with terms agreed to by users? And to what extent is it necessary or right for governments to intervene?

Open standards in Government procurement

Earlier this year I commented that “the Government must properly mandate open standards and multi-vendor capable solutions for future state-sector IT procurement”.

European Union ministers have now called for “the introduction of open standards and interoperability in government procurement of IT”. This comes as part of an ongoing development of procurement frameworks.

The report states that some groups claim the proposal has been “so watered down due to intense lobbying by the proprietary software makers, to such an extent that the document will have no impact on the market”. Other industry groups have praised the proposals as “well balanced”.

The New Zealand Computer Society has written to the Minister of Commerce, Simon Power, in support of the planned removal of software from patentability. From the letter:

We are of the view that there are significant advantages and disadvantages to removing patentability of software, and there are a number of significant considerations and issues that need to be addressed. However on balance, the Commerce Select Committee’s recommendation is one we support.

The letter goes on to give good reasons for the position. It concludes:

NZCS represents a broad church of ICT professionals and no doubt some of our members have different views on software patents (as with all things). However … the evidence certainly appears clear that software patents are simply too potentially harmful to our sector, and in fact innovation in New Zealand, to support. … People should have the option of commercial exploitation of their creations, however we believe this protection is inherent and appropriate in Copyright.

The word “potentially” is important here. While it is easy to point to the odd success story that might be linked to a software patent, it is much harder to justify the potential harm. The NZCS can be commended for taking a balanced position on this subject. As it takes pains to point out, there certainly are some benefits in software patents, and few people would argue otherwise. However, there are greater disadvantages.

NZCS has also conducted a survey of its members, showing “around 97% support for NZCS taking a stand, and approximately 80% in favour of us supporting the Commerce Select Committee’s recommendation that software patents be removed.”

Meanwhile, another industry group NZICT has issued a press release expressing concern about the proposal. Unfortunately, the press release does not set out any evidence in support of its position. It also makes the extraordinary claim that “the software industry has not been consulted sufficiently on this change”, despite an extensive consultation process running for over eight years, including the first round of industry submissions on software patents reported in November 2002.

The Government’s decision to ban software patents has been harshly criticised as likely to damage investment and “suck the lifeblood” out of the New Zealand software development industry (Computerworld print edition, 12 April 2010). What evidence is there to support these contentions? Certainly none have been put forward. Here are comments from a trio of industry-leading organisations who know a thing or two about the industry:

• The CEO of the New Zealand Computer Society, Paul Matthews, says “on balance the evidence is clear that software patents are simply too harmful to our sector, and in fact all of New Zealand, to support. We were very happy to see Software Patents removed from the Bill and will be making it very clear to Government that we would be very disappointed to see them make an unwelcome return.”
• IP lawyer and former president of the New Zealand Software Association, Wayne Hudson, says that most of NZSA’s members can’t afford to “play the patent game”, and most members are “probably apathetic” to the issue.
• The CEO of Orion Health, New Zealand’s leading software exporter, Ian McCrae, supports the ban on software patents, saying the negatives outweigh the positives (Computerworld print edition, 12 April 2010).

Add to that the New Zealand Open Source Society (which has been the leading voice against software patents), other leading firms such as Catalyst IT, and numerous others, and it is clear that a very large part of the industry is either happy or apathetic about the ban on software patents.

The cross-party Commerce Committee (chaired by former lawyer, and opposition MP, Lianne Dalziel, and deputy-chaired by National MP Peseta Sam Lotu-Iiga, also a lawyer) unanimously recommended the ban, accepting the submissions in favour. The Commerce Minister, Simon Power (another former lawyer) says “the Government believes the committee has dealt with the issue in a sensible manner and has found a reasonable solution”.

So who is actually unhappy about this decision?

• Microsoft New Zealand, which says it is “concerned”, although it acknowledges it doesn’t actually do software development in this country;
• Microsoft partner Intergen (a leading NZ firm), which says it damages the industry [see comments section], although it was (by its own account) not interested in putting in a submission to the Select Committee (Computerworld print edition, 12 April 2010), and according to IPONZ does not hold any patents in its name or its parent company’s name.
• NZICT (whose Tier 1 members include major patent-holders Microsoft, IBM, and HP), though it appears not to have a policy position on this apparently critical issue, did not make a submission to the Select Committee, and did not mention software patents in its 17 November 2009 submission on “New Zealand’s research, science and technology priorities”.
• Patent attorneys AJ Park and Baldwins, both of which have filed software patents on behalf of international patent holders.

So, in the main, it appears that those unhappy about the decision are limited to the local subsidiaries of major international patent holders, their association (NZICT), and their local business partners. Their opposition is understandable. There are certainly some advantages to software patents to existing holders – but there are more disadvantages and other reasons not to allow them.

Banning software patents will align New Zealand with the European Union and remove a significant threat to the local industry. The general unavailability of software patents in the EU does not seem to have held back the IT sector in that region (or indeed the development of the internet itself). No compelling arguments have been put forward to indicate that New Zealand will somehow have a different experience after the new law takes effect. Instead, as the Select Committee unanimously found and the Government has agreed, the removal of software from patentability is a positive move, and one that has support across New Zealand’s IT industry.

Government confirms ban on software patents

Commerce Minister Simon Power has confirmed that the Government will adopt the recommendation to ban software patents in New Zealand. The speed of this announcement is somewhat surprising, as lobbying against the ban had been signalled.

The Economist on shorter copyright terms

The Economist says it is “time to tip the balance back” on copyright terms:

Largely thanks to the entertainment industry’s lawyers and lobbyists, copyright’s scope and duration have vastly increased. In America, copyright holders get 95 years’ protection as a result of an extension granted in 1998, derided by critics as the “Mickey Mouse Protection Act”. They are now calling for even greater protection, and there have been efforts to introduce similar terms in Europe. Such arguments should be resisted.

In New Zealand, the copyright term is generally the life of the author plus 50 years – meaning that the period often cannot even be determined while the author is still alive.

Website operators: edit comments at your own risk

The Register reports on a recent case highlighting the defamation risk of editing website comments. A key issue in New Zealand is whether the website operator “assumes responsibility” for another person’s potentially defamatory comment. As I say in my article published here:

If your website publishes third-party content (e.g. forums, search results of other sites, user ratings, etc), ensure that you are not seen as “assuming responsibility” for that content. In practice, this can include not exercising editorial control over articles and comments. This will not always be possible or appropriate on some websites.

Proposal to ban software patents irks patent attorneys…

Two patent-specialist law firms have criticised the Commerce Committee’s recommendation to ban software patents in New Zealand (read here and here). Both express surprise that the Committee appears to have accepted submissions by open source proponents, as if that alone is reason not adopt the report. The articles do not accurately represent this arguments, in my view, and the New Zealand Open Source Society has now provided a response.

While another says “stop wasting money on patents”

US intellectual property lawyer Erik Heels writes:

In most cases, filing a patent application is a waste of time and energy. Especially for startups. Your money and time would be better spent hiring programmers, marketers, and a sales force.

This is good advice for New Zealand businesses, especially tech start-ups. As Erik says, it can make sense in some cases, but at least consider the definite immediate opportunity costs versus the possible future benefits (and hidden costs to attain those benefits) of seeking a patent.

Historical legislation online

The Parliamentary Counsel Office has begun digitising historical legislation dating back to 1841, to be provided free online. Historical legislation doesn’t only have historical interest value, it can also have practical uses – such as providing a comparison to assist interpretation of current laws. While the first step involves simply scanning the old legislation (including the “shattering statutes“), longer term the plan is to OCR the documents into the excellent New Zealand Legislation website.