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Software patents, economic evidence and competition
Open Forum on the Substantive Patent Law TreatyWorld Intellectual Property OrganisationGeneva, March 3, 2006
Rishab Aiyer Ghosh - rishab@dxm.orgUnited Nations University / MERITMaastrichtDisclaimer: this presentation represents the author's personal views
Overview Software patents: definitions and evidence
What are software patents Who owns them Why do firms patent software
Software, networks and competition Economic effects of patents on competition Economic effects of types of standards
What are software patents? Computer Implemented Inventions =
“inventions whose implementation involves the use of a computer, computer network or other programmable apparatus, the invention having one or more features which are realized wholly or partly by means of a computer program”
If “realized wholly”, then =software Such definitions cannot be used for large-
scale empirical analysis
What are software patents? Large scale searches possible using:
Specific patent classes (“IPC method”) Keywords (“Bessen & Hunt method”) All classes for largest software firms (“Hall
& MacGarvie method”
Who holds software patents?Industry
Bessen-Hunt
Graham-Mowery
Hall-MacGarvie
All definitions combined
Telecommunications 2 1 744 222Electrical machinery 3 2 566 137Transportation equipment 1 415 128 54Machinery & engines 3 576 149 47Autos 2 386 117 38Oil 1 475 259 28Auto parts 497 197 64 25Chemicals 1 160 56 23Printing 119 96 69 12Wholesale trade 115 250 169 8Fabricated metals 315 93 50 7Misc 210 82 70 7Computing equipment 21 18 11 6Paper 415 78 33 5Furniture 138 45 18 4Pharmaceuticals 1 153 87 4Food & tobacco 253 146 94 2Primary metals 200 74 41 2Business services NEC 118 145 102 2Instruments & Comm. eq. 12 9 4 2Medical instruments 19 28 21 1Computing systems & software 2 2 2 1Textiles & apparel 54 105 81 1Rubber & plastics 103 48 29 1Stone, clay, & glass 116 50 28 1Lumber & wood 17 27 22 0Soap 205 24 16 0Total 72.657 63.838 41.361 10.455
Source: Torrisi & Thoma, 2006 CESPRI
Evolution of software patentsCountry of assignee for EPO software patents
Source: Torrisi & Thoma, 2006 CESPRI
0
20 0 0
40 0 0
60 0 0
80 0 0
1 00 0 0
1 20 0 0
79 8 0 8 1 82 8 3 84 8 5 8 6 87 8 8 8 9 9 0 9 1 92 9 3 9 4 95 9 6 97 9 8 9 9 00 0 1 0 2 03
DE FR G B IT US JP o the rs
Evolution of software patents
0% 2% 4% 6% 8%
10% 12% 14% 16%
1981 1984 1987 1990 1993 1996 1999 2002 Year
% o
f all
pate
nts
EPO - keyword method
EPO - IPC method
USPTO – keyword method
USPTO - IPC method
USPTO - HM method
Software patents as a share of all patents, US vs EPO
Source: Torrisi & Thoma, 2006 CESPRI
Evolution of software patentsConcentration of EPO software patents by assignee sector
Source: Torrisi & Thoma, 2006 CESPRI
0%
1 0%
2 0%
3 0%
4 0%
5 0%
6 0%
7 0%
8 0%
9 0%
1 0 0%
1% 5% 9%13% 17%
21%25% 29%
33% 37% 41% 45%49%
53%57%
61% 65%69% 73% 77%
81%85%
89% 93%
97%
cumulative perc entage of as s ignee s
cum
ulat
ive
perc
enta
ge o
f pat
ents
s ic3 6 E lectrica l,ele ctro nic an d te lecom m . e qu ip
s ic3 5 C o m p ute r e q uip . a n d ind u strial m a chin ery an d equip .
s ic3 8 In strum e nts an d re late d p rod ucts
s ic7 3 So ftw are an d o the r bu s in e ss se rvice s
s ic4 8 Te le com m u nica tio n s e rvices
The top 10 assignees account for between 57 and 78 per cent of EPO software patents
Evolution of software patentsEPO software patents by publication year and size* of assignee
Source: Torrisi & Thoma, 2006 CESPRI
*Size is EU definition. Large >250; Medium >50, Small >10 employees
0
1000
2000
3000
4000
5000
6000
1982
1983
1984198
519
86198
719
881989
1990
1991
199219
931994
1995
1996
199719
981999
2000
2001
2002200
32004
pu b lica tio n ye ar s
soft
war
e p
aten
ts
Micro Small Med ium Large
“Quality” indicatorsTechnical quality can only be measured by inspection of patents themselves; citations etc are possible proxies
Source: Torrisi & Thoma, 2006 CESPRI
0.00
0.50
1.00
1.50
2.00
2.50
1991 1992 1993 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
publication ye ar
inde
x num
bers
(bas
e=19
91)
IPCs codes claims family backw ard citations forw ard c itations w ithin 5 years
Software patents and R&DEPO software patent stocks per million euros of R&D stocks – US software firms
Source: Torrisi & Thoma, 2006 CESPRI
0 .0 0
0 .0 1
0 .0 1
0 .0 2
0 .0 2
0 .0 3
0 .0 3
0 .0 4
1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9
y e a r
pate
nts/
inta
ngib
les
Software patents and jobsEmployment average growth rate for European SSPs, holders vs non-holders of software patents
Source: Torrisi & Thoma, 2006 CESPRI
Sector Software patenting
1997-99 (base 1994-96)
2000-02 (base 1997-99)
2003-04 (base 2000-02)
IT services no 81.89% 88.37% 27.96%
IT services yes 61.47% 59.42% -6.84% Pre-packaged software no 61.66% 66.13% 30.47%
Pre-packaged software yes 107.40% 131.87% -11.66%
Why firms patents softwareReasons for filing for a software / CII patent
8
11
15
23
43
49
0 10 20 30 40 50 60
Generate publicity or attract venture capital
Use for cross-licensing or patent exchanges
Earn licensing revenue
Block competitors from entering yourmarket
Defend your firm against infringement suits
Prevent competitors from copying yourideas
% respondents "very important" or "moderately important"Source: Ghosh, Glott et al, 2006 MERIT
Software patents: inhibition
Source: Ghosh, Glott et al, 2006 MERIT
In the last three years, has concern that your software might infringe a patent led your firm to:
Percentage (n = 498)
Change or abandon a software development project to avoid infringement
10.2
Avoid markets where your software might infringe patents
11.0
Obtain a patent license in order to develop or use software
12.2
multiple response
Software patents: disclosure
Source: Ghosh, Glott et al, 2006 MERIT
In the last 3 years, were any of the following important sources of ideas for your firm's new or improved software?
5.2
12.4
17.1
21.9
29.9
42.8
Patent databases (published patents)
Proprietary software source code in other products
Free / Open Source software source code in other products
Scientific publications or trade journals
Internet forums or other informal exchanges
Products on the market
multiple response
n = 498
Software patents: importance
Source: Ghosh, Glott et al, 2006 MERIT
Which of the following are important methods for helping your firm to profit from its new or improved software?
8.6
10.0
11.2
14.5
17.5
21.5
23.9
30.3
patenting the hardware linked to the software
patenting the software
first to publish
copyright
trade secrecy
technical protection measures
trademarks / marketing
first to market
multiple response
n = 498
Patents and competition Patents do not only “protect ideas from theft
or imitation” - they also prevent independent creation of ideas
“Patents amount to temporary monopolies on useful new inventions” (Economist)
These monopolies are justified on the basis of increasing knowledge sharing through disclosure, thus increasing innovation
Needs to be demonstrated through evidence
Patents and competition Software has three unusual properties
Mainly incremental innovation Several problems have only one solution Network effects are very strong
Patents and competition Network effects can form entry barriers for
new technologies Path dependence, QWERTY... Natural monopolies to maximise welfare from
network effects Monopolies can lead to rent-seeking and
capture of network externalities
Economics of standards Alternative approach: separate technology
from producer Truly open standards allow natural
monopolies of technologies (standards) while providing for full competition among vendors
Types of standards Proprietary (“standard”?) technologies
Natural monopoly in technology leads to natural monopoly in market for products and services based on that technology
Results when access to the technology is available only to the rights holders
Types of standards (“Semi-open”?) Standard technologies
Natural monopoly in technology arises (de facto) or is defined (de jure) but some competition provided for in market for products and services
Results when access to the technology is available to players other than the rights holders, perhaps retaining advantages for the rights holders
Types of standards Open standard technologies
Natural monopoly in technology arises (de facto) or is defined (de jure) but full competition provided for in market for products and services
Results when access to the technology is available to all (potential) players on equal terms providing no a priori advantages based on ownership of rights
Open source software Provides main competing product in:
Web servers (#1 in market share) Server operating systems (#2) Network file systems (#2) Office productivity software (#2) Web browsers (#2)
Assumes authors have full rights to created software – compatible with copyright (independent creation), not with patents