Re: PATNEWS: Study: software patents have NO bad effect on industry

[PILCH Hartmut <phm@a2e.de>]

GregNews (http://swpat.ffii.org/players/aharonian/) rails once more against
the "braindead" European critics of software patents, this time encouraged by
a study 

  http://papers.ssrn.com/sol3/Papers.cfm?abstract_id=926204

of which only the following abstract seems to be world-readable:

  In the late 1980s and early 1990s, people in the software industry often 
said that the            
  coming of patents would spell doom, particularly for small companies. The 
entry of new            
  firms - the seedbed of growth in the industry - would dry up, and only 
large, bureaucratic        
  and decidedly non-innovative firms would remain. This paper concludes that 
these                  
  predictions were wrong. New firm entry remains robust, despite the presence 
of patents            
  (and, in some cases, perhaps because of them). Successful incumbent firms 
have adjusted to        
  the advent of patents by learning to put a reasonable amount of effort into 
the                   
  acquisition of patents and the building of patent portfolios. Patent data 
on incumbent            
  firms shows that several well-accepted measures of "patent effort" 
correlate closely with         
  indicators of market success such as revenue and employee growth. Whatever 
the effects of         
  patents on the software industry, this paper concludes, they have not 
killed it.                  

GregNews moreover quotes a blog entry, apparently by a patent law expert,
about the European situation and suggests that this material be used to 
approach
members of the European Parliament.  Let me quote this with a few comments:

  ------------------------------------------------------

  From: Gregory Aharonian <srctran@world.std.com>
  To: epo@mlist.Austria.EU.net

  !20060920  Study: software patents have NO NO NO bad effect on industry

At least from the abstract quoted above, this can't be concluded.  Rather the
study says that some of the most dire predicitons didn't come true.  It's like
citing a study which finds that there is still human life in Angola, and then
writing

  Study: mines had NO NO NO bad effect on Africa        

How blind must you be to ignore all the blackmail and litigation activities
that have been going on and all the cases where software could not be written
because fields (such as multimedia) were clogged with patent thickets?  

But claims such as the above should be an incitement to us to continue
documentation efforts such as those at

              http://swpat.ffii.org/patents/

which were recently somewhat stalled.

      A blog reports on a study out of Prof. Robert Merges of the UCal
  Berkeley Law School that confirms what is obvious to everyone except the
  clueless and brain-damaged - software patents have no negative effect on
  the software industry, whatever the paranoid delusional fantasies of the
  anti- (software) patent crowd.  The effect of software patents on the
  software industry is no different than the effect of patents on other
  industries, because in the end, the software industry is just another
  science and engineering industry.

      I suggest European patent lawyers mail a copy of Prof. Merges' decision
  to every European Parliament member (maybe reprint in big type) to better
  fight the nonsense attacks on software patents in Europe.

  Greg Aharonian
  Internet Patent News Service
                                ====================

  Have Patents Killed the Software Industry in the U.S.?  HARDLY.
  271patent.blogspot.com/2006/09/have-patents-killed-software-industry.html


  In the early 90's, the software industry in the U.S. decried the rise of
  software patents, claiming that patenting would doom small companies and
  stifle growth in the industry. Even large companies, such as Oracle
  <http://www.bustpatents.com/articles/oracle.htm>  and Adobe
  <http://www.jamesshuggins.com/h/tek1/software_patent_adobe.htm> voiced
  their opposition to software patents in testimony before the USPTO, stating
  that "existing copyright law and available trade secret protections . . .
  are better suited to protecting computer software developments."

  Anti-patent activists, particularly in the EU, have used many of these
  comments as fodder <http://swpat.ffii.org/vreji/quotes/index.en.html>
  for their quest to eliminate software patents altogether. They have
  even gone a step further in their rhetoric, suggesting
  <http://www.nosoftwarepatents.com/en/m/ev50/index.html>  that it will be
  impossible for software companies to operate once software patents are
  recognized, since larger sompanies will swamp the smaller sompanies with
  patent filings and litigation.

      (greg note: an argument all the more idiotic for ignoring the
      effects of large numbers of patents in other fields such as
      computer hardware and biotech.)

There are indeed many complaints from these fields as well.  The working
environment has deteriorated due to patents in many fields.  But predictions
of a "complete standstill of the industry", as made by Bill Gates in 1991,
have, unsurprisingly, not come true.

  However, a current study
  <http://papers.ssrn.com/sol3/Papers.cfm?abstract_id=926204>  being
  conducted by Robert P. Merges (law school, UCal Berkeley), demonstrates
  that this viewpoint is mostly wrong - patents have not killed the
  software industry, they have not led to a slowdown in entry, and they
  appear to have had a negligible impact, if any, on industry structure.

  Professor Merges looks at several industry metrics and reaches the following
  conclusions:

  Industry Structure and Concentration - anti-patent commentators previously
  alleged that, because of software patents, the software industry would
  become more concentrated over time. The idea was that strong patent
  protection over "backbone" software would tend to "lock in" a dominant
  product, and hence the company that owned it. However, this view ignores the

Huh?  Such lock-in has been a painful reality for many years, even without
patents.  So the question can only be whether patents are making it better
or worse.

  dynamic sources of growth in the industry, and underestimates how real and
  effective this competition is in the fields where it operates. For every
  "backbone" product - such as an operating system program - there are many
  applications and ancillary products that connect to the backbone. For these
  products, ownership rights do not appear to create "lock-in" conditions on
  anything like the scale envisioned in the early 1990s:

This sounds a bit like the apologetics in favour of Microsoft in the antitrust
procedings.  Too bad we don't have the real text of the study.

  Industry concentration statistics tell the story here. The conventional
  measure of concentration, the Herfindahl-Hirschman index (HHI) ranges
  from 0 to 10,000; the HHI for the software industry as a whole is
  less than 244 for software, compared to an average of 334 for U.S.
  manufacturing industries. What this means is that the top 20 sellers of
  pre-packaged software generate 61% of total industry revenues. This compares
  very favorably to other industries, many of which are considered quite
  competitive: autos, airlines, and personal computers, for example. There is
  evidence of significant turnover over time as well - a key indicator of a
  dynamic industry. Of the top ten software companies in 1990, five did not
  make the list in 2000, either because they went out of business or were
  acquired. This is remarkable turnover compared to some industries, such as
  pharmaceuticals, where similar comparisons from 1990 and 2000 show that
  eight of ten firms made both lists (and the ones that did not were
  acquired by others that did).

So this means that there was more concentration in the software field than
in pharmaceuticals, doesn't it?

And what does this say with respect to patents?

  Comparative Data on Patents and Innovation - to determine how patents relate
  to these trends, one area of study looked at comparative data concerning
  differences between the domestic software industries of various countries.

  Previous research has shown that as a foreign country moves up the learning
  curve in the software industry, inventors in the software industry from that
  country receive more patents. Accordingly, software firms in Israel, Ireland
  and India were studied to see if the patenting trends hold:

  Software firms in India and Ireland are less innovative than elsewhere.
  Routine service-type programming is the norm in India, while in Ireland, the
  industry is dominated by subsidiaries of foreign firms who add minor value
  to the parent company software, and who are located in Ireland partly for
  tax reasons.

  Israeli firms, which are perceived as being the source of more innovative
  software, patent much more heavily than their Indian and Irish counterparts.
  While a number of reasons might explain this pattern, it is certainly
  consistent with the view that patents correlate closely with R&D and
  innovation - which would tend to refute the early 1990s argument that
  patents are anathema to software innovation. In addition, it can be said
  that the Israeli software industry is in no sense highly concentrated.

  So the comparative data once again supports the notion that predictions
  concerning the concentration-increasing effects of software patents have
  failed to materialize.

  Entry to Market - since the software industry claims large sources of
  innovation from both large and small companies, a steady flow of new
  entrants would indicate a robust industry that seeks to establish innovative
  ideas or products. After reviewing the level of startup activity between
  1970 and 1998, and considering the venture capital funding amounts between
  1995 and 2005, Professor Merges findings indicate that software startups
  and financing activity have continued to do quite well.

Now is that really the reasoning of the Merges study?

It reminds me of claims by Arlene McCarthy MEP made in 2002 that "studies
show" that there is a correlation between the amount of innovation and the
amount of patents granted.

Wow, what a surprise.

Such correlations don't show anything about causality.  But they tend to
be used in order to insinuate a causal relationship.

Arlene McCarthy did just that in 2003-02-19 

       http://swpat.ffii.org/papers/eubsa-swpat0202/amccarthy0302/

by saying:

       Some companies spend as much as 5-10% of their R&D on patents. [...]
       Moreover, academic studies have shown a link between R&D spending,
       patent applications and productivity.

I hope the logic of Prof. Merges's arguments is better.

  Other studies on Software Patents:

  Ronald J. Mann, Do Patents
  <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=510103>  Facilitate
  Financing in the Software Industry?, Texas Law Review, Vol. 83, p. 961, 2005

  Ronald J. Mann and Thomas Sager, Patents,
  <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=802806>  Venture
  Capital, and Software Start-Ups, U of Texas Law, Law and Econ Research Paper
  No. 57

Worth taking a look at, not just the abstracts.

  Regards,

  Howard Skaist
  Founder/Principal Counsel
  Berkeley Law and Technology Group, LLC
  1700 NW 167th Place
  Suite 240
  Beaverton, OR 97006
  "Turning Innovations Into PatentsSM"

Sure: when there is some innovation behind a patent, that patent tends to be
more valuable than one created out of thin air.  What a surprising 
correlation!

  (503) 439 6500 (office)
  (503) 841 7301 (cell)
  (503) 439 6558 (fax)

--
 Hartmut Pilch                             http://a2e.de/phm
 Vice president of the FFII               http://ffii.a2e.de ;
 Protecting the Knowledge Economy from Legal Over-Regulation