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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Potential Progress On Dealing With Software Patents

Comments (9)

I woke up this morning to a great article by Nick Grossman at Union Square Ventures on The Patent Quality Improvement Act. Nick does a great job of describing the software patent problem, suggesting several solutions, and explaining how the Patent Quality Improvement Act helps the increasingly dismal situation around software patents.

Nick has a great paragraph from Mark Lemley of Stanford Law School that describes a powerful solution to part of the problem – that of eliminating “functional claiming.” Regarding functional claiming, Mark says:

“This is a problem that is unique to software. We wouldn’t permit in any other area of technology the sorts of claims that appear in thousands of different software patents. Pharmaceutical inventors don’t claim “an arrangement of atoms that cures cancer,” asserting their patent against any chemical, whatever its form, that achieves that purpose. Indeed, the whole idea seems ludicrous. Pharmaceutical patent owners invent a drug, and it is the drug that they are entitled to patent. But in software, as we will see, claims of just that form are everywhere.”

Mark has written a strong paper on this called Software Patents and the Return of Functional Claiming that describes the problem – and the solution – in detail.

Fred Wilson, Brad Burnham, Jason Mendelson, and I have been talking about the problem of software patents for a long time and Fred brought it up again today on his blog in a post titled Piecemeal Patent Reform. It’s nice to see Senator Chuck Schumer proposing a simple yet powerful solution to part of the software patent problem.

While we continue to struggle with patent trolls in the US – which used to be called “non-practicing entities” (NPEs) but now apparently prefer to be called “patent assertion entities” (PAE) – the New Zealand government has announced that software will no longer be patented. Maybe someday we will be so bold.

  • http://twitter.com/brianlong Brian Long

    Hi Brad, Any thoughts on the legal or tax implications of moving US-based cloud servers to NZ?

    • http://www.feld.com bfeld

      No clue.

      • http://twitter.com/brianlong Brian Long

        It looks like NZ makes it easy to incorporate and offers tax-free status for foreign income earned by non-NZ residents. So, there might be a troll-avoidance strategy of moving IP into an NZ subsidiary. YMMV. Thanks for all the community work you do.

        • drllau

          NZ is actually the cheapest place to incorporate and is ranked #1 in starting a business (http://www.doingbusiness.org/rankings). It is also very strong trust laws and you need not be taxed on overseas earnings, nor does it have capital gains tax. However a subsidiary might not be sufficient arms-length dealing as the parent would be a connected party.

    • http://www.eliainsider.com Elia Freedman

      I’m not certain that would work if you are still doing business in the US.

  • http://www.eliainsider.com Elia Freedman

    Small steps here until the inevitable feels inevitable and government follows suit? Seems like that is the way of progress for everything. It takes years and frustrates most of it but that seems to be the way it needs to be done.

  • http://twitter.com/PatLefler Patrick Lefler


    An interesting software patent
    case to watch is CLS Bank v. Alice Corp that could help answer the question of
    whether patents should be granted on abstract ideas when those ideas are
    combined with a computer process. The case—being heard now at the U.S. Court of
    Appeals for the Federal Circuit in Washington–has generated a fair amount of
    interest from both sides of the argument with Facebook, Google and JPMorgan
    Chase weighing in that patent standards are too lax, while IBM, Apple and
    Microsoft have argued just the opposite.

    My feeling is that the courts
    will have as much (or more) say in this matter as any proposed legislation.

  • PatentGeek

    Interesting stuff. As for Chuck Schumer, though, there’s been a lot of hype about this pretty much worthless Act. I can’t believe people are falling for it! It’s going to have virtually no effect on anything. (Even if it does pass, which it almost certainly won’t.)

    Here’s the problem with this Act; it does almost nothing. I really don’t understand why everyone is getting so excited about this Act. You can see the text here: http://thomas.loc.gov/cgi-bin/query/z?c113:S.866:

    Exciting, huh? What it does is remove SEC 18 (a) (3) from last year’s America Invents Act; it just stops the expiration of the transitional program for reviewing business-method patents. Woopty doo. If you like the system we have now, you’ll continue liking it eight years from now when this program doesn’t expire.

    Of course if you don’t like the system right now, this does nothing to satisfy you. It leaves the wolf in charge of the hen house, it just forces the wolf, eight years from now, to continue to review the health and safety conditions of the hens.

    In fact there are already review processes in place, and the Patent Office does now and then invalidate patents through these processes. But the processes are too expensive for most companies to use, and in any case, it’s one thing to have the Patent Office invalidate this or that patent, but the Patent Office *believes* in software patents; there’s no way they are going to do what they should be doing, and invalidate the vast majority of such patents, until they are forced to do so.

    Unfortunately this Act is merely fiddling around with the details, it won’t fix the problem. This problem won’t be fixed until the Patent Office stops issuing stupid patents. What most people don’t realize is that the Patent Office has no right to issue these patents. The Patent Office derives it’s authority from Article I, Section 8, Clause 8 of the United States Constitution, the Copyright Clause:

    “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”

    Thus patents are not intended to protect or create intellectual property rights; they are intended to “promote the Progress of Science and useful Arts.” Quite clearly software patents are having the *opposite* effect. Until the industry gets together and mounts a constitutional challenge to the Patent Office, details may change but the end result will be much the same.

  • drllau

    Clarification … NZ Patent Bill disallows software patents “as such”, ie the program as code is not patent subject material. However, it applies the UK Aerotel test and software which has a technical as in embedded software is still permitted (provided it passes the tests of inventiveness, novelty etc). What the legislation effectively provides is a freedom to operate but only within NZ territory. If a software patent is overseas, it may still fall under split infringement (Akamai v Limelight). So any cloud based server needs to be carefully legally engineered (think WNET v Aereo). Doable and smart lawyers are paid to find the loopholes see http://answers.onstartups.com/questions/47144/uk-startup-dealing-with-us-software-patents/48953

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