Possible EU-US ‘patent war’ beckons over software law

30 Sep 2003

Irish-based software firms and website operators could find themselves in the middle of ‘no man’s land’ in a potential battle over a European draft patent law that excludes the US practice of granting patents for business methods. According to the analyst firm Gartner, a ‘patent war’ could ensue when the EU directive is implemented in 2005.

On 24 September the European Parliament gave initial approval to the Directive on the Patentability of Computer-Implemented Inventions. However, the Parliament added 90 amendments, many designed to forbid the US practice of patenting business methods and software.

The amendments could prove damaging to many Irish software firms that develop e-business software with the US business market in mind, ranging from Fineos and Performix to Cape Clear, Cognotec and Orbiscom. They could also prove damaging to US multinationals that employ thousands in the development and export of business software in Ireland, namely Oracle, IBM and Microsoft.

The directive aims to harmonise rules for issuing patents for “computer-implemented inventions”, defined as a combination of hardware and software. Critics of the original draft claimed its ambiguous wording would have allowed most software to be patented the same as it is in the United States. The amendments proposed by the EU would prevent patents for “business methods”, such as the US patent granted to Amazon for its one-click shopping.

In one chink of light for small Irish software companies, however, the amendments would also allow a grace period to determine the state of the art, which would favour smaller companies that apply for software patents.

Member states’ patent offices and the European Patent Office already grant patents for software but each use different criteria for deciding what can be patented. However, the directive has a long way to go before it becomes law. The amended bill now goes back for review to the European Commission (which drafted it), and Parliament will then vote on it again. If approved, the Council of Ministers must then vote for the final version before it becomes law. After that, each country must implement the directive in national legislation. Although the proposed amendments largely remove the ambiguity in the original draft, it remains unclear whether the Commission will accept them and continue with the legislative process.

Gartner analyst Debra Logan said that the advent of the proposed directive in the fourth quarter of 2005 could mean serious harm to the flow of e-commerce between the US and Europe, making transactions between the two geographies illegal in some cases.

Logan explained: “If the amended directive becomes law, the significant differences between the US and European approaches to software patenting raises the prospect of a patent war. Potentially, this could have big implications for website operators as disputes arise over which country a patent can be enforced in — it might even become illegal to access a European e-commerce site from the United States.”

She continued: “Even if the amended directive survives relatively unchanged, enterprises will not see any changes in European patenting law until at least 2005. An EU directive can’t be implemented in national laws before 4Q05 at the earliest. This vote will have no short-term impact on the open source software movement or on others who see software patents as a threat.”

By John Kennedy