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If there’s one thing that Tim Frain, the director of intellectual property at Nokia Corp., doesn’t need to hear, it’s that folksy old saying, “If it ain’t broke, don’t fix it.” One of the most active lobbyists in Europe’s increasingly heated debate over software patents, Frain knows all about ill-fated fixes. In 2002 the European Commission — one of the three legislative institutions of the European Union — decided that the patent situation in Europe needed clarification. Software-related patents were issuing under a single set of rules followed by the Munich-based European Patent Office, but when courts ruled on a patent’s validity, they followed national law, which varies from country to country. The law didn’t vary much, and there hadn’t been any major conflicting opinions, but there was the potential for them — and that troubled the commission. It figured that by introducing a uniform law that mimicked the EPO’s rules it could, in effect, douse a fire that hadn’t yet started. The plan was simple — until it backfired. To the dismay of the Commission, and pro-patent advocates like Frain, the status of European software patents is now more unsettled — and more precarious — than ever. “Three years ago, there was a wrinkle in the system,” says Frain. “Today practitioners don’t have a clue as to what is patentable and what isn’t.” Instead of a little clarification, European industry may have a big problem. Without patent protection, European companies like Nokia and AB Volvo say they will have little incentive to put resources into R&D, stifling innovation. And European markets will be wide open to U.S. and Japanese companies that can compete freely overseas, while protecting their home markets with domestic patents. The irony is that until now, European patent offices have been fairly amenable to software patents — although not as amenable as the U.S. Patent and Trademark Office, which allows pure software patents. Under the 1973 European Patent Convention, computer programs were not patentable. But over time, patent offices in Europe — particularly the EPO, which administers the EPC and offers a streamlined process for obtaining patents in multiple European countries — opted for a less rigid reading of that rule. They came up with a test, known as the “technical contribution” analysis, which prohibits patents for so-called pure software, such as spell-checking and language translation programs that simply process data, but allows for patents on “software-enabled” inventions, such as a new engine control system or collision warning system that relies on computer code. Plenty of patents made the cut: Since 1978, more than 30,000 software-related patents have issued in Europe, according to the European Union. But as more of these patents issued, and more companies began relying on them, unease mounted. The EPO might be issuing the patents, but it would be national courts that would rule on any disputes over validity. With the law not quite consistent through Europe, the worry was that the same patent found valid by the court in one nation might be struck down by another. Although the danger had yet to materialize by 2002, “the potential to diverge was a major concern,” says Frain. In February 2002, the European Commission introduced a proposal for a directive on the patentability of computer-implemented inventions. “All the directive was going to do was put the technical contribution test into E.U. law and oblige all E.U. countries to apply that standard,” says Frain. “It was not going to introduce the U.S. approach.” There would still be no pure software patents. Yet the E.U. legislative process boasts more infighting and backstabbing than a season of “The Apprentice.” The commission’s directive was simply a proposal. Each of the E.U.’s two other main bodies — the Council of the European Union and the European Parliament — would have to agree on the final wording. Complicating matters further: The council consists of government ministers from the 25 E.U. states, while the parliament is directly elected by citizens of those states, meaning that each body listened to a different constituency. Add the general power struggle between the council, which had traditionally called all the shots, and the parliament, which has recently started to flex some muscle. It was more a recipe for disaster than patents. The council quickly took to the commission’s proposal, drafting a version that was virtually identical. The parliament, on the other hand, added amendments to the directive that, patent lawyers say, essentially turned the clock back to 1973. “They basically said that anything that had to do with information processing was not technical and thus not patentable,” says John Collins, a partner at IP firm Marks & Clerk in London. “It meant no patents for digital systems.” Frain says the damage went even further: “It makes those patents that have issued unenforceable, so you have all these existing patents that suddenly have no value, which will have a major impact on business.” Parliament’s proposal had been strongly influenced by the intense lobbying and public relations campaign of the open-source community, an increasingly vocal — and increasingly effective — group of software developers, programmers, and activists who believe that software code should be open, not protected, so that anyone can modify or improve it. Among the best known of the open-source advocates is The Foundation for a Free Information Infrastructure, a Munich- and Brussels-based association that supports open software standards. Well organized, and mobilized (its representatives could be found at every key legislative session), the FFII’s Web site even posted a mini-dossier on Frain. “The open-source movement has been the key antipatent lobby,” says Collins. “They’re so passionate about it.” The open-source community has been savvy, too, wasting little time in pointing out that even with the technical contribution test, pure-software patents were getting through the European patent offices. Little wonder: The test was famously vague. Even the most experienced lawyers had a hard time explaining what it required. “What does ‘technical contribution’ mean? That’s the $64 billion question,” says David Barron, a partner in the IP group at London’s Wragge & Co. Gradually, however, lawyers discovered that they could use the vagueness of the test to their advantage. “Very often whether you get a patent or not is a question of form,” says Barron. “It’s all in the drafting. People can disguise pure software patents.” The patent lawyers turned out to be a little too clever. In April 2003 the EPO granted a patent for a method of gift-giving over the Internet — an invention related to the one-click patent that had previously issued in the United States. “Calling that technical was crazy,” says Collins. “It threw a bomb into the debate.” The open-source community pointed to the bad patents to argue that the directive shouldn’t maintain the status quo, but reform the system. If the open source community seems almost religious in its anti-patent fervor, that’s because they see software patents as the biggest threat to their own livelihood. Patents, they say, will stifle innovation in the software industry, particularly among smaller companies that can’t afford to take out licenses or defend against suits. To be sure, there’s an element of anti-globalization, anti-corporate, and anti-American sentiment to this. “We can’t give our domestic software market away to a few large U.S. corporations that prefer a litigious environment over a competitive market,” writes Florian Mueller on the activist site he runs, nosoftwarepatents.com. On first glance, the litigation argument is compelling. In the U.S., software patents have resulted in some extremely costly infringement suits. In 2003 Eolas Technologies won a staggering $521 million in its suit against Microsoft, one of the three largest U.S. patent judgments ever. (Although in March the U.S. Court of Appeals for the Federal Circuit, sent the case back for a new trial.) As more software patent cases are decided, experts anticipate more big judgments. “It’s going to be more of a trend,” says Paul Morico, a partner at Baker Botts in Houston. “A significant chunk of the Eolas judgment was related to software sold overseas, and if the judgment sticks, which I think it will, you’re going to see a lot of huge damage awards in software. And people are going to see a windfall in these cases.” But in Europe, patent litigators argue, a boom in litigation and damages is far less likely. “Litigation in Europe is very different than in the U.S.,” says Larry Cohen, an IP partner at McDermott Will & Emery in London. “The capacity for building up big awards is not there. There are no jury awards, the markets are smaller, and there are no punitive damages. A $50 million damages award is huge by European standards.” In May 2004, the council removed the parliament’s patent-limiting amendments and went back to a draft that was close to the commission’s original proposal. But in December, before the text was formally adopted by the council and sent back to the parliament for a second reading, Poland announced that it would not sign the council’s text, throwing the whole process into turmoil. Other nations — including Germany and Spain — soon expressed reservations as well. As we went to press in March, the council was expected to try again to have the text approved, and have a second reading in parliament. Given the limiting provisions the parliament added in the first reading, and the still-rising level of controversy, the council may need to rely more on faith than legislative skills come the second reading. For Frain and other patent lobbyists, going back to the drawing board poses serious risks. “The fear is that there will be even harsher amendments,” he says. The commission could also simply withdraw its proposal. But while that will erase three years of legislative debate, it may not erase three years of public debate. Anti-software patent sentiment, lawyers fear, has already seeped into patent offices across Europe. In April 2004, for example, the EPO seemed to put a stricter spin on its technical contribution test, rejecting a patent application that may well have made the cut a year or two ago. The proposed invention — a new type of online auction — solved a recurring problem in Internet auctions: how to ensure that bids weren’t registered too late. “It overcame a technical problem, but the EPO said there was no technical contribution because it was just a new type of auction,” says Collins. “It’s safe to say that they’re hearing the debate and applying a more rigid standard.” The bigger worry is that European courts may be hearing the debate, as well, and patents that were just a little uncertain three years ago are now a lot uncertain. “If a patent granted by the EPO covers Poland, is it enforceable in Poland? I have no idea,” says Frain. “I’m pretty sure the U.K. courts will uphold it, but maybe Germany and France now have cold feet. The best we can say is, we don’t know.” At this point, getting back to the status quo may not take a directive but a time machine. At least there will be no questions about its patentability.

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