THESIS - RESEARCH MASTER INFORMATION LAW Error 52(2)(3)/101: Software as (Un)Patentable Subject Matter A comparative analysis of the legal standards for software patent protection in Europe and the United States. Abstract This thesis discusses the patentability of software in both Europe and the United States. The main question to be addressed is whether the exclusion of software from patent protection is still meaningful in light of its historical development and current application, and whether there is still room for improvement. After an analysis of the history and current legal standards under which software can be patented, this thesis turns to a comparison of both legal systems and finds that their overall historical development is surprisingly similar. This thesis will also show that, contrary to general belief, it is currently more difficult to obtain patent protection for software in the United States than in Europe. Ultimately, this thesis concludes that the exclusion of software from patent protection is outdated and leads to unnecessary complexities. In this regard, various problems related to software patents, such as the monopolization of building blocks, patent thickets and high litigation risks are discussed as well. In light of the aforementioned, the final part of this thesis discusses possible improvements to both patent systems in order to reduce “bad software patents” and to enhance legal certainty. AUTHOR: Alexander D. de Leeuw DATE: 3rd of December, 2014 STUDENT NR: 6039944 SUPERVISOR: Sven J.R. Bostyn TABLE OF CONTENTS 1. INTRODUCTION ………………………………………………………….…………..………. 5 2. RESEARCH FRAMEWORK ………………………………………………………….……… 8 2.1. Research Question …………………...………………..……………..……….………. 8 2.2. Hypothesis ……………………………………………………………………………. 9 2.3. What is Software? ………………...……………….…………………………….……. 10 2.3.1. Mathematical Methods ……………..…..…………..……………………… 11 2.3.2. Methods for Doing Business .……..…………………………….…….….… 12 2.3.3. Machine Software versus Business Method Software ………….………….. 13 2.4. Interim Conclusion …………………………………………………….………………14 3. LEGAL FRAMEWORK IN EUROPE AND THE UNITED STATES ……………….……. 15 3.1. Legal Framework in Europe ………………………………………………………….. 15 3.1.1. Statutory Exclusion of Software: Art.52 EPC ……..….…..….……….…… 15 3.1.2. Non-Patentable Subject Matter “As Such” …….....…………………….….. 17 3.1.3. Background of the “As Such” Provision ……......……………………..…... 18 3.2. Legal Framework in the United States …………………………………………...……21 3.2.1. United States Patent Act / 35 U.S.C. .….……………….……………..…… 22 3.2.2. History of 35 U.S.C. 101 …………….………….………….……………… 23 3.2.3. Diamond v. Chakrabarty: Broad Interpretation of § 101 …….………….… 25 3.2.4. Judicial Exclusion: Laws of Nature, Physical Phenomena and Abstract Ideas …………………………………………………………………..… 26 3.3. Interim Conclusion ………………………………………………………………...….. 29 4. DEVELOPMENT AND CURRENT LEGAL STANDARD IN EUROPE …...………….… 32 4.1. Interpretation of Article 52 by the European Patent Office …………………..........…. 32 4.1.1. Technical Character ………………………………………………………... 32 4.1.2. Technical Contribution to the Prior Art …….…………..………….............. 33 4.1.3. Technical Effect ……………………………………………………..……... 35 4.1.4. Further Technical Effect ……………………………………………..…….. 36 4.1.5. Combination of Software and Hardware ………………….……..……….... 38 4.1.6. Contradictions & Other Relevant Considerations .. ………………………... 42 4.2. Enlarged Board of Appeal in G 3/08 …………………………………………………. 43 4.2.1. Difference v. Divergence …………………………………………………... 44 4.2.2. Assessment of Contribution Approach …. ………. ………………………... 45 4.2.3. Assessment of Combination Approach …. ……………………………….... 46 4.2.4. Assessment of Further Technical Effect Approach ………………………... 46 4.3. What is the Current Legal Standard? ……………………….…..…………................. 47 4.4. Business Method Software …………………………………………………………… 49 2 4.4.1. Business Method Software under the Combination Approach …………….. 49 4.4.2. Business Method Software under the Further Technical Effect Approach ……………………………………………………………. 50 4.5. Interim Conclusion ……………………………………………………………….…… 51 5. DEVELOPMENT AND CURRENT LEGAL STANDARD IN THE UNITED STATES .... 52 5.1. Interpretation of 35 U.S.C. 101 by U.S. Courts …………...............….………….... 52 5.1.1. Point of Novelty Approach ……………………………………………….... 53 5.1.2. Freeman-Walter-Abele Approach ………………………………………….. 55 5.1.3. Machine-or-Transformation Approach …………………………………….. 58 5.1.4. Useful, Concrete and Tangible Result Approach ………………………….. 60 5.1.5. Significant Additional Features Approach ……………………………….... 64 5.1.6. Most Recent Ruling: Alice Corporation v. CLS Bank ………………..……. 67 5.2. What is the Current Legal Standard? …………………………………………...…….. 70 5.3. Business Method Software …………………………………………………………… 71 5.3.1. Business Method Software under the Machine-or-Transformation Test ……………….……………………………………………………………….. 71 5.3.2. Business Method Software under the Significant Additional Features Approach ………………………………………………………………………..… 72 5.4. Interim Conclusion ……..………………………………………..………………...…..74 6. COMPARISON OF BOTH LEGAL SYSTEMS ..………….……….......………..……….…. 75 6.1. Comparison of Legal Standards ……………………………..........…………………... 75 6.1.1. The General Historical Development of Software Patentability ……...…… 75 6.1.2. The Specific Characteristics of Both Legal Systems ……………..………... 77 6.1.3. Comparison of the Current Legal Standards …………………………….….79 6.2. Is the EPC Exclusion Clause Eroded? ………………………………………………... 81 6.2.1. Original Intention Behind the Exclusion Clause – Travaux Préparatoires ……………………………………………………………………... 81 6.2.2. Original Intention Behind the Exclusion Clause – Case Law …………..…. 83 6.2.3. Has the Exclusion Clause Become Meaningless? ….…………….………... 84 6.3. Is § 101 of the U.S. Patent Eroded? …………...……………….....…….…………….. 85 6.3.1. Original Intention Behind § 101 – Case Law ……………………………… 85 6.3.2. Has the U.S. Invention Hurdle Become Meaningless? ..……….....……....... 87 6.4. Problems Faced in Both Legal Systems ……………………………………………….88 6.4.1. Overly Broad Patents ………...…………………………………..………… 88 6.4.2. Patent Thickets and Patent Trolls ……………………...…………………... 91 6.4.3. Defensive Patenting and Litigation Risks ……………………..…………… 92 6.4.4. Lack of Interference by Lawmakers ………..……………………………… 95 3 6.4.5. How to Formulate a Clear-Cut Legal Standard ……………………………. 96 6.5. Interim Conclusion ……..………………………………………………….…………..97 7. POSSIBLE IMPROVEMENTS TO PATENT LAW ………………...……………………… 99 7.1. Further Limiting Patent Protection for Software …………..………..…………...…… 99 7.2. Abandon the Exclusion of Software …….......…………..……............................……. 101 7.3. Exclude Subject Matter Through Other Patentability Requirements ……………...…. 103 7.4. Combination of Improvements ……………………………………………………….. 106 7.5. Interim Conclusion ……………………………………………………………………. 109 8. CONCLUSION ………………………………………………………………………...………. 111 9. BIBLIOGRAPHY ……………………………………………………………………...………. 115 10. APPENDIX I ………………………………………………………………………………….. 131 4 1. INTRODUCTION Smartphones, computers and other electronically operated devices play an increasingly important role in society, and represent an area of technology in which there is vast progress and an ever accelerating pace of innovation. Take smartphones for example: new models are presented on a yearly basis, there are high expectations of which and how many new features are included, and many people are keen on getting their hands on these latest models. The hardware in these devices is without a doubt patentable if it lives up to the three basic requirements of novelty, inventiveness and industrial applicability. Patent law was originally created to protect such tangible inventions. For another, and increasingly large part, the innovation in such devices lies in the software, or a combination of software and hardware, that is used to operate them. The innovation is then found in an intangible, rather than tangible medium, which caused different legal systems to have problems in implementing these inventions into the their legal framework for patent protection.1 The first question that might arise is why protection is sought under patent law, as opposed to copyright law. It is fairly easy to get copyright protection. All that is required is a sufficiently original expression in order to obtain protection for as long as 70 years after the author’s death. This means that it is a low cost protection model with a long period of protection. However, the scope of protection under copyright law is often too narrow for software; it basically comes down to the protection of verbatim copies, and in some cases slight adaptations of the work. This is assumed to be one of the most important reasons for software developers to turn to patent law. The scope of protection provided by a patent is broad. A patent provides a very strong monopoly, which is hard to circumvent by competitors. In essence, it allows the applicant to obtain protection for the underlying idea, something that copyright explicitly does not. Additionally, software developers usually do not need a term of protection of 70+ years. Software is constantly changing and what is new at this moment is often outdated in one to five years. Thus, patent law seems better suited for the kind of protection that software developers seek. In light of the above, and however interesting it might be, it goes beyond the scope of this thesis to discuss copyright protection for software any further. 1 The term “invention” might be confusing in this regard: under the European Patent Convention, “software as such” is excluded from patentability