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The Real Deal on Software Patents

Depending on whom you listen to, software patents either spell doom for the software industry, or are the only way for small developers to make it big

The proliferation in the grant of patents for computer software over the past decade has been nothing short of astronomical. So much so, that developing a software application without infringing software patents has become rather like using stepping stones to cross a pond – when you're never quite sure where the stepping stones are.

The solution for large and well-resourced developers is to run their application past a good patent attorney or lawyer who will determine exactly what patents would be infringed by the software, and to seek to license the use of those patents from their owners, hoping always that the number of patents required to be licensed and the cost of doing so will not make it unviable to take the new application to market.

For those less well resourced, it may be that the first they know of an infringement in their software is when the patent owner comes knocking with cap in hand. But there is an argument that smaller players can also do very well out of the patent system: take the example of Stac Electronics, who took on the Goliath of the software world when reaching a settlement over Microsoft's infringement of patents for Stac's Stacker software by Microsoft's DoubleSpace.

What is a patent?

Let's take a step back and consider exactly what a patent is. A patent is a government-sanctioned monopoly right granted over a new invention. During the term of the patent – typically 20 years – the patent holder has the exclusive right to make or use the invention, or to license others to do so. For software developers, it is usually in licensing the invention for others to use that the real money is made, particularly if the invention is of general application, such as a compression or encryption process.

In exchange for the limited monopoly right that the patent holder receives, they must provide a detailed specification setting out the method of operation of the invention. This specification is made available to the public, so that when the patent expires, they can take advantage of the innovation freely. Even before it expires, the specification can be used by competitors to try to find a way to work around the patent in developing a similar or interoperable product.

Obtaining a patent

A patent is obtained by drafting a specification that fulfills the necessary criteria (which will be discussed below) and lodging it for examination by IP Australia, the Federal Government's intellectual property registry. The specification is a highly specialised and technical document that you cannot easily draft without the assistance of a patent attorney. Patent attorneys are not lawyers as such, they are patent and trademark specialists who draft different types of specifications depending on their own particular scientific or technical qualifications.

Patent protection can be quite costly. To obtain an Australian patent and renew it for 20 years, expect to pay around $15 000. If you wish to have patent protection in multiple countries of the world, you will pay considerably more, although if the country in question is a signatory to the Patent Cooperation Treaty, you only need to prepare a single application, which undergoes preliminary assessment by a single country's patent registry on behalf of the others.

Unlike copyright protection, patent protection in Australia does not automatically give you similar protection in other countries. It does, however, give you is a one-year head start to file a patent application in countries that are signatories to the Paris Convention of 1883. If you choose not to do so, your patent will only protect your invention within Australia.

Requirements of a patentable invention

The three requirements of a patentable invention in Australia are that it has a patentable subject matter, that it is novel, and that it involves an inventive step (or is non-obvious). Similar requirements exist in most other countries of the world.

Patentable subject matter

A patentable subject matter is a useful man-made process or product, as distinct from an abstract idea or a purely artistic work. For many years, computer software was considered not to be patentable unless it formed part of a physical process. So for example, software that controlled a physical device such as a robot or an oil rig would be patentable, but spreadsheet software would not be.

In the same category at that time were “business methods”, which was a catch-all term describing strategies, techniques and procedures of a non-technical nature. Both of these excluded subject matters have since become patentable, not only in Australia but also (and more importantly) in the United States and Europe.

Australia was one of the first countries to broaden the patentability of computer software. In a 1992 case, IBM was found to be entitled to patent a new method of rendering curved images on computer displays. Guidelines subsequently issued by the Patents Office specified that a patent could be granted for software if it had a “commercially useful effect”. The validity of this guideline was confirmed by the Federal Court in 1994.

Examples of “commercially useful effects” include an improved image as in the IBM case, or a more effective way of performing a calculation, compression or storage routine. In fact, a skilled patent attorney should be able to draft a software patent specification so as to demonstrate a commercially useful effect for almost any novel and inventive software application.

The test developed in the United States is slightly different. It received its broadest formulation in 1998, when it was decided that a method of doing business (or a software program) will be patentable if it produces a useful, concrete and tangible result, rather than just being an abstract idea. Again, a skilled patent attorney can very easily draft a patent specification for almost any software application so that it demonstrates a useful, concrete and tangible result.

As for Europe, the European Patent Convention actually expressly excludes “computer programs ... as such” the classes of patentable subject matter, on the ground that patents are directed towards technical inventions, not commercial methods. Even so, the European Patent Office has managed to interpret the qualifier “as such” in such a narrow way, that software patents have been granted almost as readily in Europe as in the United States and Australia. (This may soon change, as explained below.)


The second requirement of a patentable invention, that of novelty, requires that the invention was not known to the public before the patent application was lodged. The novelty of an invention is determined by the patent examiner conducting a search of literature in the relevant field, to determine what the state of the art was at the date of the patent application being filed.

The novelty requirement also necessitates that the invention has not been disclosed publicly by the person applying for the patent. An example of the application of that rule is that the applicant must not have offered the product for sale before applying for a patent. This limitation has been relaxed since 2002, when a grace period was introduced which allows the invention to be disclosed within up to one-year prior to the application being lodged.

The requirement of novelty is not actually as strict a limitation as you might suppose. If an invention simply combines two well-known pre-existing products or techniques – say, a method of encryption and a method of compression – the combined invention is still likely to be considered as novel.

Inventive step

Such an invention may, however, be found to lack an “inventive step”, which is the third and final requirement that a patentable invention has to fulfill. An invention that lacks a sufficient inventive step is one that would be obvious to a suitably skilled person, such as another programmer who had access to technical literature in the field.

When determining whether an invention that builds on pre-existing knowledge is sufficiently inventive or not, a patent examiner tries to avoid the benefit of hindsight, because some of the best inventions ever devised are also some of the simplest. However many would contend that the bar of inventiveness has been set far too low in the case of software patents, as will be discussed below.

Patent infringement

A person who infringes a patent by making or using a patented invention without permission can be sued by the patent holder for damages. Perhaps the most distinctive feature of patents, in comparison to copyright law, is that it is possible to infringe a patent unintentionally, and that this makes no difference to your liability for damages.

One of the few grounds on which a patent infringement claim can be defended is to argue that the patent should never have been granted to begin with, because its subject matter was not patentable, or because it was not novel, or did not contain an inventive step. If you can demonstrate these things, you may be able to have the patent annulled. However, the cost of this exercise should not be underestimated.

Encumbrance of Internet standards

Most of the controversy that has arisen over software patents has been incited by the opportunistic attempts of many patent holders to lay claim to some of the fundamental building blocks of the infrastructure of the Internet. Unisys, for example, only began to enforce its patent for the LZW compression algorithm used in GIF format graphic files after those files became a de facto standard image format for the World Wide Web. (That patent has since expired in the United States in June 2003.)

British Telecom went even further, attempting to lay claim to the concept of hyperlinks that are fundamental to the Web. Its claim, based on a 1989 patent that was originally applied for in 1976, was rejected by a New York District Court last year.

The encumbering of Internet standards by patents has obvious implications for the development of open source implementations of Internet software, given that open source developers cannot extract licence fees from the users of their software that could be used to pay patent holders for the use of their inventions.

It is partially in response to this that the World Wide Web Consortium (W3C) introduced a new policy this year requiring that any technology submitted for acceptance as a standard be released with a royalty-free licence consistent with open source software licensing terms. Unfortunately the Internet Engineering Task Force (IETF) does not yet have an equivalent policy that extends to non-Web-related Internet standards such as routing protocols.

The open source response

The open source community has not taken the threat of software patents lying down. Its most obvious response has been to promote non-patent-encumbered standards and formats, such as the Ogg-Vorbis format for audio compression (in place of the patent-encumbered MPEG Layer 3 format), and the Portable Network Graphics (PNG) format for image compression (in place of the GIF format).

Another response has been to include in various open source software licences, such as the GNU General Public Licence (GPL) and the Mozilla Public License, clauses which require contributors to open source projects to grant perpetual royalty-free licences to their patented technologies to all users of the open source software. This in fact introduces a considerable risk to patent holders that they might lose their patent protection if they use their patented technology in an open source project inadvertently.

Software patents for obvious inventions

It is not only the opportunism of patent holders that has given rise to controversy, but also the poor quality of the patent examinations that is perceived to have allowed some rather obvious or widely-used inventions to be patented.'s infamous patent for its “one-click” on-line ordering system is the most commonly cited example.

One of the reasons for the poor standard of assessment of software patents is that traditionally the state of the art in a particular technical field is assessed by reference to journal articles and papers. Software inventions are not typically documented in those forms, but more often in source code or software manuals. Patent examiners do not make reference to these sources, which means that they are commonly unaware of what the state of the art is.

Patent examiners also tend to be less well paid than the professionals whose inventions they are examining, with obvious implications for the quality of personnel who are attracted to those positions (notwithstanding that Albert Einstein was a patent examiner in his early working life!).

European developments

Some of the most active opposition to the extension of the patent regime to computer software has been in response to the introduction of a new directive into the European Parliament, titled Patentability of Computer-Implemented Inventions. Despite the protests, the directive was accepted this September, but in a watered-down form.

In its original form, the directive did little more than to codify the existing practice of the European Patent Office. For years, it has been the practice that patents would be granted for software applications so long as they contained an inventive step with a “technical effect”.

In order to give some meaning to the limitation in the European Patent Convention on the grant of patents for computer programs “as such”, the Patent Office judged that the technical effect must be additional to the technical interaction that software will inevitably have when run on a computer, but this still does not set the bar particularly high. For example, a program that improves the efficiency of a certain operation or makes it easier to use would have a sufficient technical effect to be protected. It is only the most useless of programs that would not have such an effect – and who would want to patent such programs anyway?

The new EU directive attempts to reign in the practice of the Patent Office by requiring that computer-related inventions have a physical form. Whether this will be interpreted by the Patent Office any differently than the existing terms of the European Patent Convention, and indeed whether the EU member states will enact it into local law unchanged, remains to be seen.

Another perspective on software patents

Despite the validity of concerns that software patents are poorly examined and often abused, it can be argued that many of the criticisms of software patents go too far. In particular, many critics do not seem to understand how narrow a patent specification typically is, and how it can often be circumvented. The only reason why many patent holders' claims are accepted by those against whom the claims are made is to avoid the necessity to fight over the issue in court. When they are challenged, however (as in the British Telecom case), the patent holder's claim often fails.

It also often seems to be assumed by critics of software patents that the scope of a patent can be taken at face value from its description. But a patent that is described as “A method for providing authorized access to personal computer data resources” (Australian patent WO0163383) does not cover all methods for doing just that. To discover exactly what method of doing so it covers, you must read more than its one-line description, or even its one-paragraph abstract, but rather the full patent specification which may run to dozens or hundreds of pages.

Finally, it cannot be denied that software patents do provide an effective mechanism for some smaller software developers to gain a market for their expertise. If they do not have the resources to develop and market a packaged software application to end users, it may be easier for them to develop a smart and useful technology that they can market to larger software houses for inclusion in their own packaged software. Microsoft, for example, is one of the biggest customers of software patent licences from smaller firms.


Software patents are not conceptually much different from patents over any other form of invention, except in that the length of protection afforded by a patent is plainly excessive. However if a software application truly is novel and inventive, it is difficult to contend that it should be excluded from patent protection as a matter of principle.

It would be equally difficult to deny that software patents have been granted far too readily to date, particularly in the United States, and that standards bodies have been too ready to allow patent-encumbered technologies onto the Internet standards track. Recent developments in Europe suggest that the pendulum may now be swinging back against the software patent regime.

Australia's position sits somewhere in between the two extremes. Australia's patent registry does not have a record of granting so many dubious patent rights as its American counterpart, and no high-profile software patents that have been granted have been successfully challenged.

Australian developers should therefore consider applying for patent protection for their software, preferably not as a means of extracting licence fees for ideas that the other developers may have independently devised, but as a legitimate form of protection for innovative ideas for which patent licensing may be the most effective form of commercialisation.

Please Note: The information contained in this article is general in nature and cannot be regarded as anything more than general comment. Readers of this article should not act on the basis of this comment without consulting one of iLaw’s legal practitioners who will consider their particular circumstances