Background

While there has been a lot of discussion on the impact that the latest
amendment to the Indian Patent Act will have on public health and the
pharmaceutical sector in India, there has been a disturbing silence
about the impact that the amendment has on the software industry.

After the patents (second amendment) in 2002, the scope of non
patentable subject matter in the Act was amended to include the
following:

³a mathematical method or a business method or a computer programme
per se or algorithms².

The important phrase that was added was Œper se¹, and with the
amendment we effectively included Software patents into Indian Law.
The latest amendment seeks to expand the scope of software patents,
and states

³a computer programme per se other than its technical application to
industry or a combination with hardware; a mathematical method or a
business method or
algorithms².

This briefing note will not address the technical and legal
implication of this amendment but instead pose the larger question of
why we should be concerned about software patents, and the impact that
it will have on the software industry in India.

I. Conceptual difference between Copyright and Patent

The first thing to note is that software is already protected under
Copyright law, so what then is the motivation and the implication of a
move from copyright protection to patent protection?

Software has traditionally been protected under copyright law since
code fits quite easily into the description of a literary work.
Software Patenting has recently emerged (if only in the US, Japan and
Europe) as an alternative that software companies are increasingly
employing to, in order to protect their products.

The issues involved in conferring patent rights to software are,
however, a lot more complex than taking out copyrights on them.
Specifically, there are two challenges that one encounters when
dealing with software patents. The first is about the instrument of
patent itself and whether the manner of protection it confers is
suited to the software industry. The second is the nature of software,
and whether it should be subject to patenting.

a) Different Subject Matters
Copyright protection extends to all original literary works (among
them, computer programs), dramatic, musical and artistic works,
including films. Under copyright, protection is given only to the
particular expression of an idea that was adopted and not the idea
itself. (For instance, a program to add numbers written in two
different computer languages would count as two different expressions
of one idea) Effectively, independent rendering of a copyrighted work
by a third party would not infringe the copyright.

Generally patents are conferred on any 'new¹ and 'useful¹ art,
process, method or manner of manufacture, machines, appliances or
other articles or substances produced by manufacture. Worldwide, the
attitude towards patentability of software has been skeptical. The
Indian Patent Act, as modified in 2002 had made non-patentable the
following:

'a mathematical method or a business method or a computer programme
per se or algorithms².

However, the recent amendment ordnance states instead: 'a computer
programme per se other than its technical application to industry or a
combination with hardware; a mathematical method or a business method
or algorithms.²

b) Who may claim the right to a patent/copyright?
Generally, the author of a literary, artistic, musical or dramatic
work automatically becomes the owner of its copyright. Software
developers are perfectly protected without patents. Everyone who
writes a computer program automatically owns the copyright in it. It's
copyright law that made Microsoft, Oracle, SAP and the entire software
industry so very big. It's the same legal concept that also protects
books, music, movies, paintings, even architecture. Many of the
world's richest people owe their wealth to copyright law. Some
examples are: Bill Gates, Paul Allen and Steve Ballmer (Microsoft);
Larry Ellison (Oracle); Hasso Plattner and the other founders of SAP;
Paul McCartney (Beatles); JK Rowling (Harry Potter).

The patent, on the other hand is granted to the first to apply for it,
regardless of who the first to invent it was. Patents cost a lot of
money. They cost even more paying the lawyers to write the application
than they cost to actually apply. It takes typically some years for
the application to get considered, even though patent offices do an
extremely sloppy job of considering.

c) Rights conferred
Copyright law gives the owner the exclusive right to reproduce the
material, issue copies, perform, adapt and translate the work.
However, these rights are tempered by the rights of fair use which are
available to the public. Under ³fair use², certain uses of copyright
material would not be infringing, such as use for academic purposes,
news reporting etc. Further, independent recreation of a copyrighted
work would not constitute infringement. Thus if the same piece of code
were independently developed by two different companies, neither would
have a claim against the other.

A patent confers on the owner an absoulte monopoly which is the the
right to prevent others from marking, using, offering for sale without
his/her consent. In general, patent protection is a far stronger
method of protection than copyright because the protection extends to
the level of the idea embodied by a software and injuncts ancillary
uses of an invention as well. It would weaken copyright in software
that is the base of all European software development, because
independent creations protected by copyright would be attackable by
patents Many patent applications cover very small and specific
algorithms or techniques that are used in a wide variety of programs.
Frequently the "inventions" mentioned in a patent application have
been independently formulated and are already in use by other
programmers when the application is filed.

d) Duration of protection
The TRIPS agreement mandates a period of at least 20 years for a
product patent and 15 years in the case of a process patent.
For Copyright, the agreement prescribes a minimum period of the
lifetime of the author plus seventy years.

II. Nature of Software and Indian Software Industry

Software is complex: The complexity of computer programs makes it
difficult to be understood by any one person. This capacity for
complexity allows for the creation of highly sophisticated products
but also means that they are dependent on a vast range of
technologies. Software is free from the constraints of the real world
that ensure a product does not become too complex. Major software may
comprise up to 10 million lines of code - potentially thousands of
inventions, any of which might be patented For example, Apple was sued
because its HyperCard program allegedly violates patent number
4,736,308, which covers a specific technique that, in simplified
terms, entails scrolling through a database displaying selected
parts of each line of text. Separately, the scrolling and display
functions are ubiquitous fixtures of computer programming, but
combining them without a license from the holder of patent 4,736,308
is now apparently illegal. In its complexity, software is different
from other engineering and mechanical inventions for which patent
protection was devised. The latter are often characterized by large
"building block" inventions that can revolutionize a given mechanical
process. Software, especially a complex program, seldom includes
substantial leaps in technology, but rather consists of adept
combinations of many ideas. Whether a software program is
a good one does not generally depend as much on the newness of a
specific technique, but instead depends on the unique combination of
known algorithms and methods. Patents should not protect such methods
of innovation.

Software Technology evolves rapidly: Software technology is evolving
much faster than other industries, even with its own hardware
industry. Against this light, a patent that lasts upto 17 years is
extremely alarming. Microprocessors double in speed every 2 years.
Research in software is galloping ahead of developments. In most
industries, researching new ideas often costs more money than bringing
them to the market. The software industry is, on the other hand,
loaded with ideas. The idea behind most software patents can be coded
in just 20 lines of code, but any program incorporating that idea -
along with many others - will be a thousand times larger. It is the
writing of a program that takes all the time, not coming up with ideas.

What this means is that on an average of every two years, a product
will have to be replaced in the market. The idea underlying it will
remain the same although the particular means and variants of its
applications may have changed radically. Coming out with a
full-featured product, every two years is costly especially in
relation to the inexpensive idea that backs it. There¹s more
novelty in the development and application of the same idea to new
technology than with coming up with the original raw idea. The
objective of granting patent rights should be to foster the growth and
evolution of the industry. Granting a patent at this stage would be
akin to unreasonably prolonging the life of a product. It is generally
found that those who are investing time creating and lodging patents
are vastly outpacing those who are investing effort bringing such
ideas to market. By the time an immature technology develops to the
point where it can be incorporated into products, it has a dozen or
more patents on it that render it commercially intractable.

Software doesn't wear out: In other industries, research continues up
to a point where further research costs too much to be feasible. At
this stage, the industry's output merely consists of replacing parts
that have worn out. However, in the software sector, a computer
program that is fully debugged will perform its function forever
without requiring maintenance or modification. ³What this means is
that unlike socks that wear out, and breakfast cereal that is eaten, a
particular software product can be sold to a particular customer at
most once. If it is to be sold to that customer again, it must be
enhanced with new features and functionality.² This inevitably means
that even if the industry were to approach maturity, any software
company that does not produce new and innovative products will
simply run out of customers! Thus, the industry will remain innovative
whether or not software patents exist.

Software has different economics: Most other major industries have
medium to high research and development costs and very high production
costs. Most often, the production costs dwarf the other two areas
(because of the physicality that they involve) so that these costs can
be added on to the cost of the final product without any relatively
major difference in the price.

Software is unique in this aspect because
-The research costs very little because ³ideas are as abundant as air²
-The development of an idea into a marketable product costs far more
than the research.
-The production costs are minimal, often just a little more than the
price of the medium, which is typically a floppy or a CDROM. Patents
affect the 'development¹ stage of the process of 'manufacture¹ of
software. Thus the threat exists that the price of software could be
singularly determined by the number of patented innovations that it
incorporates.


III. Patent and Innovation in Software Industry

As argued before the process of software development by its very
nature is Œincremental¹ i.e. developing of new software majorly
consists of building upon existing ideas and rearranging the processes
devised by others, and hence has an inbuilt need for using existing
algorithms and mathematical formulae. Patent protection over software
or over a set of algorithms within patented software would inevitably
create a thicket of patents which the subsequent software developer
might need to obtain clearance from before he can begin to work on it.
The costs involved in obtaining these clearances and those involved in
case one finds oneself having infringed a patent are usually very
high, as in the case of biomedical patents. This would act as a
disincentive for an aspiring software developer and would adversely
affect the growth of the Indian software industry. Introduction of two
bills-

'Genomic Research and Diagnostic Accessibility Bill, 2002¹ and
ŒGenomic Science and Technology Innovation Act of 2002¹ though still
pending before the US Congress show the real concerns involved for a
Œpatent and innovation policy¹ within genomics. Similar concerns are
exist in the software and innovation policy and need to be addressed
adequately by the each national legislature.

Further there are substantial costs involved in verifying which
patents one must obtain clearance for as skimming through the huge
patent databases has become a very costly exercise. Unfortunately,
conducting a patent search is a slow, deliberative process that, when
harnessed to software development, could stop innovation in its
tracks. And because patent applications are confidential, there is
simply no way for computer programmers to ensure that what they write
will not violate some patent that is yet to be issued making survival
a very important issue for smaller player in the market. Various large
companies in US have obtained exemptions from going through patent
searches for standard work due to huge costs. In such a scenario in a
small player software industry like India, it would be unwise to allow
'software patents¹ as they may have negative impact upon the
innovation within the industry. By its nature software industry is
Œinnovation driven¹ i.e. the only way a software company can compete
and improve its sales or grip over market is by making better and more
useful features available. This innovation which is the driving force
behind the Indian software industry is bound to get affected if a
patent protection is provided to software patents. If a company can
easily sustain itself on its Œinvention¹ (by obtaining patents
upon its software) and need not remain innovation driven, which would
mean that a patent monopoly would inversely impact innovation and
competition in software industry. It would further give rise to
monopolistic tendencies and a practice of quoting arbitrary price for
the grant of Œvoluntary license¹. This lesson can be learnt by looking
west where the idea of Public Key Encryption was patented in the US.
The patent expired in 1997 and until then, it largely blocked the use
of Public Key Encryption in the US. Similar instances can be found
w.r.t. Œdata compression software¹ and 'single click software¹
patented by Amazon.com. A number of programs that people started
to develop got crushed. They were never really available because the
patent holders threatened them. This led to a lot of unrest in the
software community which culminated into the public outrage against
software patents. Similar pressures have prevailed in European
community where software patents found public opposition too immense
to mount for a long time. A look at India's own development of its
software industry would be of immense help as India started its
software industry only after IBM was driven out of country. Before
that, there was no software industry worth the name, with software and
hardware being imported from IBM. Once IBM left, Indian computer
companies developed computers using the UNIX operating system, which
was in the public domain. This led to the presence of a large
number of skilled software professionals with experience of UNIX were
also writing high-level applications for making the entire computer
system work.


IV. Political economy of Software Patents

While understanding the issue of software patents, it¹s important to
look at its political economy and the implications involved for India.
If one were to study the trends of software patenting in US and Europe
one would witness that the IBM owns a majority of patents along with
other giant software companies and has been topping the list of
maximum patents granted in US in the private sector. This fact must be
seen in the light of the opposition faced from small business
organisations, leading scientists and economists in Europe and the
unprecedented delay in passing the Software Patent Directive of 2002
by the European parliament. It should be noted that the directive does
not aim to make it possible to patent pure computer programs:
it would only apply to computer software integrated into an appliance.
This makes it much more restrictive than the amended Indian Patent
Act, which opens out any technical application of a programme to
industry or its realisation in hardware for patenting. Even with this
restriction, the critics of the EU directive have pointed out that a
patent on software is in effect a patent on an idea, while
traditionally patents have been restricted to concrete physical
inventions only. By making this amendment, it is possible to implement
algorithms in hardware and then claim patent protection for this. Once
an idea can be patented if it is burnt in to hardware, the argument
for extending it to a software implementation gains ground. In fact,
the first breach in the US for making software patentable came through
this route. If one were to study the trends in the scope of patentable
subject matter granted in software patents by US courts, one would
observe that from Diamond v. Diehr onwards court has been granting
patents on much more abstract components, which has slowly transformed
into patenting the central idea underlying the software. This trend
indicates the easy malleability of legal terminology which has brought
US courts¹ stand on software patents to a full circle from Gottschalk
v. Benson where the court found a patent upon software as a patent
upon the underlying algorithms which is nothing more than a
mathematical formula, unpatentable by its very definition.
The concerns regarding the weaker relative position of these small
players is much more relevant in India. Among the primary reasons for
large corporations like IBM lobbying for software patents is due to
their stronger hold over the software market and ownership of the
largest number of patents in this market. Large corporations use their
patents, apart from making royalty upon them, to getting access
benefit to the patents of other companies. This would close the option
of cross-licensing for a majority of Indian companies which have no
patents upon software. License though may be obtained are usually
available at exorbitantly high prices which would most likely be
unaffordable for Indian companies which operate on a small scale
and have restricted budget options. The multinational corporations
would use software patents as a defensive strategy for preventing
smaller Indian companies from gaining any grounds in the market, which
would eventually drive them out of business hence destroying the
existing Indian software industry. Software industry has a very
characteristic nature which makes it extremely vulnerable to being
easily monopolized. Among these characteristics are Network effects
(the fact that a program becomes more useful if more people
use it), interoperability and compatibility problems, the low cost of
massive reproduction of software, the difficulty of inspecting
software distributed without the source code, the learning curve and
the rapid evolution of the market. Taking the instance of Microsoft
Windows (the most popular operating system in use in India today)
which enjoys a perpetual monopoly over the operating system market in
India, many a larger institutions find Windows extremely costly and
desperately needed an alternative to it in order to do business
profitably. The recent success of Linux operating systems is
demonstrative of this, but this must be understood in the light that
India follows a copyright regime for software which allows many of the
above mentioned characteristics of compatibility and interoperability
to be resolved which would be totally impossible in a software patent
regime. This then means that software patents have a potential to
hamper the growth of open software movement in India which has
begun to play central role in Indian Government¹s 'e-governance¹
initiative.

Hence it¹s extremely urgent to ensure that patents in software do not
cause any harm to the fine balance that copyright has achieved.
While understanding a political economy argument of software patents
the adverse impact of monopolization upon public interest which has
been held to be of utmost importance by the apex court in India, even
above one¹s legitimate commercial interests.


V. Procedural Issues

There are a certain procedural issues involved which are of
determinative nature as to the allowance of a software patent regime
in India. India doesn¹t have a well laid out or even a well practiced
software patent practice to guide Indian patent office. In the absence
of any such policy, examining software patent application becomes a
very daunting task, coupled with which the complicated and highly
technical nature of software, Indian patent office is quite incapable
to evaluate complicated and technically trivial claims which software
patent often present. Imposing a software patent regime in such a
scenario would impact the quality of such patents which might then
prove counter-productive in the development of Indian software
industry. To be able to tackle this situation more personnel and
experts would have to be employed in the patent office that can then
ensure maintenance of a certain quality standards while granting
software patents. But this in turn may not produce increased
innovation in the software industry for the human capital which would
be invested into processing the claims and preventing and tackling
with the patent infringements rather than being invested in
developing new software and hence benefit the software industry and
economy of the country in general.

The difficulty in reaching a policy to grant software patents and the
impacts of granting these patents in the absence of policy are indeed
far reaching. In the absence of a policy which classifies patents on
algorithms, techniques etc. it would take an awfully long time for the
patent office to process a claim, searching the Œprior art¹ which
makes the system inefficient and unworkable. Long delays in processing
patent applications and subsequent challenge procedure often makes
filing for a patent an unwise option for small companies and
individual software developer, which form the backbone of Indian
software industry. For instance, IBM was granted a patent
on the same data-compression algorithm that Unisys supposedly owned.
Such an error which could prove lethal for a developing company which
has planned its budget meticulously and in consequence of this error
would be greatly disincentivized to develop new software. The Patent
Office was probably not aware of granting two patents for the same
algorithm because the descriptions in the patents themselves are quite
different even though the formulas are mathematically equivalent. Even
when patents are known in advance, software publishers have generally
not licensed the algorithms or techniques; instead, they try to
rewrite their programs to avoid using the particular procedure that
the patent describes. Sometimes this isn't possible, in which case
companies have often chosen to avoid implementing new features
altogether. It seems clear from the evidence of the last few
years that software patents are actually preventing the adoption of
new technology, rather than encouraging it.