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Software industry split as Foss drops Patents Bill bombshell

A single-sentence change to the long-stalled Patents Bill has caused a furore in the software industry.

LATEST: Tindall, Morgan-backed software company resigns from NZICT amid Patents Bill spat

It seems dry stuff to outsiders, but emotions are running very high among those who work in tech. On the geek scale, this a bigger deal than gay marriage or whether to keep the drinking age at 18.

When the bill was first introduced, in 2010, some cheered that former Commerce Minister Simon Power had specifically excluded software from the legislation.

The change announced yesterday by present Commerce Minister Craig Foss is excruciatingly worded, but boils down to the fact that software programmes *will* be patentable (software is still excluded as an invention, but can meet other patentable criteria such as novelty “as such”).

On the face of it, you would think anyone in the software industry would want their work to be patentable. It’s a sector founded on intellectual property.

But it’s not that simple. Especially for a small New Zealand company, it’s expensive to apply for a patent across multiple countries (see some price examples in this piece I wrote for NZTE a couple of years back).

It also costs a lot to renew patents each year in each country you want to sell your software; more so given software is such a fast-moving industry,

Worse, if you think a big US player has violated your patent, it will cost you millions to take them on – millions you don’t have if you’re an NZ start-up (see a couple of examples in another article I did for NZTE: Keeping your big ideas safe).

It’s no wonder that successful Auckland-based mobile banking software company M-Com (bought by US giant Fiserv last year) chose to eschew patents – far beyond its financial reach - in favour of rapid innovation.

In a recent guest editorial for NBR, in which he raised fear about the US using the Trans Pacific Partnership agreement, to force NZ to rewrite its intellectual property laws, Institute of IT Professionals NZ chief executive Paul Matthews wrote:

Software patents and other IP mechanisms are designed to enforce a “status quo” approach where those countries in a “development” phase (such as New Zealand) are in a far less advantageous position as those in a “mature” market phase, such as the US, and it’s great to see that recognised by our government early in negotiations.

Last night, Mr Matthews railed against the Patents Bill change.

“This has been billed by the Government as a compromise. In reality, it is the worst of both worlds: allowing software patents through the back door (assuming New Zealand follows other "as such" jurisdictions) while reducing certainty for everyone,” Mr Matthews said.

“We're extremely disappointed that the government has decided to go against the unanimous position of the Commerce Select Committee and backtrack on the position they have held over the last two years.

“Software patents make software development and innovation significantly risky and at a time when many other jurisdictions are considering making changes to limit software patents, our Government has just opened the back door.

“The ‘as such’ provision being added has caused a disaster of litigation in Europe and other jurisdictions and is a dream result for IP lawyers in New Zealand; with software patents now likely to move to the courtroom for many years to come. As has happened everywhere else that has implemented "as such", innovative companies will have to spend a far larger portion of their meager funds on lawyers rather than getting on and innovating.”

Open Source Society president David Lane said the local software industry had been “thrown under the bus” by the software bill change.

Sticking with his bus metaphor, Mr Lane blogged on the "as such" addition: "those six letters represent a legal loophole the size of a bus."

A cynic would say that companies that operate in Mr Lane’s space, which typically make money from services sold around open source (collaboratively coded and often free) software – are less inclined to support software being patentable.

Mr Lane points out New Zealand’s largest commercial software developer, the export-orientated Orion Health, submitted against software being patented.

The OSS president sees Mr Foss caving to pressure from NZICT, the lobby group whose membership includes a number of the large US-based multi-nationals, including Microsoft and IBM.

NZICT CEO Candace Kinser rejects the argument that the switch to making software patentable will  

“New Zealand is already positioned as a leader in developing and commercialising technology and innovations, and we have had for a long while.  We are no longer in a ‘development phase’ in creating technologies or innovations. 

“New Zealand has a number of companies and technologies that are best in class, particularly in niche areas - these companies need to be able to protect their intellectual property and have the ability to patent their innovations here, and around the world.  No one is forcing a company to patent anything if they don’t want to, but taking away the ability to protect innovations if you do want to – that is oppressive.

“Most small companies need to raise capital so that they can get their invention off the ground. Trying to raise capital puts them in fierce competition with many great ideas. A lot of investors filter out anyone that doesn’t have a good strategy on IP, so patents can be essential just to get noticed.  Another issue is that many investors will not sign NDAs, so without patents there is no protection of the invention.”

In line with Australia
Ms Kinser also points out that including software in the Patents Bill brings NZ into line with Australia, which should help reduce costs for those seeking IP protection.

"It’s not easy for small companies if large companies copy their inventions, but at least they have some options and protection or recourse. Without patents there is virtually nothing they can do about it. The reality is if they are exporting, they will often need to work with patents anyway. It is simpler for them if the rules in New Zealand are the same as the countries they are exporting to. Otherwise there can be quite a few extra costs for them on working with patent attorneys."

NZICT's argument for patents
As I mentioned above, having recourse is all very well, but meaningless if you don't have the millions to take action against those you think have violated your IP (and of course, as Samsung has discovered in its fight against Apple, even near-limitless financial resources may not be enough).

Ms Kinser says those that don't wish to pay for patent protection (like M-Com) don't have to. 

"It’s a risk they chose to bear but at least with they have the choice to do so, or not," she told NBR.

Those that want to should have the choice.

"I’d hate to see more kiwi innovators going offshore to Australia and the USA because there is another hurdle put in their way to protect their product which will ultimately affect their ability to raise funds and ultimately commercialise their innovations on the world stage."

She adds, "Most small companies need to raise capital so that they can get their invention off the ground. Trying to raise capital puts them in fierce competition with many great ideas. A lot of investors filter out anyone that doesn’t have a good strategy on IP, so patents can be essential just to get noticed.  Another issue is that many investors will not sign NDAs, so without patents there is no protection of the invention.

"Small companies often look for opportunities to partner with larger companies to get momentum. Very few big companies will sign an NDA just to discuss an idea, so again, without patents there can be little protection of the invention, particularly if it has yet to be marketed or commercialised."

Last refuge of those that can't compete
Mr Foss has sought to move debate away from desktop and internet software. He says the change will help companies like F&P, which embeds software in the chips inside its whiteware.

Mr Lane is not impressed by that argument.

“From our point of view, embedded software is a very minor category relative to most software being created. The NZOSS would prefer a blanket exclusion for software patents whether embedded or not, but chose not to contest the embedded condition.

“Personally, I think that - like patriotism for a scoundrel - software patents (and related litigation/extortion) are the last refuge for companies who can no longer compete through innovation. If we can hasten their demise by removing software patents, the world will be better for it.”

Worked so far
NZICT's Ms Kinser notes that while the Patents Bill floated the idea of excluding software, it has been patentable "for many years in New Zealand, and during this time we have seen exponential growth in the sector."

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Comments and questions
37

Ms. Kinser's statement on the needs of startups for software patents is very misleading. Ask IPONZ how many of the tens of thousands of kiwi software companies have applied for software patents (as is allowed by the current patent legislation). Then ask how many multinationals corporations have applied for software patents in NZ.

Remember, NZ-based software patents only apply to the NZ market. There's nothing whatsover blocking kiwi companies for applying for software patents in other litigation-happy jurisdictions like the US and EU.

Actually her statements are utter drivel. Software patents serve only lawyers and patent trolls. For start-ups they are simply an impossible minefield full of danger, cost and zero benefit.

A goal of many startups is to get acquired. Having a patent portfolio for your products is much more attractive to the acquiring company and can boost the value of the acquisition. Thus, there is clearly benefit for many startups to seek patent protection, even for software.

Small players may find it difficult to engage in multi-million dollar litigation, but the threat of a suit with an offer to license is often taken seriously (particularly if the other party clearly infringes the patent) and can result in royalties to the patent holder over the life of the patent, providing a nice return on investment.

Patents are not for every startup, they can be expensive, and in some cases provide minimal benefit, but the converse of these examples is also true. A startup should evaluate their individual situation, funds, and so forth and make an educated decision that makes sense for them.

I am an active angel investor and have investments in 6 software companies in New Zealand. None of them is pursuing patents, and I would consider it a waste of time, money and effort if they did.

There is no defendable value in holding a software patents for an NZ company. The value to NZ society is negative. The only people that stand to gain are IP lawyers and multinational software giants. Now see who is in favour of this proposed change.

If your business is worth acquiring you should have plenty of valuable IP without having to depend on a software patent of highly dubious quality and value, useful only for patent wars between the Goliaths.

Good luck to any little NZ company trying to enforce a patent against a US giant. Even Samsung can't do that.

Oh please. An impossible minefield? If you have a true innovation, and have any sense of going global with your business, you can do a patent. It's not that hard, and in NZ, it's a heck of a lot less expensive than overseas. No one is holding a gun to your head to make you patent anyway.

You misunderstand. The minefield is producing a product range that isn't threatened by any software patent in any country.

Let's be clear about the title - the "split" that's apparent with this last minute change to the Patents Bill is hardly an even split. The vast majority of software developers favour excluding software patents in NZ - probably at least 80%.

Only Microsoft, their NZ partners (including the NZICT group), and patent lawyers favour Minister Foss' altered wording.

As for the previous commenter - the vast majority of software patents applied for in NZ are held by foreign multinational corporations. I understand that only a tiny handful are held by NZ-owned firms. I think that Candace is substantially overstates the theoretical value of NZ software patents for NZ companies. The lack of investment capital in NZ is a far bigger concern.

As I've said before, name one single product or innovation that would not have been produced without software patents.

There isn't one. The value of software patents is zero.

Our product would not be on the market today if it was not protected by patents. Our software technology is 10 times faster than the leading open source software and would have been directly copied. We would not have received any US silicon valley funding without it being patented due to the space we are in. With this funding we are taking it to market and creating hi tech jobs for Kiwis. That is one local example.

Sometimes the value of software patents is more than zero.

What is the product and is it a software patent?

I'm pretty sure I know which company this commenter is talking about... if so, they had a very dubious patent on CSS and Javascript aggregation. Their patent was awarded for a technology that has been used by many CMSs for years. It doesn't even meet the basic conditions for patentability, but they were awarded a patent anyway because IPONZ doesn't apply those tests unless an application is contested. That is guaranteed to result in very poor quality patents, and that's never going to change (all the skilled software developers I know would rather create something for free than evaluate someone else's patent application, even if they got paid heaps).

Dave Lane, I'm happy to state that company is not us.

We are in the Genomic analysis space, so wrong industry and wrong company.

Allen: it is a software product. 8+ years of development by Professors and PhD's in mathematics, computer science, bioinformatics and biology. Used by leading edge Genomic researchers in the US and NZ.

Yes this is high tech and worth protecting.

Allen you asked to name one product or innovation, well this is one.

Alan, apologies for the misspelling of your name.

I forgot to state that it is also a software patent.

I've said before, encryption and compression software algorithms are one of the very few areas in which software patents could be justified. Possibly genomic search, match and storage is another. Generally though, software IP can be well protected without patents and has been for many decades.

Out of interest, is your software patent in NZ (i.e. via IPONZ) or the US (USPTO)?

Then your company is probably BioMatters, and Candace Kinser was CEO of Biomatters untril recently.

There's a cultural divide between two groups:

- The "commercial IT industry" who do the boring stuff like payroll, resell US product and use words like "synergise".

- The "geek community" who develop cool stuff like games, use oipen source and words like "troll".

It's a wide divide and getting wider (despite the fact that they wind up with much the same people actually doing the work).

"- The "commercial IT industry" who do the boring stuff like payroll, resell US product and use words like "synergise"."

Maybe you meant, "Newspeak"?

So Alan, how many successful software companies have you launched from NZ? Do you have a clue as to what is involved in getting venture funding from offshore, setting up a tech company with the intent to exit via a sale, etc? If you can point to any of your own personal experiences or successes, then your words MAY have some merit. You comment here there and everyone on various media outlets, yet there is NO evidence you actually have a clue as to walking your own talk. C'mon, show us your pudding.

Marshall Software.

Hmm, if you mean Marshall Software a quick search reveals that it 'acquired Finjan Software along with its Secure Web Gateway (formerly Finjan Vital Security) product and *licenses to patents* for real-time code analysis technology, giving the company malware detection and prevention capabilities for the Web gateway.'

Sounds to me patents may be of some commercial value??

We created and sold Marshal Software to NetIQ for $50M in 2002. No patents or licences were involved. NetIQ subsequently resold it as a management buyout and whatever it has done since has had nothing to do with NZ ownership.

Licences for software have existed with commercial value long before and without software patents.

More laws being passed to keep lawyers busy ....

Laws, laws and more laws ... where does it end?

With enough laws everybody is a criminal and needs a lawyer, is that the goal?

Facism must be great for the lawyers and judges .... and politicians and bankers ... all the parasites must love facism and laws.

The EPO itself said the stretch over "as such" should be clarified by the legislator:

http://press.ffii.org/Press%20releases/Brimelow%20Referral%20on%20software%20patents%20dismissed%3A%20%22time%20for%20the%20legislator%20to%20take%20over%22

"When judiciary-driven legal development meets its limits, it is time for the legislator to take over."

The Patent process to my mind does not fit well with the Software industry as with software there can be many ways to come up with the same result.

The patent system is about building a thing and when you look at it you can have a good idea that this is a unique thing. You build it and it is obvious. With software now people are taking patents on broad concepts - simply to lock out other innovation. A good example is the "Juxtacomm Patent" targeted at Data Warehousing where they won millions off companies like IBM and Microsoft before finally a few years later having their patent revoked.

The software patent was so vague and broad that it included just about every IT system. They really didn't even have to build it.

To me the difference can be explained with an analogy on corks screws.

You can make one and get a patent on it, I can make one that works differently and get a patent on it and every one is happy - they both have the same result though taking a cork out of the bottle so we can get at the contents.

With software - even though you build your own Virtual Cork Screw and I build mine and they are quite different - the only thing that can really be compared is the result and thereby our two virtual software corkscrews are deemed to be the same and we have a patent conflict.

Now I am not a lawyer of course but this is how I see the problem.

I like this analogy. 20 years ago a business mentor described for me in specific detail a portable reader - everything that the kindle is today. He described everything from the thin touch screen to the downloading of books. Said it would be big in 20 years. Suggested i take it to market. It remained an idea and lacking both foresight and capital I did nothing with it. The Internet didn't even exist then.

The point is: I did nothing with it. I didn't build it. I didn't patent it. If I patented it, All it would have done is given access to the people who scour new patents looking for ideas. Would I have a chance of suing Amazon? I doubt it. I bet hundreds of people had similar ideas for a portable reader. But there is only one Kindle because one of those people turned an idea into reality. He created it and made it tangible.

The winners in a corporate software market are those with the $ and the marketing machine. There was one office software company that had a graphical interface in the late 80s / early 90s that sued Microsoft in the 90s for a clear case of copying. Even I could see how it was copied. I read online about 6 years ago that the case was still being litigated I. E. Stalled under a mountain of legal paperwork by Microsoft lawyers - many years after the case started.

Patent protection is a tricky issue weighted in favour of those that have deep pockets, and is open to abuse. Software programming languages are designed to turn ideas into reality. There is no monopoly on ideas so it is quite easy for multiple people to create using software tools, very similar products without the need to copy or even be inspired by someone else's work. Sometimes you've just got to get the product to market. If your business is robust and you outrun the competition, it will succeed.

Probably the most classic example of patent vs getting it to market is the invention of radio. People associate the name Marconi with the invention of radio. In the USA the invention of Radio was awarded to Nikola Tesla in the 1940's after it was proven that Marconis patent were identical to Teslas patents filed earlier. The problem was that Tesla didn't have the $ of Marconis backers. Tesla didn't take it to market because he was obsessed with the wireless transmission of power not the wireless transmission of information. And he didn't have the $ to sue Marconi to extract damages.

The big message in that case was get it to market. Ironically had he foccused on wireless not power, his initial backer J.P. Morgan would had stayed with him instead of jumping ship to back Marconi.

Actions speak louder than words. Words speak louder than ideas. If you have an idea by all means do what you can to protect yourself including patents IF that is the best use of your money. But don't rely on the patent and protection of it as your ticket to wealth. If you have enough $ to patent it and have guarantteed protection, you have enough $ to get it to market. And that should be the priority.

Ultimately what will keep your software product ahead of the market, is not whether you had the idea first, but whether your software does what it is supposed to do, is simple to use, backed up by good support, and you have got it to market.

I think people a lot of people are confused. The Patents Bill will only apply to NZ patents - there is no such thing as an international patent. There is an argument for keeping NZ's patent laws consistent with our international trading partners, and therefore will reduce some minor costs when filing overseas based on a NZ filing (e.g. adding a software claim). However, excluding software patents in NZ will not affect the chance of a NZ company to get funding because the NZ market is tiny and it will have to get patents overseas jurisdictions anyway (which allow software patents already). Most NZ software patents will be granted to overseas companies. If they decide to enforce any against a NZ developer, it is like an additional tax essentially. I think conceding on this point without getting anything in return (e.g. better conditions on a trade agreement) is pretty stupid for NZers. A NZ software patent is basically worthless for a NZ software company, because 99% of the market is overseas. All this talk about it being good for NZ inventors is a load of crap, sorry. I'd say this has got something to do with the secret TTP negotiations.

Here here to me's comments. An NZ patent has no bearng on patent in the US for example.
The advantage of New Zealand patent covering software is:
a) international companies are more likely to invest in sorftware R&D in NZ and introducing products in NZ (I know I have been in those negotiations);
b) NZ companies can get a monopoloy in NZ to protect their market while they prove it and establish market credibility;
c) because it does not pay in international business to have unusual laws compared to the rest of the world. Why should NZ be a pioneer in not having patent laws similar to everywhere else.

Regarding point a) and b), I don't really agree: patents are only useful as a weapon to stop other people in NZ from doing the thing you patented. Therefore, I don't see why the ability to get a NZ software patent would matter in the least to international companies when making a decision to invest here. The NZ market is tiny and developers don't have enough money to make them worth suing. I would be interested in why the ability to get a NZ patent (as opposed to a US patent) was so important in your negotiations.

I agree partly with point c) - however, I would say that NZ has not shirked from being a legal pioneer (women's suffrage etc) - why not be different and embrace open source e.g. 100% Open Source NZ? This might be a way to differentiate ourselves from Australia and attract more investment - with our highly educated and tech-savvy populace NZ could be the ultimate test market for new software products without fear of patent infringement.

There is also a lot of evidence that software patents to not really incentivise innovation (copyright protection of source code/GUIs allows sufficient protection), compared with other industries. Arguably, a 20 year monopoly is far too long for software - do you think any of our currently patentable software 'innovations' will still be used in 2032? On the other hand, open source has worked very well.

The fact is, as most software patents will be filed in NZ from overseas companies (e.g. Microsoft/IBM etc), so these patents (if enforced) will effectively impose a tax on NZ consumers and software companies. The question is whether this will be offset by the increase in investment here. There is also our an obligation under article 27.1 of TRIPS not to discriminate against patent owners due to industry, however India is also a signatory and they have excluded software patents. Notably, India is also an emerging software powerhouse.

The exclusion of software from patentability would be an interesting experiment. It's a shame the government seems to have backed down on this. I wonder what concessions (if any) we will get under TTP as a result.

No the corkscrews are exactly the same as what happens in software.

The real shame here is that people will loby without understanding the facts.

Above are as many incorrect statements as you will ever find anywhere on on web page:
you need a lot of money to extract money from infringers;
software is different to corkscrews;
Tesla didn't take something to market becuase he didn't have funds- but patents allow you to raise funds by giving investors more certainty in having a barrier to entry;
patents don't add value to software licences;
patents don't assist in innovation- just ask any investor whether a patent doesn't add value to their investment.

There's an angel investor above proving you wrong. But the main problem with software patents is the impossible minefield inhibiting progress and innovation it creates.

Open source would not have happened without patents:
transistors;
computers;
software languages;
standards;

all needed investment based on patents

We are debating software patents, not hardware. Your examples are nonsense.

Who are your Anonymous??

There is no split in NZ's software industry.

There a few who don't understand and think patents will protect there investments. There is Microsoft who is wanting to beat small businesses down with their extensive patent portfolio.

But by and large the NZ Software Industry all stand against software patents.

785 people have signed up to the protest petition at http://no.softwarepatents.org.nz objecting to this sudden change to the patents bill by last minute SOP.

> : it is a software product. 8+ years of development by Professors and PhD's in mathematics, computer science, bioinformatics and biology. Used by leading edge Genomic researchers in the US and NZ.

Software can be protected by either copyright ... or TRADE SECRET. If your algorithm is order of magnitude faster than the competition, then the obvious suggestion is to go for a PaaS play or perhaps SaaS where you can charge a premium for the performance over peers.

Patents are a social bargain between revelation of the secret in return for a short-lease exclusion by the state. When the economic life is so much shorter than the statutory period of exclusion, you get distortions (think submarine patents). There was a big uptick in NPE patent lawsuits after 2008 when they brought out bankrupt startups with no viable product and starting going after existing firms not to mention end-users (http://www.avc.com/a_vc/2011/06/enough-is-enough.html). Removing software patents removes the need for defensive patent portfolios, in effect eliminating the chance of shields being turned into swords.