TCS Daily

D-Day for Innovation

By Waldemar Ingdahl - June 30, 2005 12:00 AM

Last week I attended Innovation Day: Europe, an event on innovation and intellectual property rights at the EU-level that took place in Brussels. In light of the European Parliament Legal Affairs Committee's recent rejection of plans to overhaul the Patent Directive, I wanted to examine the future of intellectual property in Europe and the opinions of European industry on it. Is this just the start of a broader European debate over an important issue- or just more polarized trench warfare? The European Parliament will vote on the new directive on 6 July.

While software is not patentable per se in the EU, there are a number of patents awarded to CII (Computer Implemented Inventions), devices in which computers and their programs play a key role. This corresponds to a de facto regime of patentability, but it is not defined, and thus not well protected by the EU. The recent debates surrounding the CII patent directive hinge on whether to accept the patentability or to push it back only to physical inventions.

The meeting spent a lot of time assessing the increasingly blurred line between machines and the software they run.

Peter Dreiert from Siemens pointed out that the aim of CII is to see software as an integral part of a device, rather than a separate thing embedded into it. This makes the software inseparable from the device, and hence patentable.

Previously, software was seen as something embedded inside the hardware. Now we are seeing them as inseparable parts of the same system. In the future, it is not inconceivable that we will see hardware as being embedded within software, a bit like how today's computers often are just platforms to run and process our software and data, with the hardware secondary to the software side. But for the present debate, CII is problematic enough.

Several CII systems were showcased. On one end of the technological spectrum was a truck manufactured by Scania, containing more than 80 microprocessors running diverse tasks such as brake control, steering, fuel injection, navigation systems and adaptive headlights. More than 50 percent of the patented inventions in the truck are CII, especially the new functions and improvements are solely implemented as computer programs. Not being able to patent them would limit them severely. Scania representative Fredrik Egrelius pointed out that a likely consequence of software being less protected would be for the company to divide its inventions: a first class group of patentable mechanical inventions and a second class of computational inventions. The company would be reluctant to share information about the second class with other companies, reducing interoperability.

On the other end of the spectrum was the skin cancer detection system from Astron Clinica, a start-up from Cambridge. Using a camera connected to a computer, the system could examine skin and help doctors determine if a mole is cancerous. Here the key was how the software tied together image input and medical decision-making.

The idea that an invention must "control a force of nature" to be patentable (suggested by the Parliament rapporteur Michel Rocard) is problematic even for the Scania trucks. An electronic traction control system literally controls forces, but what is innovative in a particular design is how it is controlled. This is where the software aspect becomes crucial and cannot be taken away. In the cancer detection system there is an interaction with the outside world, but the truly innovative parts that have developed from research and development involve how to tie together the input with the output - again the software.

As Rudy Provoost, CEO of Philips Consumer Electronics, put it, "Software is at the heart of the tech revolution." He illustrated this with the development of magnetic resonance imaging, a research work that spans many decades and tens of thousands of researchers, papers and patents. Many of the key developments have been software-enabled: the basic physics has always been in the open, but how to fully make use of it requires clever software. If patents had not existed research would not have been as well-funded (since much academic research is funded by patent revenues), nor would incentives for the key software R&D have existed. Patents help hold together the large web of technological interdependence that underlies advanced technological systems.

In regard to Europe's vital small and medium-sized enterprises, it became clear that the overall view is much more in favor of IP than might be expected.

The problem for SMEs entering the market might actually be the opposite than what is usually pointed out by anti-IP activists: large corporations controlling the market through defensive patents (often trivial ones) and forming patent sharing oligopolies. In order to get venture capital funding, SMEs need patent portfolios. Investors need the security they bring, and they clarify the investment needs of the SMEs. The aforementioned Astron Clinica attracted $7 million in venture finance based on its patents. Without protection of the patents many SMEs would have a hard time entering the market in the first place.

Intellectual property is critical if Europe hopes to grow into a knowledge economy. There is a need to harmonize the existing patent systems of the EU to ensure cooperation and fair competition. The industry seeks transparency and efficiency. More deeply, when the basis of the economy is knowledge and creativity, then intellectual property corresponds to the means of production. At the conference there was a repeated worry that competitors would use a loose IP regime to get ahead themselves, gaining the fruits of European innovation while keeping their own inventions locked away.

The CII directive has triggered a fierce debate about software patents, with an unfortunate polarization of opinions and emotions. What would a few years back have been a rarefied legal discussion has become a hot topic among techno-pundits, free software advocates, politicians eager to save money and the traditional left seeing a chance to strike at capitalism.

The industry's vision is a strong digital Europe, made competitive through incentives to innovators and protected from copy-cats. This vision is appealing to the EU politicians and fits in well with the Lisbon agenda, but the vision needs to be shared beyond Brussels. The patent debate is heavily polarized, far more than it needs to be.

One reason for the polarization is the lack of communication between technicians, the legal profession, industry and politicians. Misconceptions about what is involved in patenting, patent enforcement, patentability and especially the motivations of the other players are very common in the popular debate. Much of the open source movement has become painted with the same brush as the more radical free software movement.

Another reason is that the anti-patent movement has become too linked to anti-free-trade movements and the traditional left. What was originally an entirely independent question gained allies more easily on the left than on the right, which in turn opened political channels for it to influence NGOs and politicians. This in turn tended to "reward" the anti-patent groups that organized in ways that fitted in, turning it more and more into a standard left-right issue.

Many of the concerns voiced by IP-skeptics are the concerns of the industry too. There is a need to prevent abuse, such as trivial patents that are granted too easily, patents with prior art or drawn out and uncertain legal processes. A commonly stated concern was to avoid the "American extreme", where litigation becomes the norm. This is nothing the EU industry wants, and there was great support for strict demands of global prior art checks, technical contribution and transparency in the process.

Everybody agreed that merely accepting the directive in itself would not guarantee a healthy CII sector. The patent system needs to be a healthy tool to support innovation and competition. If the CII directive passes, the next step is to make sure the EPO is able to handle the new patents.

If the directive ends up in a third reading and is further delayed, there is risk that the uncertainty caused will seriously hurt European innovation. The only group who might benefit from an unclear or anti-patent directive would be the patent attorneys, who would be in greater need than ever in such a regime, and competitors from regions with more clear IP regimes.

As former European Parliament President Pat Cox said, we are into half-time of the match. Regardless of what the MEPs decide next week, the issue of patenting and other forms of IP will be hot for years to come. But industry cannot be complacent that the political sphere understands their concerns and needs. They have to be articulated and expressed creatively.

The worry in the industry is that the value of software components is going to be reduced to zero due to weak IP protection. If there is no protection beyond copyright (which is easily circumvented), then there is either no incentive to develop advanced products since development costs cannot be recouped or products need to be designed as black boxes with strong DRM technology to keep their secrets safe. The consumer or producer benefits in neither situation.


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