As I've said a thousand times before: the problem is that the more economists learn about software patents, the more obvious it becomes the related transaction costs are just not worth it. That's all there is to it, really (and it's everything but short term).

What FFII is doing is ignoring the fact that software, like every other technology, is an inventive process and has made its way into the patent system. They want to carve out a very badly defined hole in the patent system to protect their interests, interests that came into being because they did not adapt to the system.

FFII will argue that they are not lobbying for change, but to keep the status quo. In reality, the law has not caught up with the realities of the EPO patent system. The status quo is that software patents are issued, both in the US and Europe.

FFII could, if it chose, help the software developers by developing a searchable database of prior art or by building a commonly owned patent portfolio. Rather than proactively helping the small businesses, it seeks to change the laws in ways that can only weaken the small business opportunities.

The 'economists' of FFII predicted big companies would benefit from a strong patent system. Why then are big companies wanting to weaken the patent system? Seems like the FFII 'economists' had it all wrong.

"What FFII is doing is ignoring the fact that software, like every other technology, is an inventive process"

That in itself is not enough to justify patents, as the US constitution nicely states ("To promote the Progress of Science and useful Arts..."). If that condition is not fulfilled, there is simply no reason to allow them.

"and has made its way into the patent system"

We're not ignoring that, we're addressing that problem (in Europe).

"They want to carve out a very badly defined hole in the patent system to protect their interests, interests that came into being because they did not adapt to the system."

Why should anyone adapt to a clearly suboptimal system?

"In reality, the law has not caught up with the realities of the EPO patent system"

The law also has not caught up with realities of speeding drivers either in that case, I guess. This kind of reasoning works in some cases (e.g. the prohibition), but on its own it's a pretty weak argument

"FFII could, if it chose, help the software developers by developing a searchable database of prior art or by building a commonly owned patent portfolio."

And who would cough up the millions required for patent lawsuits? And where is the evidence (or even thoroughly researched theories) that all these extra costs would somehow be offset by benefits?

"Rather than proactively helping the small businesses, it seeks to change the laws in ways that can only weaken the small business opportunities."

I really don't understand how you can keep repeating this in the face of all evidence to the contrary.

"The 'economists' of FFII"

We don't have economists. All economists I refer to are independent of us. And I do not even know of any economists at all who are in favour of software patents (although there are certainly a number of undecided ones).

"predicted big companies would benefit from a strong patent system"

They say (from empirical evidence) that mostly large companies benefit from software patents. I don't see any evidence they don't.

"They say (from empirical evidence) that mostly large companies benefit from software patents. I don't see any evidence they don't."

So after all the theory and conjecture by 'economists' who's viewpoint you like and the rubber meets the road, the large companies opt to weaken the patent system rather than strengthen it. Bottom line: what you predicted was wrong. Dead wrong. That is the evidence you need to see.

You can put as many words between quotes as you like and call empirical observations predictions, but you hammering the wrong point. I addressed that in comment 6 to your previous point:

Microsoft & co are asking for limitations on damages and things like that, not for abolishment of software patents. If you made them choose between no software patents or no extra limitations to damages, I bet they would choose to keep software patents (they'll probably deal with it in a couple of years by having Myhrvold's Intellectual Ventures buy small pure patent companies out, which can then continue to finance itself by license incomes from other companies -- although one could wonder whether this won't become another bursting bubble).

I.e., of course they want to get rid of the sharp sides of the system when they hurt them in order to optimize their gains, but that does not mean that they lose out otherwise.

No one in the US has the option to eliminate patent protection, since it is a Constitutional provision.

Large companies have traditionally wanted a weaker and weaker patent system, and that is what the push for 'harmonization' has been all about: weakening the US patent system to make it more like the European systems. This is because under the US system, small businesses have a lot of power through the patent system, whereas European patent law favors the big companies.

You seem to ignore the fact that with a few good ideas, a small time inventor can get a handful of patents, and carve out a niche that cannot be stomped upon by bigger competitors. Without patents, the inventor's ideas can easily be stolen without the inventor receiving a dime. And you think the small business will be better off without patent protection?

"No one in the US has the option to eliminate patent protection, since it is a Constitutional provision."

Surely software innovations could be exempted from patent protection in the US as well if such patents would be deemed not "To promote the Progress of Science and useful Arts".

"You seem to ignore the fact that with a few good ideas, a small time inventor can get a handful of patents, and carve out a niche that cannot be stomped upon by bigger competitors."

That is a utopia in case of software. You cannot get patents which completely cover everything your program does, because others will already own patents on a large number of those things. And when they attack you, you're screwed. Which small company can afford the required $500K - $4 million to defend itself? (especially when a settlement for $100 K is offered)

"Without patents, the inventor's ideas can easily be stolen without the inventor receiving a dime. And you think the small business will be better off without patent protection?"

The small businesses that support us feel that it's the software patent owners that are stealing their property. Their own written programs which they spent several man years on designing, developing and debugging. The programs they own the full copyright on, but the copyright is trumped because some other people independently had some "idea" first.

Competition in the free market is what keeps capitalism healthy. Broad monopolies, such as those granted by patents, disturb the market significantly and can only be justified if without them, the market runs haywire.

You cannot justify software patents by counting on the people's inherent feeling of "natural rights" (I though of it first, so it's all mine and no one can use it without paying me, even if they came up with it on their own) to give you the go. And selling licenses looks indeed appealing, but you also have to buy them.

You are right that competition is fundamental. But look at the bigger picture for software patents, don't just focus on the negative side. That is half the story.

Let's say that a software company gets a patent on a new idea, but they find out that they might infringe on someone else's technology. What do they do? They either enter into an agreement, possibly cross licensing or paying a royalty, or they design around the other guy's patent.

By forcing the new guy to design around, 'progress' is 'promoted.' This is the essence of the patent system.

If someone is inventive and creative, they can get around almost anyone's patent. If they are lazy and unimaginative, they certainly cannot.

And don't start with copyright protection, which is the weakest of all IP protection, and as my previous posts point out, offer very little protection to software. Any software company who relies solely on copyright has been badly counseled.

"And don't start with copyright protection, which is the weakest of all IP protection, and as my previous posts point out, offer very little protection to software."

Tell that to the BSA, who almost got a seizure when Aharonian started his "copyright for computer programs is unconstitutional"-lawsuit.

The point is that if such a more narrow, but at the same time cheap and fast protection means is sufficient to keep innovative companies profitable, then we should stick with it.

Why? Because introducing broader, more expensive and slower means introduces extra transaction costs which in turn reduce the overall efficiency of the market. Every dollar paid to mediators in a lawsuit or negotiations cannot be spent on R&D. It's money that gets funneled out of the software sector.

Again, this is only justifiable if for some reason without patents, most companies would automatically leave the software sector, simply because there would be no money to be made for them anymore.

"Any software company who relies solely on copyright has been badly counseled."

Of course, trademarks are much more important (although those won't help you either against software patents). And if you sell in an economy where software patents are allowed, you are pretty much forced to play by the patent game.

But a business which is not in favour of software patents and which would prefer to solely rely on other means, is definitely not badly counseled by definition.

According to you:

- Big software companies want to weaken the patent system [because it benefits smaller player].
- Small companies want to get rid of software patents [because of FFII misinformation]

Anybody in his right mind would conclude that there is something rotten with software patents if both big and small players want less of it.

But no, I applaude your creative explanations that we do need software patents even if they must be forced down the throat of evryone [except patent trolls and patent experts like you, of course] !

Please, as a software guy, I'd really like you to consider us as ungrateful retarded not worthy of your efforts. We are too dumb for our own good, leave us alone in our misery.

Bernard:

Don't forget that I, too, am a software guy and an inventor who's stock in trade is the inventive idea, not merely a single expression of the idea.

"Anybody in his right mind would conclude that there is something rotten with software patents if both big and small players want less of it."

This is my fundamental problem with FFII: they alledge to speak for 'small businesses' but small businesses REALLY want patent protection for their ideas. They have been told repeatedly by FFII that they don't deserve it and that patent protection is 'wrong'. After FFII is done with them, the small businesses don't know that patent protection is available to them.

I think that if all the cards were on the table, so that the small business owner understood patent protection, how the patent system works, and the cost/benefit to his/her business, there would be a more balanced discussion.

One of the biggest differences between Europe and US patent systems is that in the US, a single patent covers the entire 250,000,000 consumers, whereas in Europe it is fragmented between many different countries with fragmented laws and protections. A single lawsuit in the US can cover the same number of consumers as maybe 10-15 lawsuits, each in a different country and under different laws.

As a business owner in Europe, I would be much less inclined to patent an invention unless it is has the economic potential to be defensible. The bar is much higher in Europe than in the US. This doesn't mean that the opportunity should be completely eliminated, just that the business reasons for getting a patent are different in Europe than in the US.

I encourage FFII to start with an explanation of the patent system and present business cases to the business owners for getting patents or the risk of not getting patents.

I would be happy to leave FFII in their own misery, except they want to spread their misery to other people, eliminating one avenue for the small business to gain some leverage over their larger competitors. If FFII didn't advocate changing the patent system in such a reckless manner, I would be happy to leave them alone.

Wheter patents are helpful or harmful to a business depends on wether they get more money form licences than they need to pay.

For one software product from a SME, how many patents (on average) are related to the product ?
Of these how many are owned by the SME ? (-> gain from licences to competitors)
How many are not owned by the SME ? (->loss in licences that one has to pay)

Licences fee is a <0 sum game in the software field because :
- some money is dissipated in fees (experts, patents offices)
- some software patents are owned by non-software companies

Amongst the participants, you have to account for patents troll with patents but no products, who only gain from the patents system.
You also have the bigger player who get the benefit of scale in they huge patents portfolio.
They also get to set de facto standard, so you cannot avoid licence fees on thoses technologies, so the also benefit from the software patents system.

So guess who gets to lose in this <0 sum game ?

The answer is obvious to many (90% of respondants to the european consultation, the FFII, CEAPME, ...).

The question should be who should win in the <0 sum game? How about the innovator and inventor?

After all, the innovator must fully disclose his invention, including everything necessary for someone to practice his invention. Anyone who comes later has the advantage.

In the end, the system is designed to reward the innovator, not the copier.

You wrote "In the end, the system is designed to reward the innovator, not the copier." and i very much agree.
You described exactly how the patent system is supposed to work, and maybe how it is really working for some fields of technology.

However, for reasons explained in my previous post, it does not work in the software market because one cannot sell any product without being interoperable with de facto standard set by market leaders.
I don't expect you to understand this, but anyone aware of (of googling for) something called "network effect" will understand.
Market new comers are not "copier": they do not see a product a try to sell a copy. They are "competitors" : they see a product and are making their own product to compete on the market.

The effect you are discussing is an effect that the patent system and business cycles have on very young technologies. Someone is able to define a proprietary standard that becomes an industry standard.

In a patent system, one would protect the standard by patent coverage, and sell licenses to competitors to keep them at bay.

A business can still do this without patent coverage by keeping the standard as a trade secret, and putting mechanisms in place so that competitors cannot use the defacto standard.

The latter method takes a huge amount of capital, whereas the first method, patents, is considerably cheaper.

The best thing about patents is that they require disclosing the trade secrets, so someone can build on the idea, or practice the idea once the patent expires. This would never happen without the patent system.

Yes, the patent system does create some bumps in the road as technologies develop, but those bumps have incentives for the technologies to get in the hands of the public, and expire over time.