ARTICLE
27 June 2007

Patents In The Information And Communications Technology Sector

BA
Borenius Attorneys Ltd

Contributor

Borenius Attorneys Ltd
Ms. Aura Soininen, who has worked in the IP and technology group of B&K’s Helsinki office since 2005, has completed her dissertation on patents. The public examination of the work titled "Patents in the Information and Communications Technology Sector - Development Trends, Problem Areas and Pressures for Change" was held on 3 March 2007 in the Lappeenranta University of Technology.
Finland Intellectual Property

Ms. Aura Soininen, who has worked in the IP and technology group of B&K’s Helsinki office since 2005, has completed her dissertation on patents. The public examination of the work titled "Patents in the Information and Communications Technology Sector - Development Trends, Problem Areas and Pressures for Change" was held on 3 March 2007 in the Lappeenranta University of Technology. In this article Ms. Soininen briefly discusses the topic of her work.

Background

The primary aim of my dissertation was to increase understanding of the dynamics and the controversies of the U.S. and European patent systems, with a focus on the ICT sector. In order to do so I investigated the academic, political, legal and business developments that concern software and business-method patents and identified contentious areas. I also examined the problems with patents and open standards, both of which carry significant economic weight in the ICT sector. Here the focus of the work is on so-called submarine patents, i.e. patents that go unnoticed during the standardization process and then emerge after the standard has been set. I document the factors that contribute to the problems and assess the practical and legal options for alleviating them.

Evolution of the Patent System

The patent system was created for the purpose of promoting innovation by granting inventors a legally defined right to exclude others in return for public disclosure. Today, patents are being applied and granted in greater numbers than ever before, particularly in new areas such as biotechnology and information and communications technology (ICT), in which research and development (R&D) investments are also high. At the same time, the U.S. patent system in particular has been heavily criticized. It has been claimed that in its current form it discourages (rather than encourages) the introduction of new products and processes, especially in areas that develop quickly, lack one-product-one-patent correlation, and in which the emergence of patent thickets is characteristic. A further concern, which is again particularly acute in the U.S., is the granting of so-called "bad patents", i.e. patents that do not factually fulfil the criteria of patentability. Meanwhile in Europe there was a lot of uproar when the directive proposal for the patentability of computer-implemented inventions was introduced. The proposal was eventually dropped in 2005 and the status quo concerning their patentability persisted.

Criticism also appears to have taken hold outside of academic circles, and in the U.S. bills have been proposed to reform the patent system. On this basis it appears that the prevailing pro-patent era, that largely resulted from the foundation of the Court of Appeals for the Federal Circuit in 1982, is about to come to an end. Then again, the pro-patent shift has never been as pronounced in Europe as in the U.S. even though international agreements, such as the TRIPS agreement, highlight the importance of strong and enforceable rights. Similar objectives can be found behind the Enforcement directive (2004/48/EC).

Role of Patents in Business

From the perspective of technology-intensive companies, patents could, irrespective of the above, be described as the most significant intellectual property right (IPR), with the potential to be used to protect products and processes from imitation, to limit competitors’ freedom to operate, to provide such freedom to the company in question, and to exchange ideas with others. In fact, patents define the boundaries of ownership in relation to certain technologies. They may be sold or licensed on their own or they may be components of all sorts of technology acquisition and licensing arrangements. Moreover, with the possibility of patenting business-method inventions in the U.S., patents are becoming increasingly important for companies which base their businesses on services.

The value of patents is dependent on the value of the invention it claims, and how it is commercialized. Most are therefore worth very little, and most inventions are not worth patenting: it may be possible to protect them in other ways, and the costs of protection may exceed the benefits. Moreover, instead of making all inventions proprietary and seeking to appropriate returns on investments that are as high as possible through patent enforcement, it is sometimes better to allow some to be disseminated freely in order to maximize market penetration. In fact, the ideology of openness is well established in the software sector, which has been the breeding ground for open-source movement, for example. Furthermore, industries (such as ICT) that benefit from network effects do not shun the idea of setting open standards or opening up their proprietary interfaces to allow everyone to design products and services that are interoperable with their own. The problem is that even though patents do not, strictly speaking, prevent access to protected technologies, they have the potential to do so, and conflicts of interest are not uncommon.

Before presenting some of the problems that have arisen in the context of standardization and patents in the ICT sector in more detail, it should be noted that the role of patents in ICT companies’ business is also largely dependent on the markets in which they operate. When Finnish companies were interviewed for the purposes of this dissertation it became clear that many do not consider patents important to their businesses and that the patent strategies of these companies remained largely undeveloped. By comparison, patents in the U.S. were more readily regarded as core company assets and patent strategies were well thought out.

Standardization and Patents

The objective of standardization is to promote industry-wide acceptance of new technologies through the creation of common technical standards and specifications that are well documented and available for everyone to implement. Even though commonly established standards may be used by anyone, it is nowadays generally accepted that proprietary technology may be involved in their implementation. Particularly in high-technology sectors, the inclusion of patented technology is not an anomaly and is often unavoidable. This is natural, since the development of standards more and more frequently anticipates technology rather than follows it, meaning that patentable inventions may very well be generated during the process. As a consequence, many standard organizations allow patented or patentable technology to be submitted if it is justifiable on technical grounds. Furthermore, many, although not all, have explicit IPR/Patent Policies aimed at helping to establish a proper balance between openness and control by guiding their members and other participants to disclose and promise to license their essential rights on at least fair, reasonable and non-discriminatory terms (FRAND). If the member or other participant refuses to license, the standard is abandoned, or if alternative solutions exist, technical specifications are rewritten in order to design around the patents.

Although it is possible for proprietary rights and open standards to exist in harmony, current patent policies have not proven proficient in preventing patent-based dilemmas in practice, and various documented disputes have arisen with respect to patents and standards, particularly in the U.S. Some such problems relate to proper licensing terms and conditions, and some to so-called submarine patents, defined broadly in this dissertation as patents which remain unknown during the standardization process, and whose existence makes it difficult for those implementing a standard to estimate the associated costs and risks. The problem with patents that are incorporated in industry standards is that unless the patent holders have committed to something else they can, in principle, do whatever they like with their legal rights as long as they do it in accordance with relevant legislation, such as competition (Europe)/antitrust (U.S.) laws. When the patent happens to be incorporated in a standard that is broadly used, the leverage of the patent holders is substantial. With the exception of those cases in which the patent holder has taken part in the standardization procedure and has deliberately concealed his or her rights from the other standard setters even though he or she had an obligation to disclose them, it is rather difficult within the current legal framework to force the patentee to issue a license or keep his or her rights as unenforceable on some other basis.

From the legal perspective, it should be said that the area of standardization and patents is currently caught up in a range of disputes and litigation. Some of the cases are based on competition/antitrust laws, some on patent laws and some are being litigated on a contractual basis. In fact, it is likely that within a few years the markets around intellectual property rights and standards will become more developed and the rules clearer. At present, however, it remains an area of turmoil.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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