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Background Information

Hayek on Patents

"The problem of the prevention of monopoly and the prevention of competition is raised much more acutely in certain other fields to which the concept of property has been extended only in recent times. I am thinking here of the extension of the concept of property to such rights and privileges as patents for inventions, copyright, trademarks, and the like. It seems to me beyond doubt that in these fields a slavish application of the concept of property as it has been developed for material things has done a great deal to foster the growth of monopoly and that here drastic reforms may be required if competition is to be made to work.... Patents, in particular, are specially interesting from our point of view because they provide so clear an illustration of how it is necessary in all such instances not to apply a ready-made formula but to go back to the rationale of the market system and to decide for each class what the precise rights are to be which the government ought to protect."

Source: F. A. von Hayek, "'Free' Enterprise and Competitive Order". In Individualism and Economic Order, Chicago: U. of Chicago Press. 1948. 113-114.

Round 3

In January 2006 Hartmut Pilch answered a question by the press: Does this restart the debate over CII patents? Why or why not?

"It restarts the push for software patents, without a debate. But there wasn't much of a debate during the past two pushes either.

The term "CII" was a propaganda term, designed to avoid a debate. Anyone who uses this term implicitely agrees that computer programs, when described in the language of patent claims, can qualify as "inventions" under Art 52 of the European Patent Convention (EPC) and are therefore patentable subject matter (which said article says they are not).

In 1999-2000, there was a debate. The Commission and EPO proposed that software and business method patents are needed in Europe, and for that reason the law (European Patent Convention) must be changed. The proponents lost the debate. That was round 1 of the European software patent struggle.

Then came round 2 with the term "CII" in the title of a directive proposal. Anyone who quoted the title had to agree to the underlying assumption. That way they thought they could win without a debate, but they failed again.

Now comes round 3. It started in July 2005, when the proponents of software patentability agreed to drop the directive and push for the Community Patent instead. Just as in November 2000, when they agreed to drop the EPC revision plan and push for a wordplay directive instead.

The Community Patent plan doesn't even mention the subject of software, although, make no mistake about it, software patentability is one of the main drivers of these plans.

Instead of directly imposing software patentability, the proposal is now to remove the patent system even further from legislative review by any democratically elected parliament. Thus in effect legislative power is handed over to a few top judges and to the circle of administrative officials that is running the European Patent Office and the EU Council's patent policy working party. There are even moves to explicitly make EPO case law binding on the new EU patent institutions. Of course all this goes without mentioning the word "software" or "computer", but the underlying issue is clearly understood.

The Community Patent has failed for 25 years due to resistance from many quarters within the patent lobby itself. If now suddenly this resistance can be overcome, there isn't much need to explain what is the driving force that is overcoming it."

The Community Patent

The "European Community" is represented by the Commission, the Parliament, and the Council of Ministers.

The "Community Patent" means that the Community would join the EPC as the 32nd signatory. If the 25 members states want to modify their Community Patent law, it would not be possible without the agreement of other signatories of the EPC and non-members of the Union, namely Monaco, Lichtenstein, Turkey, and Iceland. Possibly, it could also be blocked by other countries signing the EPC in the near future.

When the Commission represents the Community at the international level (at the WTO level with TRIPS, at the WIPO level, or the EPO level), its mandate is given by the 25 Council members. This mandate is currently not (but probably should be) approved by the EU Parliament.

EPLA vs. Community Patent

The European Patent Litigation Agreement, in combination with the London protocol, would achieve most of the effect of the Community Patent, but would be passed without any parliamentary involvement.

This difference is important. We have at least three possible routes for a trans-EU patent system:

  1. The Community Patent as a Council Framework decision. Such a legislative procedure is currently running, but is deadlocked in the Council over translation disagreements. This procedure does not require involvement of the European Parliament, but requires unanimity in the Council.
  2. The Community Patent, in a co-decision procedure, in which Parliament can vote on the directive and ammend it if necessary. In this case, only a qualified majority is required in the Council.
  3. EPLA + London Protocol, in an inter-governmental procedure, in which Parliament is excluded from the process.

Largely the three routes arrive at the same end-point, but all but one bypass any chance to exert direct democratic control over the process. It is also unclear - to us, from the EPLA draft treaty text - whether the third route would take EPO TBA case law or the EPC text as its basis.

The European Patent Office

In 1973, a number of European countries signed the Convention of Munich, also known as the European Patent Convention (EPC) which established the European Patent Office (EPO). This convention cannot be changed without the agreement of all signatories. For example, article 52.2 of the EPC specifically lists computer programs among achievments that are not inventions. In 2000, a diplomatic conference tried and failed to remove this exclusion, lacking unanimous agreement.

The EPC is interpreted by the EPO's Technical Boards of Appeal (TBAs) and its Enlarged Board of Appeal (EBA). These TBAs and the EBA have, over time, adapted their interpretations of the EPC so that computer programs and business methods are in fact patentable.

This evolution has happened in parallel with case law in the US, where the Supreme Court has ruled that "everything man-made under the sun" can be claimed in a patent.

However, TBA case law is not binding for EPC signatory countries. In most member states, there has not even been any litigation concerning patents whose granting was based on the "further technical effect" doctrine under which software and business method patents are granted by the EPO (and which the Commission wanted to codify in the software patents directive). And in those member states where such patents have been litigated, the outcome almost always disagrees to a more or lesser extent with TBA and EBA case law.

The result is that while software cannot, by law, be patented, the EPO has granted large numbers of software and business process patents (which we often together call "soft patents"), which patent holders then try to validate on country-by-country basis, often with inconsistent results.

The Cost of Patenting

For firms that seek patents (and broadly, this means either very large firms, or very specialised patent firms), the current situation is a clear barrier to wider application of their patents.

For firms that do not seek patents (and broadly, this is most firms that are of small-to-medium size), the current situation is a clear barrier to open trade within the EU, as products that may be legal in one country are illegal in another.

For economists and analysts, software and business method patents represent an extreme example of the expansion of exclusion rights, i.e. in which the state grants a monopoly in return in the hope for a contribution to a wider good.

Single Patent Court

A single European Patent Court could reject the abusive teachings of the EPO such as the notion of a "further technical effect" or the circumvention of Art 52(2) EPC by the "as such" provision in Art 52(3). However, the idea to establish a single European patent court is a trap because the patent movement will make sure that only judges will get appointed who intend to rubberstamp EPO case law and thus software patents. As political control of the patent system continues to be weak, the patent movement will further control substantive rules and a political mandate over patent policy will vanish.

Judicial governance is no solution, it is the reason for unbalance in the patent system. The software patents problem can only be solved by substantive clarifications as proposed by the FFII. Judicial bodies lack competence to change substantive rules, and fundamental changes by TBA interpretation exceeding their competence have to be reversed by the legislator.

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