By Michael Azoff, Senior Research Analyst, Butler Group

Patent issues are in the headlines again as millions of dollars hang in the balance over interpretations of what is obvious, in a patent sense. The unsatisfactory nature of what has been described as the software patent lottery often hangs in the balance of a court judge's interpretation of material that is far from clear cut, resulting in inconsistent decision making and huge money payouts swinging one way or the other.

These problems are faced by IT companies in the U.S. due to the acceptability of software patents there, while in the E.U., software patents were faced down by the Strasbourg parliament, but the question will not go away (e.g. the new German government's State Secretary for European Affairs, Dr. Joachim Würmeling, is described as a pro-software patent activist), and so it is instructive to learn how the issues are dealt with in the U.S.

The current news headlines concern Microsoft and a bid by Alcatel to see a return from its recent acquisition of Lucent and its vast patent portfolio (going back to Bell Labs). It has discovered patents that affect the MP3 audio format and has decided to take action, as a first case, against Microsoft's use of the format in Windows. Apple and many other MP3 users are following events closely.

At the same time, the small case of KSR International vs Teleflex, which is about to hear the court's decision, has been the focus of attention by major IT players like Microsoft, Cisco, and 24 leading patent lawyers, all petitioning in support of KSR and a revision of the test for obviousness resting on "teaching, suggestion, and motivation."

First of all MP3, with the initial blow struck against Microsoft in a verdict last week, ordering them to pay Alcatel-Lucent $1.5 billion. As Microsoft prepares its appeal, many other users of MP3 await with interest, not least Thomson, which believed it held the licensing rights to MP3 and has received fees from Microsoft, Apple, Intel and many others to that effect. Given the depth of investment by major IT companies in MP3, it is unlikely Alcatel will be allowed to rock the boat without some resistance - this will take some years to pan out, enough opportunity, if necessary, for an alternative format to become adopted to side-step the whole problem.

An interesting sideline to the case is that a U.S. Supreme Court is currently dealing with the question of whether revenue earned by U.S.-patent-law-covered software in non-U.S. territories is subject to U.S. law.

The case of KSR vs Teleflex has attracted interest in that the ruling could reshape how obviousness in prior art is tested. To date, prior work that passes the "teaching-suggestion-motivation" test on future ideas has defined obviousness in U.S. patent law for the past 22 years, during which time no obviousness case has ever been brought before the Supreme Court.

The problem is that when ideas are published in the public domain, authors do not add a lawyerly addendum to say how the ideas can be combined in different permutations so as to forestall future patents that make obvious use of the ideas. As a result, holders of weak and poorly-conceived patents have rebuffed prior art claims by relying on the "teaching-suggestion-motivation" test. One of the recurring complaints against the U.S. Patent Office is its granting of obvious software patents that impede software development and bring no benefit to the industry.

As software becomes increasingly important in the everyday lives of people and in the way business is conducted, we are witness to questions around software patents that are at the forefront of law, and with huge implications.

Many E.U. patent lawyers believe it is natural that patent law should extend to software, but witness the U.S. and the difficulty of demonstrating obvious prior art, with bad consequences for everyone bar a patent "lottery ticket" holder, should warn that the issues are far from natural or straightforward.

The other view is that patents, which need to be proactively gained (at large expense) and cover concepts and ideas, are far too restrictive in the free flow of intellectual discourse and hamper progress in software, whereas copyright, which is automatically applicable and protects an instance of a work, is best suited to software. ENS