"Because of software and process patents any company could be sued for almost anything. It is impossible to know what the next patent to be issued will be and whether or not your company will be at complete risk. It is impossible to go through the entire catalog of patents issued over the last 10, 15, 20 years and determine which will be used to initiate a suit against your company."
I have a ton of respect for many of the people arguing against software patents, but I disagree strongly with their arguments. I think software patents play an important role in encouraging innovation, especially by small companies. The loss of them would make it harder for small companies to survive, and would discourage fundamental innovation in software.
The online debate about software patents is very contentious, and much of it focuses on philosophical issues like the nature of software and whether that's inherently patentable. The debate also often gets mixed with the contention that all software should be free. I'm not going to get into either topic; the arguments are arcane, sometimes quasi-religious in their fervor, and besides they've already been debated to death online.
What I want to focus on is the broader issue of the economic role of patents and how that applies to software. The patent system is designed to encourage innovation by giving a creator a temporary monopoly on the use of an invention. Does that mechanism work in software? What are the problems? And what's the best way to fix them?
When you take that perspective, I think it's clear that there are some genuine problems with software patents. (Actually, there are problems with patents in general, and software is just the most prominent example.) But I think there are better ways than a ban to solve those problems. To me, banning software patents to solve patent problems would be like banning automobiles to stop car theft. The cure is far worse than the disease.
The value of software patents
Let me start with a personal example. As I've mentioned before, I'm working on a startup. When we brief people on what we're doing, one of the first questions we get is, "how will you prevent [Google / Apple / Microsoft / insert hot web company here] from copying you?"
A big part of the answer is, "we've filed for a patent."
A patent isn't magic protection, of course. It might not be granted, and even if it's granted, patents are difficult to enforce against a really big company. But it reassures investors, and more importantly if a Facebook or Google wanted to copy our work, the patent makes it safer and quicker for them to buy our company rather than just ripping us off. So it helps to protect the value of our company.
Without the patent, I think it could be open season on us the moment we announce our product.
Advocates of eliminating software patents say there are other ways to protect software companies. The first is that software can be copyrighted. That's technically true, but the only thing copyright protects you from is word for word theft of your source code; it does not protect inventions. For most software innovations, copyright is no protection at all.
The second argument is that small companies should move quickly, so the big companies can't catch up with them. The idea is that if you move fast enough, you won't need patents. I think there's a consumer web app bias in that advice -- it works best for small apps that can be adopted quickly, or that have a strong social effect (so the user base is part of your competitive protection). It doesn't work well for software tools that have a slower adoption curve. The more complex and powerful the software, the slower the adoption cycle. This is especially true for enterprise tools. Without patents, those companies are exquisitely vulnerable to being ripped off soon after they launch, when they're just starting to gain word of mouth.
So for companies creating new categories of software, and especially for enterprise software tools, I think patents remain the best (and really only) protection from theft.
But what about the damage being caused by abuse of the patent system? If we keep software patents, are we then endorsing those abuses?
I don't think so. In the articles I've seen, there are two primary arguments for eliminating software patents: Trolls and patent warfare. They need to be discussed separately.
Discouraging patent trolls. The troll problem is something we all know about: patent licensing companies buy large collections of patents and then extort fees from companies that had no idea they were violating the patents. That's the core of the problem Mark Cuban was talking about above, and it is outrageous. These surprise lawsuits can have a devastating effect on smaller companies that can't afford to hire a lawyer to defend themselves. Even if you're in the right, it can be so expensive to defend yourself that you just have to give up and pay the license fee. That definitely has a chilling effect on innovation, it is contrary to the intent of the patent system, and therefore it needs to be restrained.
But I think the answer in that case is not to eliminate software patents; it's to restrict the right of "non-practicing entities" (patent trolls) to sue for patent infringement. That would still have a financial effect on small companies -- in the case of my startup, it would make it harder for us to sell our patent if we wanted to. But patent law exists to protect the process of innovation, not to protect inventors for their own sake. If you can't put your patent to good use, you aren't contributing to the public good and you shouldn't get the same level of protection as a company that has built a business around a patent.
Patent warfare is a very different issue. Several large tech companies are using patent lawsuits to slow down competitors and pull revenue out of them. Eliminating software patents would not stop these wars; they're also based on hardware patents, antitrust law, and any other field of law that the companies can apply. It's like one of those cartoon fights in a kitchen where a character opens up a drawer and throws everything inside it.
Yeah, like that.
The underlying problem here isn't about patents; it's about the use (and abuse) of the legal system as a competitive tool. I've had more involvement in tech industry legal wars than I want to think about: I gave depositions in the Apple-Microsoft IP wars, and I testified in Washington in the Microsoft antitrust lawsuit. The overall experience left me plenty cynical about the legal system, but it also persuaded me that big tech companies are perfectly capable of taking care of themselves in court. They do not need our help. You should think of lawsuits as just another way that tech companies express love for one-another.
I'm somewhat sympathetic to the Android vendors being sued by Apple, but a lot of it is their own fault. HTC in particular has no one to blame but itself for its situation, in my opinion. HTC was one of the first companies in mobile computing, creating PDAs for Compaq and early smartphones for Orange and O2. I've got to believe that if HTC had been thinking clearly about patents, there are a lot of fundamental mobile inventions it could have patented. Then it would have had a big enough patent portfolio to force a cross-licensing deal with Apple.
The same thing goes for Google. When it decided to enter the mobile OS business, it should have expected that it would end up at war with Apple and Microsoft (heck, anyone could have predicted that). Google should have bought up a big mobile patent portfolio (like maybe Palm's) back when they were inexpensive.
Are we obligated to change the patent laws just because Google and HTC were careless? No. Is it in the public interest for us to intervene anyway? I doubt it. Here's how the mobile patent wars will play out: The big boys will do a whole bunch more legal maneuvering, they'll scream bloody murder, and in the end one of them will write a check to the other. Then they'll all go back to work.
My advice: If it bothers you, stop reading the news stories about it. Or sit back and enjoy it as theatre. It's hardly an important enough issue to justify stripping the patent protection from every small software company in the US.
A world without software patents
If you want to understand the importance of software patents, go back and talk to the first people who patented software. That's what I did. Two years ago, I corresponded with Martin Goetz, holder of the first software patent (link).
Goetz was a manager at Applied Data Research, one of the first independent app companies in the 1960s. ADR made applications for mainframes, and IBM copied and gave away a version of ADR's Autoflow application (the first commercially marketed third party software app). ADR might have been wiped out, but it had patented Autoflow, and it was able to successfully sue IBM. That lawsuit, plus a related one by the US government, laid the foundations of the independent software industry by forcing IBM to stop giving away free apps for its mainframes.
The lawsuits involved a lot of legal issues, including antitrust, so you can't say that software patents alone led to the birth of the software industry. But I think it's clear that patents helped codify the value of software independent from hardware. If that value hadn't been recognized, the antitrust suit would have been meaningless because there would have been no damages.
So antitrust and patent law have worked together to help protect software innovation. Antitrust helped to restrain big companies from giving away free competitors to an app (although that protection has eroded lately), while patents restrained big companies from copying apps directly. It's like a ladder. If you pull out either leg, I worry that it won't stand.
In his online memoirs (link), Goetz makes the case that application innovation was slow and unresponsive to users in the decade before software patents, and accelerated dramatically in the decade after. I agree. That is exactly the sort of innovation that patent law was meant to encourage, and so I view software patents as a success.
Without software patents, I think it would be far too easy to go back to the bad old days when the big computing companies walked all over small software companies, the software industry consisted of only consultants and custom developers, and software innovation moved at a much slower pace.
More reading: Software entrepreneur and investor Paul Graham wrote a nuanced and detailed take on the subject here. Some of his conclusions differ a bit from mine, but the essay is well worth reading.