Much of the patent portfolio of some of the world's biggest software companies has become worthless overnight, thanks to a ruling yesterday by the US patent court.
The US Court of Appeals for the Federal Circuit (CAFC) in Washington DC has decided that in the future, instead of automatically granting a patent for a business practice, there will be a specific testing procedure to determine how patentable is that process.
The decision is a nearly complete reversal of the court's controversial State Street Bank judgement of 1998, which started the stampede for patenting business practices.
Randy Lipsitz, a patent specialist at Kramer Levin in New York, said the ruling is likely to hit certain industries very hard, especially insurance, banking, accounting, and software.
The decision is great for open source advocates. But it could mean a permanent change in the value of intangible assets, which comprise approximately 70 per cent of the average high-tech company’s market capitalisation. With the world's economy sliding downhill at an increasing pace each day, this decision could cost US companies billions of dollars.
Pamela Jones at Groklaw told the Examiner that because Microsoft doesn't make many machines, much of its patent portfolio just went up in smoke. She said that a special thanks should go to Red Hat software for the wonderful amicus brief that it filed in this case, representing the community's interests, and getting certain issues on the court's radar. She said there will be more information on her website, and recommended reading Gene Quinn's patent blog at the Practicing Law Institute.
Many people say the problem with a lot of business and software patents is that they describe simple things that many people consider normal daily procedures. In 1833, the New York City Sun newspaper was founded. Benjamin Day, the publisher, didn't file for a patent on his innovative business practices of selling advertising and using news boys to distribute his papers. All up and down the eastern seaboard, newspapers popped up. It is very doubtful that this industry would have come about had the Sun's business practices been patented.
We spoke to one Silicon Valley executive who saw a silver lining, suggesting that this decision will save a lot of companies cash by removing the need for endless patent protection schemes. He said his company and its niche industry will protect its practices, just as Coca Cola has protected its secret formulas for over 100 years.
Right now there is a lot of speculation in the blogs as to whether there will be an appeal in the US Supreme Court. Some legal experts say yes; others say it's not very likely because of the way the decision was worded.
So good luck to Microsoft, Oracle and a lot of American high-tech companies in attempting to protect their software's market value. The world is going through a financial overhaul and only the nimble will survive. X