Software patents, incumbents, and entry

Texas Law Review

Volumn 85, Issue 7, 2007, Pages 1579-1625

  Allison, John R ^a   Dunn, Abe ^b   Mann, Ronald J ^c,d  

^a UNIVERSITY OF TEXAS AT AUSTIN   (United States)

^b United States Department of Justice   (United States)

^c Business and Commercial Law ^*

^d UNIVERSITY OF TEXAS   (United States)

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EID: 34547728126     PISSN: 00404411     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (219)

1. The number of venture capital investments in software firms increased rapidly during this period, from 11 in 1979, to 188 in 1989, to 1,035 in 1999. NAT'L VENTURE CAPITAL ASS'N, YEARBOOK 48 (2004).
2. The question of incentives is more difficult, given the important roles played both by young entrepreneurs who have earned millions or even billions of dollars in this industry and by opensource developers driven, at least in part, by altruistic motives.
3. Corporate R&D Scorecard, TECH. REV., Sept. 2005, at 56, 57, available at http://www.technologyreview.com/ articlefiles/2005_rd_scorecard.pdf.
4. See, e.g., Perspectives on Patents: Post-Grant Review Procedures and Other Litigation Reforms: Hearing Before the Subcomm. on Intellectual Property of the S. Comm. on the Judiciary, 109th Cong. (May 23, 2006) (statement of Mark Chandler, Senior Vice President and General Counsel, Cisco Systems, Inc.) ("[O]ur patent litigation system is broken."), available at http://judiciary.senate.gov/testimony.cfm?id=1911&wit_id=5366; Brief of the Business Software Alliance as Amicus Curiae in Support of Petitioner at 1-2, KSR Int'l Co. v. Teleflex Inc., 127 S. Ct. 1727 (2007) (No. 04-1350) (arguing on behalf of leading software and hardware companies against the Federal Circuit's standard for determining nonobviousness and in favor of a less restrictive standard); Brief of Amicus Curiae International Business Machines Corp. in Support of Neither Party at 5-6, KSR, 127 S. Ct. 1727 (No. 04-1350) [hereinafter Brief of IBM in KSR] (arguing against the Federal Circuit's standard for determining nonobviousness as overly restrictive and in favor of a rebuttable presumption that skilled artisans will combine elements found in references within "analogous art"); Brief of Business Software Alliance et al. as Amici Curiae in Support of Petitioners at 1-3, eBay Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006) (No. 05-130) [hereinafter Brief of Business Software Alliance in eBay] (arguing on behalf of leading software, hardware, digital-content, and information-technology products and services companies against the Federal Circuit's mandatory injunction standard and in favor of the traditional equitable principles governing injunctive relief); Brief of International Business Machines Corp. as Amicus Curiae in Support of Neither Party at 2, eBay, 126 S. Ct. 1837 (No. 05-130) [hereinafter Brief of IBM in eBay] (arguing against the Federal Circuit's mandatory injunction standard and in favor of traditional equitable principles governing injunctive relief); The Peer to Patent Project: Community Patent Review, http://www.communitypatent.org (describing the community patent review initiative sponsored by IBM and other incumbents).
5. Surely the most discussed statements come from the 1994 hearings of the U.S. Trademark and Patent Office (PTO) on the propriety of software patents, where trenchant criticisms of software patents were made. Thus the principal scientist at Adobe Systems, Inc. testified unequivocally: "I believe that software per se should not be allowed patent protection. . . . I argue that software should not be patented, not because it is difficult to do so, but because it is wrong to do so." Public Hearing on Use of the Patent System to Protect Software-Related Inventions: Before Bruce A. Lehman, Assistant Secretary of Commerce and Commissioner of Patents and Trademarks, U.S. Patent and Trademark Office 16 (Jan. 26-27, 1994) (statement of Douglas Brotz, Principle Scientist, Adobe Systems, Inc.), available at http://www.uspto.gov/web/offices/com/hearings/software/sanjose/sjhrng.pdf. A witness for Autodesk, Inc. contended that "[t]here is absolutely no evidence whatsoever, not a single iota, that software patents have promoted or will promote progress." Id. at 48 (statement of Jim Warren, Member of the Board of Directors, Autodesk, Inc.). Oracle's senior vice president expressed a similar view.
6. See id. at 23 (statement of Jerry Baker, Senior Vice President, Oracle Corp.) ("I cannot find any evidence that patents for software will tend to [promote the progress of science and useful arts]. [F]ndeed, every indication is to the contrary."). On the other hand, major trade groups and software firms testifying at the same hearings expressed strongly held views that patent protection was important. So, for example, representatives of Apple and the Computer and Business Equipment Manufacturing Association, id. at 8-10 (statement of Richard LeFaivre, Vice President of Advanced Technology, Apple Computer, and Computer and Business Equipment Manufacturing Association), of IBM, id. at 78-79 (statement of Victor Siber, Senior Corporate Counsel, IBM Corp.), of Microsoft, id. at 66 (statement of William Neukom, Vice President of Law and Corporate Affairs, Microsoft Corp.), and of the Business Software Alliance, Public Hearing on Use of the Patent System to Protect Software-Related Inventions: Before Bruce A. Lehman, Assistant Secretary of Commerce and Commissioner of Patents and Trademarks, U.S. Patent and Trademark Office 18 (Feb. 10-11, 1994) (statement of Dianne Callan, Deputy General Counsel, Lotus Development Corp.), available at http://www.uspto.gov/web/offices/com/hearings/software/arlington/vahrng.pdf, all provided testimony supporting the patentability of software. Microsoft's adherence to this position is notable in light of the $120 million verdict entered against it a few days earlier in Stac Electronics v. Microsoft Corp., 38 F.3d 1222 (Fed. Cir. 1994).
7. See Lawrence M. Fisher, Microsoft Loses Case on Patent, N.Y. TIMES, Feb. 24, 1994, at D1 (discussing the verdict in favor of Stac Electronics in a patent-infringement suit alleging that Microsoft had appropriated Stac's data-compression technology).
8. See, e.g., Pamela Samuelson, Benson Revisited: The Case Against Patent Protection for Algorithms and Other Computer Program-Related Inventions, 39 EMORY L.J. 1025, 1143 (1990) ("Thus, let us accept as a working assumption that the computer software industry has become a major industry without the aid of patents, and that had patents been in place in the industry's infancy, the field would not have grown as it has."). Surveys of individual software engineers in the late 1980s suggest that this perspective was widespread among engineers at that time.
9. See Pamela Samuelson & Robert J. Glushko, Comparing the Views of Lawyers and User Interface Designers on the Software Copyright "Look and Feel" Lawsuits, 30 JURIMETRICS J. 121, 135 (1989) (finding opposition to patent protection for various aspects of computer programs, including algorithms);
10. see also Samuelson, supra, at 1031-32 ("If the software industry neither wants nor needs the patent system in order to be a vital and innovative industry, then, as a matter of public policy, it is sensible not to use the patent system for the protection of program-related innovations.").
11. For example, in an article in PC Magazine, the columnist John Dvorak argued that software patenting is even bad for Microsoft. John C. Dvorak, Software Patents: Microsoft's Fatal Error, PCMAG.COM, Apr. 6, 2005, http://www.pcmag.com/article2/0,1759,1781181,00.asp. Still, recent scholarship strongly suggests that software patents have private value to the firms that obtain them.
12. See Ronald J. Mann & Thomas W. Sager, Patents, Venture Capital, and Software Startups, 36 RES. POL'Y 193, 205-07 (2007) (presenting data indicating that patenting is related to the progress of venture-backed software firms);
13. John R. Allison & Ronald J. Mann, The Disputed Quality of Software Patents, 85 WASH. U. L. REV. (forthcoming 2007) (manuscript at 30-32, on file with authors) (finding, among other things, that software patents have significantly more total prior art references, nonpatent prior art references, forward citations, total claims, and independent claims than nonsoftware patents issued to the same group of firms in the software industry);
14. Iain M. Cockburn & Megan J. MacGarvie, Entry, Exit and Patenting in the Software Industry 33 (Nat'l Bureau of Econ. Research, Working Paper No. 12563, 2006) (finding that firms holding software patents associated with a particular market are more likely to enter and less likely to exit that market);
15. Bronwyn H. Hall & Megan MacGarvie, The Private Value of Software Patents 31 (Nat'l Bureau of Econ. Research, Working Paper No. 12195, 2006) (concluding that "the market evaluated software patents as unimportant ex ante" but ex post "firms in the ICT section that hold software patents are . . . valued at a significant premium relative to firms without software patents");
16. Michael Noel & Mark Schankerman, Strategic Patenting and Software Innovation 4-5 (Ctr. for Econ. Policy Research, Discussion Paper No. 5701, 2006), available at http://ssrn.com/abstract=922111 (concluding in an empirical study of the effect of software patents on R&D and market value in the software industry that there are large positive technology spillovers from software R&D, but that patenting by rivals reduces R&D investment, patenting rates, and market value, as well as finding a substantial patent premium in the market valuations of software firms); Robert P. Merges, Patents, Entry and Growth in the Software Industry (Aug. 1, 2006) (unpublished manuscript), available at http://ssrn.com/abstract=926204 (debunking \the portfolio thesis by showing that patent effort by incumbent firms correlates closely with indicators of market success).
17. The most significant opponents of software patents in the United States are Richard Stallman and the Free Software Foundation. The Free Software Foundation often participates as an amicus in patent cases, see, e.g., Brief of Amicus Curiae Electronic Frontier Foundation in Support of Petitioner, KSR, 127 S. Ct. 1727 (2007) (No. 04-1350), and also presents testimony in congressional hearings,
18. see, e.g., The Digital Media Consumers ' Rights Act of 2003: Hearing on H.R. 107 Before the Subcomm. on Commerce, Trade, and Consumer Protection of the H. Comm. on Energy and Commerce, 108th Cong. 15-22 (2003) (statement of Lawrence Lessig, Professor of Law, Stanford Law School, and member of the Free Software Foundation Board of Directors).
19. See also Free Software Foundation, Opinion on Patent Retaliation, http://gplv3.fsf.org/patent-dd2.html (last modified Aug. 3, 2006) (explaining changes to the new GPLv3 that target patent "aggression" by server operators who sue others for patent infringement for using and sharing improved versions of programs covered by the GPL). That perspective is more widely held in the European Union and elsewhere outside the United States,
20. see, e.g., FLORIAN MUELLER, NO LOBBYISTS AS SUCH: THE WAR OVER SOFTWARE PATENTS IN THE EUROPEAN UNION (Wendy M. Grossman ed., version 1.03 2006), http://www.no-lobbyists-as-such.com/ NoLobbyistsAsSuch.pdf, where the opposition to software patents is bound up with balance-of-trade concerns. In the European Union, for example, protection of software patents is generally regarded as transferring power and wealth from fledgling European firms to existing U.S. incumbent firms.
21. See, e.g., Press Release, Foundation for a Free Information Infrastructure, Single EU Patent Law Good for US Giants, Bad for Small EU Firms (Apr. 4, 2007), available at http://press.ffii.org/Press_releases/ Single_EU_patentJaw_good_for_US_giants%2C_bad_for_small_EU_firms (describing opposition to a European Union-wide patent law by a European nonprofit representing more than 3,000 smaller information-technology firms on the grounds that it would benefit large U.S. companies at the expense of small European firms).
22. As discussed below, incumbent firms have widely varying patenting strategies, which have led to different positions on important policy issues.
23. Despite high-profile cases requiring changes to Office, Windows, and Internet Explorer, Microsoft executives continue to extol the virtues of software patents. See Bradford L. Smith & Susan O. Mann, Innovation and Intellectual Property Protection in the Software Industry: An Emerging Role for Patents?, 71 U. CHI. L. REV. 241, 256-58 (2004) (listing reasons why patent protection is superior to copyright in an article coauthored by two Microsoft executives).
24. See GREGORY A. STOBBS, SOFTWARE PATENTS § 5.10[E][1], at 50, 53 (2d ed. cum. supp. 2006) (characterizing Morse's famous telegraph patent of the 1840s as a precursor to modern software patents).
25. U.S. Patent No. 2,552,629 (issued May 15, 1951).
26. See First Patent Is Issued for Software, Full Implications Are Not Yet Known, COMPUTERWORLD, June 19, 1968, at 1,
27. reprinted in Martin Goetz, Memoirs of a Software Pioneer: Part I, IEEE ANNALS HIST. COMPUTING, Jan-Mar. 2002, at 43, 51 (discussing U.S. Patent No. 3,380,029 (filed Apr. 8, 1965) (issued Apr. 28, 1968)).
28. See Goetz, supra note 13, at 49 (discussing the realization that patenting and copyrighting software would be essential to Applied Data Research's survival).
29. Id. at 50-53.
30. Id.
31. See Martin Campbell-Kelly, Not All Bad: An Historical Perspective on Software Patents, 11 MICH. TELECOMM. & TECH. L. REV. 191, 214-15 (2005) (discussing Applied Data Research's patent of Autoflow and the resulting thorough disclosure that allowed competitors to understand Autoflow and attempt to improve the program).
32. GREGORY A. STOBBS, SOFTWARE PATENTS § 1.04[A], at 39 (2d ed. 2000) (quoting testimony from 1960s IBM antitrust litigation).
33. See U.S. Patent Court to Rehear Software Issue, N.Y. TIMES, Mar. 1, 1969, at 43 (discussing IBM's opposition to software patents in proceedings before the PTO, aligned against Goetz's employer Applied Data Research);
34. see also Samuelson, supra note 6, at 1143 (noting the early opposition to software patents by IBM and other leading hardware firms).
35. See Ronald J. Mann, Commercializing Open Source Software: Do Property Rights Still Matter?, 20 HARV. J.L. & TECH. 1, 26 (2006) (discussing IBM's investment in open-source software, namely Linux and Apache, and its strategy to profit by offering a value chain that uses those programs).
36. 415 F.2d 1393, 1405-06 (C.C.P.A. 1969) (holding that a general-purpose digital computer programmed to perform certain mathematical operations in spectrographic analysis was patentable because the computer involved programming and was not obvious under 35 U.S.C. § 103 (2000)).
37. 409 U.S. 63 (1972).
38. Id. at 71-73.
39. See Warren Weaver Jr., High Court Denies Computer Patent for Programing, N. Y. TIMES, Nov. 21, 1972, at 1.
40. See Martin Goetz, Memoirs of a Software Pioneer: Part 2, IEEE ANNALS HIST. COMPUTING, Oct.-Dec. 2002, at 14, 18 (suggesting that the patent was "not representative" of inventions in the industry and "never should have been filed or appealed"). For a close reading of Benson, arguing that it is much more hostile to software patenting than Goetz suggests,
41. see Samuelson, supra note 6, at 1048-62.
42. 437 U.S. 584 (1978).
43. Id. at 594-96.
44. See Goetz, supra note 25, at 22 (noting the perceived ambiguity of Parker);
45. N.R. Kleinfield, Software Patent Issue Is Murky, N. Y. TIMES, June 28, 1978, at D6 (reporting Goetz's view that "[n]one of the computer programs that came before the Supreme Court is regarded by the software industry as a good example of high-level programming").
46. See Linda Greenhouse, Court Curbs Software Patents, N.Y. TIMES, June 23, 1978, at D1 (quoting a software-trade-association representative who argued that "the [software] industry . . . now has no Federal protection against theft by competitors," which he viewed as a "gigantic industry problem");
47. see also Samuelson, supra note 6, at 1076-83 (providing a detailed contextual analysis of Parker).
48. See Campbell-Kelly, supra note 17, at 198-99.
49. Id.
50. Id. at 201-02, 209.
51. See Goetz, supra note 25, at 24-25 (discussing IBM's move to protect its source code in response to increased Competition following the unbundling of IBM software).
52. Japanese software developers benefited from the same government support as competitors in other industries on which Japan focused. See Steve Lohr, Japan's Hard Look at Software, N.Y. TIMES, Jan. 9, 1983, at F4 ("[T]he full arsenal of government and industry backing is being directed at software development in Japan.").
53. See Goetz, supra note 25, at 24-28 (discussing IBM's move to maintain the secrecy of its source code so that it could use trade-secret protection for the functional ideas carried out by the code in response to increased competition following the unbundling of IBM software);
54. Angel Castillo, Bill Safeguards Data Programs, N.Y. TIMES, Dec. 4, 1980, at D1 (noting IBM's support for the Computer Software Copyright Act of 1980). IBM's first major IP claim in the software industry came at this time when it challenged Hitachi's incorporation into its software products of technology it claimed Hitachi had stolen from IBM.
55. Hitachi Disputes Fee to I.B.M., N.Y. TIMES, Nov. 10, 1983, at D5.
56. 450 U.S. 175 (1981).
57. See Goetz, supra note 25, at 22-23 (noting the positive contemporaneous response to Diehr).
58. Andrew Pollack, Big I.B.M.'s Little Computer, N.Y. TIMES, Aug. 13, 1981, at D1 (discussing IBM's entry into the personal computer market-"a market now dominated by Apple Computer, Inc. and Tandy Corporation's Radio Shack division").
59. See MARTIN CAMPBELL-KELLY & WILLIAM ASPRAY, COMPUTER 229 (1997) (stating that the IBM PC became so popular that most of the major software packages were converted to run on the machine, which encouraged other manufacturers to produce "clone" machines that ran on the same software);
60. Pollack, supra note 38, at D1 (noting that the IBM PC was a direct challenge to Apple and Tandy's dominance of the market);
61. Andrew Pollack, Next, a Computer on Every Desk, N.Y. TIMES, Aug. 23, 1981, at F1 (recognizing that IBM's entry into personal computing would change the market).
62. See Andrew Pollack, Big IBM. Has Done It Again, N.Y. TIMES, Mar. 27, 1983, at F1 (discussing the proliferation of IBM clones).
63. A common perspective is that CP/M failed because Digital Research moved too slowly to upgrade its software to accommodate 16-bit processors, leaving Microsoft's MS-DOS to gain an insuperable lead in that market before Digital Research ever entered. See MARTIN CAMPBELL-K ELLY, FROM AIRLINE RESERVATIONS TO SONIC THE HEDGEHOG: A HISTORY OF THE SOFTWARE INDUSTRY 239 (2003) (noting that the 16-bit version of CP/M was not available until months after the launch of the IBM PC, giving Microsoft "an insuperable first-mover advantage");
64. David E. Sanger, The Big Guys Get into the Act, N.Y. TIMES, Sept. 4, 1983, at F11 (calling CP/M the "industry standard" before it lost ground to Microsoft as a result of not being able to run on 16-bit architecture).
65. See STOBBS, supra note 18, § 11.01[B], at 525-57 (discussing early Microsoft patents on technology related to operating systems).
66. See CAMPBELL-KELLY, supra note 41, at 242-64 (describing some of the thousands of software applications designed for the personal computer in its first ten years);
67. Pollack, supra note 38, at D1 (discussing IBM's plans to foster widespread development of software for the IBM PC).
68. See Andrew Pollack, Microsoft Has It All-Almost, N.Y. TIMES, Sept. 4, 1985, at D1 (discussing the market forces leading to the professionalization of software development);
69. Andrew Pollack, Slugging It Out on the Software Front, N.Y. TIMES, Oct. 16, 1983, at F1 (describing the end of the "cottage era" in software development and the beginning of the era of big software companies and correspondingly large investments).
70. See Peter H. Lewis, The Fallout from the Font Wars, N.Y. TIMES, Oct. 1, 1989, at F13 (noting that if Adobe had been willing to share its proprietary information earlier, it probably could have avoided the "font wars");
71. Andrew Pollack, Adobe Is Set to Disclose Technology, N.Y. TIMES, Sept. 21, 1989, at D1 (describing Adobe's plan to reveal its font technology in an effort to stay competitive with a joint Apple and Microsoft font project).
72. Throughout this Article, the tables and figures attribute applications to the year in which they were filed and refer only to patent applications that resulted in issued patents.
73. We discuss in more detail below the distinction between software firms that profit primarily from the sale of off-the-shelf products and those that profit primarily from the sale of software-related services.
74. One reason that the discovery was "belated" is that the PTO seems to have dragged its feet considerably in response to the patent applications that the software firms started filing in the mid1980s, which had the effect of increasing the head start of applications that those firms had by the time their competitors learned of the applications.
75. The tone of surprise is evident from the press coverage that greeted a 1989 patent by Quarterdeck on an early form of "Windows" technology. See Patent Is Won by Quarterdeck, N.Y. TIMES, Apr. 19, 1989, at D4 (suggesting, wrongly as it turns out, that it was "unusual" to receive a software patent and that the patent could be more important than Apple's battle with Microsoft over copyright protection for its graphic user interface).
76. For example, Donald Chisum argued vehemently that Benson needed to be explicitly overruled to clear the way for a sensible system of software patenting. See Donald S. Chisum, The Patentability of Algorithms, 47 U. PITT. L. REV. 959, 961 (1986) (calling the Benson decision poorly reasoned and inconsistent with later case law). On the other side of the issue, Pamela Samuelson argued in 1990 that the PTO had gone too far to tolerate software patents and that the courts needed to step in to prevent the proliferation of patents in the area.
77. See Samuelson, supra note 6, at 1029 (restating "the case against patent protection for algorithms").
78. Computer Assoes. Int'l, Inc. v. Altai, Inc., 982 F.2d 693 (2d Cir. 1992).
79. Lotus Dev. Corp. v. Borland Int'l, Inc., 49 F.3d 807 (1st Cir. 1995), aff'd by an equally divided Court, 516 U.S. 233 (1996).
80. See Josh Lerner & Feng Zhu, What Is the Impact of Software Patent Shifts?: Evidence from Lotus v. Borland (Nat'l Bureau of Econ. Research, Working Paper No. 11168, 2005), available at http://papers.nber.org/papers/w11168.pdf (examining the impact of the series of decisions leading to and including Lotus v. Borland, and presenting evidence that a reduction in copyright protection led to more patenting by interface firms).
81. See David S. Evans & Bernard J. Reddy, Government Preferences for Promoting Open-Source Software: A Solution in Search of a Problem, 9 MICH. TELECOMM. & TECH. L. REV. 313, 321 (2003) (noting the favorable conditions that led to the increase in software patents during the 1990s).
82. See Kleinfield, supra note 28, at D6 (quoting Goetz's comment that "[i]f the Patent Office were to become receptive to giving out patents on software, I doubt that there would be more than a few hundred applications a year").
83. The firms are distinguished by three-digit North American Industry Classification System (NAICS) codes: 334 for the electronics firms (Apple, EMC, HP, NCR, Qualcomm, and Sun), 511 for the prepackaged software firms (Adobe, Autodesk, Computer Associates, Microsoft, Oracle, Sybase, and Synopsys), and 541 for the system-design and processing firms (EDS, IBM, Mentor Graphics, Novell, and Unisys).
84. See Randall Stross, Why Bill Gates Wants 3,000 New Patents, N.Y. TIMES, July 31, 2005, at BU3 (attributing Microsoft's conclusion that it was underpatenting to its comparatively low ratio of patents to R&D dollars).
85. James Bessen & Robert M. Hunt, An Empirical Look at Software Patents 38-41 (Fed. Reserve Bank of Phila., Working Paper No. 03-17/R, 2004), available at http://www.researchoninnovation.org/swpat.pdf (arguing that software patents substitute for R&D spending);
86. see also Robert M. Hunt, When Do More Patents Reduce R&D?, 96 AM. ECON. REV. 87, 90 (2006)
87. ("[F]irms that concentrated on obtaining software patents experienced a . . . significant decline in their R&D intensity, relative to other firms."). Bessen and Hunt published a portion of this article in James Bessen & Robert M. Hunt, An Empirical Look at Software Patents, 16 J. ECON. & MGMT. STRATEGY 157 (2007). Two of us discuss some of the problems with their approach in Allison & Mann, supra note 7.
88. Ashish Arora, Marco Ceccagnoli & Wesley M. Cohen, R&D and the Patent Premium 1 (Nat'l Bureau of Econ. Research, Working Paper No. 9431, 2003), available at http://papers.nber.org/papers/w9431.pdf.
89. Along the way, the industry has transitioned from one with a small number of relatively broad "pioneering patents" to one with a large number of narrow patents, which has caused justifiable concern about the transaction costs of licensing.
90. Although the literature provides no definitive theoretical framework for predicting when patents will be useful, an article by Wesley Cohen and his coauthors takes steps toward a general explanation as part of a description of differences between the United States and Japan. Wesley M. Cohen et al., R&D Spillovers, Patents, and the Incentives to Innovate in Japan and the United States, 31 RES. POL'Y 1349 (2002). In their view, patents can play two distinct roles: as tools for exclusion (to be exploited through production within the patenting firm), and as tools for licensing (to be exploited through licensing outside the boundary of the patenting firm). Id. at 1365. They develop a distinction between "discrete" and "complex" products, finding evidence to support the idea that "complex" product industries in the United States rely more heavily on licensing to permit exploitation outside the boundaries of the firm. Id.
91. For a detailed discussion, see Ronald J. Mann, Do Patents Facilitate Financing in the Software Industry?, 83 TEXAS L. REV. 961, 990-92 (2005).
92. See Mann & Sager, supra note 7, at 198-99 (finding a significant correlation between number of patents and software-industry subsector).
93. The Software 500 ranks the top 500 firms in the software industry each year by software revenue. The Software 500, SOFTWARE MAG., June 1999, at 32, 32. Software Magazine collects information for the Software 500 from an annual vendor survey, public documents, press releases, SEC filings, and industry analysts. Id. Based on interviews within the industry, we have the impression that the survey response rate is quite high. The list appears to be widely regarded as authoritative within the industry. Campbell-Kelly, for example, uses the list pervasively in his comprehensive history of the industry.
94. See CAMPBELL-KELLY, supra note 41, passim. Among other things, it is considerably more comprehensive than the "Softletter 100," which is limited to prepackaged software providers and thus generally excludes services firms.
95. See Stewart J.H. Graham & David C. Mowery, Intellectual Property Protection in the U.S. Software Industry, in PATENTS IN THE KNOWLEDGE-BASED ECONOMY 219, 232-33 (Wesley M. Cohen & Stephen A. Merrill eds., 2003) (using the trade newsletter "Softletter 100" to identify trends in software patenting). Because of considerable turnover in the industry, that list includes about 1,000 firms for the five-year period. For each firm, the Software 500 includes several data points of interest, total revenues, total revenues from software-related activities, percent of revenues expended on research and development, number of employees, and percent of revenues generated by the sale of services. Because the purpose of our study is to focus on firms that fairly can be characterized as software firms, we excluded the eighteen firms that did not derive at least 20% of their total revenues from software in any of the five years for which we collected data.
96. Allison examined all of the patents except the patents for IBM and categorized each patent for which at least one claim element covered data processing as a software patent. For the 14,000 IBM patents, he read a random sample of 325 patents and extrapolated from that sample. The distinction is a difficult one because there is no specific patent class for software patents. Prior scholars have taken one of two approaches. First, Graham and Mowery look at the portfolios of large prepackaged software firms and develop a set of classes that includes most of their patents. Graham & Mowery, supra note 64, at 220. Second, Bessen and Hunt develop a keyword search designed to capture software patents. Bessen & Hunt, supra note 58, at 8. Although our approach arguably is more subjective, we believe that the increased accuracy makes it preferable. For a more detailed explanation of our definition of a software patent and what we view as its superiority to other attempts to identify data sets of software patents,
97. see Allison & Mann, supra note 7 (manuscript at 8-14).
98. To provide additional data points for robustness checks (as described below), we subsequently collected a set of all of the patents issued to the firms from January 1, 2003, through June 30, 2005 (an additional 20,000 patents), but we did not analyze those patents to determine whether they were software patents or not.
99. Our analysis is similar to that used in Bronwyn H. Hall & Rosemarie Ham Ziedonis, The Patent Paradox Revisited: An Empirical Study of Patenting in the U.S. Semiconductor Industry, 1979-1995, 32 RAND J. ECON. 101 (2001). Following Hall & Ziedonis, supra, and
100. it, and a vector of parameters β. The parameters of the model are estimated using maximum likelihood. We note here an important feature of our analysis. In general, a maximum likelihood model will not be consistent unless the distributional assumption of the model is correct.
101. However, C. Gourieroux, A. Montfort & A. Trognon, Pseudo Maximum Likelihood Methods: Application to Poisson Models, 52 ECONOMETRICA 701, 701 (1984) show that if the mean of the above equation is correctly specified, then the estimate of β will be consistent even if the data rejects the Poisson distributional assumption. The standard errors must be corrected to be robust to alternative distributions. This is important because the assumption that the variance of the Poisson model is equal to the mean is restrictive and often (as with the data here) incorrect in practice, typically when the excess of the variance over the mean reflects "overdispersion. " We discuss in detail below how we have addressed the problems in matching the distributional assumptions of those models to the characteristics of this data set.
102. Because of the skewed distribution, we regress log(Employee) rather than the raw data on number of employees.
103. This result is slightly higher, but comparable to other results found in the literature, including Hall & Ziedonis's calculation of a coefficient of 0.989 in the semiconductor industry. See Hall & Ziedonis, supra note 67, at 116 tbl.l. It also is slightly higher than Bessen and Hunt's calculation of a coefficient of 0.880 in the production of software patents by firms that are for the most part outside the software industry.
104. See Bessen & Hunt, supra note 58, at 50 tbl.5.
105. The absence of a large coefficient here seems to be in tension with the predictions of Gideon Parchomovsky and R. Polk Wagner about the relative importance of patenting for large firms. See Gideon Parchomovsky & R. Polk Wagner, Patent Portfolios, 154 U. PA. L. REV. 1, 55 (2005) ("For large firms, a major driver of patenting behavior is the need to create substantial patent portfolios - independent of the expected values of any particular individual patents.").
106. See MICHAEL A. CUSUMANO, THE BUSINESS OF SOFTWARE 25-26 (2004) (describing a products firm as one that makes the majority of its revenues by volume sales of software packages, while services firms customize products for each customer and provide training, maintenance, and technical support).
107. See id.
108. Although accounting practices might differ slightly, product licensing encompasses the fees generated from software products and excludes services revenue related to maintenance, support, consulting, and the like.
109. See Mann, supra note 62, at 985 (noting that many companies cannot reap the rewards of excluding competitors unless they can survive to a stage where they are profiting from their own exploitation of a product);
110. Pamela Samuelson et al., A Manifesto Concerning the Legal Protection of Computer Programs, 94 COLUM. L. REV. 2308, 2333-39 (1994) (explaining that much of the value of software is in its surface design
111. Although the goodness-of-fit test rejects the Poisson distributional assumption, we nevertheless report the results of this analysis, following prior statistical practice. See Gourieroux, Montfort & Trognon, supra note 67. As recommended there, we use heteroscedastic-consistent standard errors to calculate t-statistics. The goodness of fit test is based on the deviance statistic. The standard error estimates used to compute the t-statistics are robust to heteroscedasticity and misspecification of the distribution. To account for the multiple observations of some firms and the consequent possibility of autocorrelation, the standard errors are clustered.
112. We use a negative binomial model because the goodness of fit test suggested that our data is overdispersed. The negative binomial model is consistent only if the true distribution is negative binomial; however, if this is the true specification, then the estimate is more efficient than the Poisson model. Referring to Column 2 of Table 2, the parameter alpha is the overdispersion parameter. The high t-statistic, indicating that alpha is significantly different from zero, indicates that overdispersion remains even in the negative binomial model.
113. This has the advantage of having more data points (because we can use the additional 20,000 patents from 2003-2005), but it has the disadvantage that we must analyze total patents rather than software patents (because we have not divided the later patents into software and nonsoftware patents). In any event, those runs produced results and coefficients similar to those set out in Table 2.
114. We test the joint statistical significance of the sector-specific fixed effects by using a likelihood ratio test based on the selected sample. For both models, we reject the null hypothesis that the sector-specific fixed effects have no explanatory power at the 95% confidence level.
115. Inclusion of sector-specific fixed effects necessitates dropping several observations from the analysis. Sectors that have no patents are excluded from the analysis because the sector-specific fixed effects entirely explain the number of patents in those sectors. In addition, the sector category marked "other" is also excluded because it does not represent any particular sector. The sector-specific-fixed-effect estimates are based on the remaining 612 observations from the 445 remaining firms.
116. In separate runs that we do not report here in detail, we attempted to analyze the differences in patent production functions for products and services firms. See Hall & Ziedonis, supra note 67, at 119 (using similar analysis for semiconductor firms). Although our analysis strongly rejects the
117. possibility that the patent production functions are the same, it is not easy to interpret our findings about how they differ. For example, we found that the elasticity of software patent production with respect to R&D intensity is greater for products firms and services firms and that the elasticity of software patent production with respect to employees is greater for services firms than for products firms. On the other hand, looking at the elasticity of total patent production, we find that services firms have a greater elasticity for both R&D intensity and employees than products firms. Neither of those differences, however, is significant. Our tentative inclination is to accept the results related to software patent production, concluding that the greater heterogeneity in our data set on total patents makes it less useful for analyzing the factors related to patent production.
118. Bessen & Hunt, supra note 58, at 19. Bessen and Hunt find different results when accounting for firm-level heterogeneity using fixed effects. Id. However, their fixed-effect estimation excludes firms with zero patents. Id. Such firms include a majority of firms in this Article and in the Bessen and Hunt article. Therefore, we compare the basic Poisson regressions as these include all firms and are less prone to sample-selection bias.
119. Hall & Ziedonis, supra note 67, at 116 tbl.1.
120. See Mann, supra note 62, at 982-85 (discussing concerns that an emphasis on patenting will divert a firm's focus from product development).
121. We have also run a number of robustness checks. These include not only the Table 2 models analyzing software patenting rates (rather than total patenting rates), but also checks that include a number of outliers with very large portfolios, a random-effect Poisson estimate with sector-specific fixed effects, and firm-level fixed effects. Those results are similar to those we report in the text.
122. A good deal of our consolidation reflected collapsing different designations used from year to year for similar firms.
123. See Cockburn & MacGarvie, supra note 7, at 33 ("Controlling for the characteristics of the firm and market, we find that software firms are less likely to enter product markets in which there are more patents."). One problem with that explanation, at least with respect to Cockburn and MacGarvie's data, is that they analyze entry in any given year as a function of existing patent portfolios. But most venture-backed software start-ups do not obtain patents until after several years of operation. Accordingly, a sector in which several firms already have strong portfolios is likely to be a sector of relatively mature technology. It should be no surprise that the rate of entry will slow in such a sector, but it is just as likely attributable to the head-start and first-mover advantages of the existing firms as it is to the exclusive force of the patents held by the existing firms.
124. See Mann, supra note 62, at 980 n.102 (presenting anecdotal evidence that software executives view software patents as generally easier to work around and less useful than hardware patents).
125. See Merges, supra note 7, at 7 (finding that turnover rates in the software industry are comparably higher than many other industries).
126. For a quantitative analysis, see Cockburn & MacGarvie, supra note 7, at 16-17, 49 fig.2 (describing and plotting the turnover rates in software markets).
127. The channels are not mutually exclusive. For example, there are a number of open-source venture-backed start-ups, and smaller venture-backed start-ups may resemble independent inventors in many respects. See Mann, supra note 20, at 13 (finding more than 100 open-source firms in the United States in which there has been venture capital investment).
128. This subpart draws heavily on Mann & Sager, supra note 7.
129. Id. at 193.
130. See JOHN BATTELLE, THE SEARCH: HOW GOOGLE AND ITS RIVALS REWROTE THE RULES OF BUSINESS AND TRANSFORMED OUR CULTURE 89 (2005) (recounting how Google obtained millions of dollars in venture capital funds).
131. For the same reason, computer and peripheral firms are not as readily suited to venture capital investment. For example, the PricewaterhouseCoopers National Venture Capital Association MoneyTree Report lists 869 software investments for $4.8 billion for 2005. See PricewaterhouseCoopers & National Venture Capital Association, MoneyTree Report, http.//www.pwcmoneytree.com/moneytree/nav.jsp?page=historical (select "Software" in the "Select Industry" drop-down menu). But the report shows only sixty-one investments in computer and peripheral firms, which total only $500 million for the same year.
132. See id. (select "Computer and Peripherals" in the "Select Industry" drop-down menu).
133. See Mann, supra note 62, at 981 (summarizing findings of why developing patents are not so effective in the early stages of a firm).
134. See Mann & Sager, supra note 7, at 202 ("[There is] some support for the hypothesis that the value of patents for software startups first becomes significant as they reach the stage at which they begin to generate revenues.").
135. Mann, supra note 62, at 981-82.
136. Id. at 978-79.
137. Mann & Sager, supra note 7, at 205. The share of firms with patents in this venture-backed data set is higher than the share of firms with patents in the Software 500 data set described in Part III. This is true, presumably, because the venture-backed data set includes a smaller share of services firms.
138. See id. (noting that products firms are much more common in the venture-backed data set).
139. With respect to financing, firms with patents obtain a median of four rounds rather than three, worth $26 million rather than $15 million. Id. at 199 tbl.4. Moreover, within five years of first financing, 13% of the firms with patents go public and only 4% fail. Conversely, 3% of the firms without patents will have gone public by that point in time and 8% will fail. Id. As reported in more detail in Mann and Sager's article, all of those distinctions are statistically significant and stable across a series of checks for robustness. Id.
140. See id. at 202 & tbl.3 (finding that 5% of the firms in the venture-backed data set had gone public).
141. See id. (finding that 10% of the firms in the venture-backed data set had been acquired).
142. See Mann, supra note 62, at 981-82 (observing that it is unlikely that an early-stage company that has a patent would have the resources to enforce the patent against a large firm). Licensing of technology from start-ups does happen occasionally, though it is rarely the preferred business model of the venture capitalist.
143. See id. at 982-83 (relating concerns among investors and developers that an overemphasis on licensing can degrade firm culture by diverting focus from product development). Rather, it is a strategy to which the firm turns when it is unable to execute its chosen path.
144. See Ronald J. Mann, Verification Institutions in Financing Transactions, 87 GEO. L.J. 2225, 2267-68 (1999) (discussing Arrow's information paradox).
145. See Mann, supra note 20, at 9-10, 11 n.43 (noting that the quality and free dissemination of Linux, Apache, and Firefox have led to their increased use).
146. See id. at 24 (noting that these firms invest substantially in the development of Linux).
147. See id. at 12 (discussing the ties between open-source communities and incumbent firms).
148. Id. at 24-25.
149. See id. at 13-14 (discussing the proliferation of venture-backed open-source firms).
150. See id. at 34 (observing that the open-source model better suits services firms than products firms).
151. See id. at 22 (noting that the open-source model makes it impractical to prevent third parties from exploiting the results of research).
152. Id. at 34-35.
153. For discussion of the Oracle strategy, see, for example, Stephen Shankland, Oracle Has Yet to Prove Linux Cred, CNET NEWS.COM, Oct. 27, 2006, http://news.com.com/Oracle+has+yet+to+prove+Linux+cred/2100- 7344_3-6130071.html.
154. Mann, supra note 20, at 26.
155. See id. at 29 (noting that IBM, Sun, and Nokia have issued promises not to enforce their patents).
156. See supra note 8.
157. See Mann, supra note 20, at 20 (describing GPLv3, which prohibits an entity from using its own modification of open-source software if that entity attempts to patent that modification).
158. See Charles Babcock, Torvalds on the Cost of GPL 3, INFORMATIONWEEK, Mar. 19, 2007, at 40 (reporting Torvalds' position that the revisions of the GPL will reduce the simplicity of the previous version and unduly restrict what users can do with GPL software).
159. See id. (noting that Torvalds will not move the license commitment for the Linux kernel to GPLv3).
160. E.g., Joe Beyers, Perspective: Rise of the Patent Trolls, CNET NEWS.COM, Oct. 12, 2005, http://news.com.com/ rise+of+the+patent+trolls/2010-1071_3-5892996.html;
161. see also John M. Golden, Commentary, "Patent Trolls" and Patent Remedies, 85 TEXAS L. REV. 2111, 2135 (2007) ("[U]nder current legal and economic conditions, nonpracticing or otherwise noncompeting patent holders [so-called trolls] might be at least as likely to be undercompensated as to be overcompensated.").
162. But see James F. McDonough III, Comment, The Myth of the Patent Troll: An Alternative View of the Function of Patent Dealers in an Idea Economy, 56 EMORY L.J. 189, 189-90 (2006) (demonstrating how "trolls" as market intermediaries provide liquidity, market clearing, and increased efficiency to patent markets-the same benefits that securities dealers provide to capital markets).
163. See, e.g., Mark D. Janis, Reforming Patent Validity Litigation: The "Dubious Preponderance," 19 BERKELEY TECH. L.J. 923, 924 (2004) (connecting the success of "patent trolls" to the Federal Circuit's presumption of patent validity).
164. Goetz, supra note 13, at 50-53.
165. Henry Chesbrough's book OPEN INNOVATION (2006) provides detailed and perceptive documentation of the difficulties that incumbent high-tech firms have faced in their efforts to foster successfully innovative environments within the boundaries of their own companies.
166. See PAUL A. GOMPERS & JOSH LERNER, THE MONEY OF INVENTION: HOW VENTURE CAPITAL CREATES NEW WEALTH 99 (2001) ("Almost all venture funds are designed to be self-liquidating, that is, they must dissolve after ten to twelve years.").
167. SourceForge hosts over 100,000 open-source projects uploaded by individual users. SourceForge.net, SourceForge.net: About SourceForge.net, http://sourceforge.net/docs/about.
168. See supra notes 105-07 and accompanying text.
169. For this reason, the availability of injunctive relief, the issue contested in eBay, is crucially important to the intermediaries in this channel. See, e.g., Brief for Rembrandt IP Management, LLC as Amici Curiae in Support of Respondent at 11, eBay Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006) (No. 05-130) [hereinafter Brief of Rembrandt in eBay] ("In the absence of an injunction, a well-funded infringer either would not take a license from an independent inventor at all, or would do so on a playing field that vastly favored the infringer."); Brief for United Inventors Ass'n & Technology Licensing Corp. as Amici Curiae Supporting Respondent at 8, eBay, 126 S. Ct. 1837 (No. 05-130) [hereinafter Brief of United Inventors Association et al. in eBay] ("Given the enormous imbalance of resources between big business and individuals, the predictable fight to an injunction is essential to make licensing a possibility.").
170. See supra notes 100-01 and accompanying text.
171. See supra notes 105-07 and accompanying text.
172. See Mann, supra note 20, at 12 (noting that a large proportion of important Linux contributors are now employed by a large proprietary firm, the Open Source Development Labs, and its corporate sponsors).
173. See John R. Allison et al., Valuable Patents, 92 GEO. L.J. 435, 465 (2004) (finding that litigated patents issue disproportionately to individuals or small firms, but often are transferred between issuance and litigation);
174. Jean O. Lanjouw & Mark Schankerman, Stylized Facts of Patent Litigation: Value, Scope and Ownership 26 (Nat'l Bureau of Econ. Research, Working Paper No. 6297, 1997), available at http://papers.nber.org/ papers/w6297.pdf ("[I]ndividual-owned patents are at least as likely to be litigated as are corporate-owned patents.").
175. Jack Goldsmith and Tim Wu's discussion of the troubled development of an online music market provides an instructive parallel. See JACK GOLDSMITH & TIM WU, WHO CONTROLS THE INTERNET? 105-28 (2006). It should have been clear to all concerned parties by 2000 that the efficiencies of online music distribution eventually would compel some method of easy digital distribution of music online. But the brash early technology start-ups like MP3.com and Napster had no success at all in reaching consensual arrangements with the large media providers.
176. See WILLIAM W. FISHER, PROMISES TO KEEP: TECHNOLOGY, LAW AND THE FUTURE OF ENTERTAINMENT 98-102, 110-20 (2004) (detailing the early history of MP3.com and Napster, and the subsequent lawsuits by media providers). But Steve Jobs, largely because of personal relations that spanned the divide between technology firms and the large media companies, was able to reach agreements in one fell swoop with all of those companies, facilitating both the iTunes store and the iPod.
177. See GOLDSMITH & WU, supra, at 118-21 (discussing the success of iTunes).
178. That is not to say that there is never litigation among incumbents - IBM's recent filings against Amazon.com, see infra note 151, and the high-profile litigation between AT&T and Microsoft,
179. see Microsoft Corp. v. AT&T Corp., 127 S. Ct. 1746 (2007), underscore the occasional inability of large firms to reach rational settlements of these kinds of disputes.
180. See Mann, supra note 103, at 2267-68 (discussing Arrow's information paradox).
181. For example, despite the general perception in the media (and on Capitol Hill) that NTP's patent claims related to the BlackBerry were unfounded, see Ian Austen & Lisa Guernsey, A Payday for Patents 'R' Us, N.Y. TIMES, May 2, 2005, at C1 (discussing the view of critics that NTP is a "patent troll"), some industry sources portray Tom Campana (the inventor of the patent in question) as a thinker of great perception and foresight,
182. see, e.g., Richard Shim, Key Figure in BlackBerry Case Dies, CNET NEWS.COM, June 17, 2004, http://news.com.com/ Key+figure+in+BlackBerry+ case+dies/2100-1041_3-5238198.html (describing Campana as a "tireless and inventive engineer committed to perfecting the best that wireless technology has to offer").
183. One interesting, developing battleground in this area is the question of "transparency." Incumbent firms call for transparency in the ownership of patenting, so that they readily can identify the real parties in interest when patents are issued or transferred. Intermediaries anticipating litigation, however, prefer that their acquisition of patents go unnoticed. This could be true for a spectrum of reasons of varying legitimacy, ranging from a Lemelson-like desire to allow competitors to become more dependent on a patent before revealing its existence to more pedestrian concerns, such as a desire to control the forum in which litigation will occur. It is not entirely clear what the best solution is, but it is worth noting that many large companies have their patents held by a separate, nonpracticing company that has no assets other than intellectual property. See Brad Stone, Factory of the Future?, NEWSWEEK, Nov. 22, 2004, at 60 (noting that Microsoft, Intel, Sony, Nokia, and Apple have some of their patents held by a nonpracticing company called Intellectual Ventures).
184. There are many smaller firms that exploit particular technologies. E-Pass Technologies, for example, exists primarily to support the licensing of its patented smart-card product. See E-Pass Technologies, Inc., Corporate Information, http://www.e-pass.com/corporateinfo.htm ("The company is primarily organized to promote the sales and marketing of the e-pass smart card . . . .").
185. The disparaging and poorly reasoned discussion in the concurring opinion of Justice Kennedy in eBay Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837, 1842-43 (2006) (Kennedy, J., concurring), certainly has contributed to the high visibility of the issue as a policy matter and the simplistic pejorative use of the term "troll" to refer to the wide variety of entities discussed here. Justice Kennedy made a passing reference to what he saw as the suspect quality of business-method patents, supported only by a reference to an article making several arguments that business-method patents were unconstitutional, arguments that were strange to say the least. Id.
186. Acacia in particular has brought suits in several cases already relying on patents purchased from insolvent entities. See Jeff Sandford, Stream Media Faces Lawsuit Test, WEB HOSTING MONTHLY, Sept. 2003, at 13, 13-14 (discussing Acacia's acquisition of five patents for streaming media technologies and the company's expectation of a large payoff from suits to defend those patents). Because many of those entities are failed venture-backed start-ups, the activity affords a link through which assets in failed venture capital start-ups can be brought into the independent inventor channel. However, it is not clear that the availability of that channel is important to investment decisions.
187. See Altitude Capital Partners, http://www.altitadecp.com/team.html (providing the biographies of Altitude Capital employees).
188. See Brief of Rembrandt in eBay, supra note 126, at 1-2 (describing Rembrandt's activities).
189. E.g., Alison Frankel, Helping Underfunded Plaintiffs Lawyers - at a Price, LAW.COM, Feb. 13, 2006, http://www.law.com/jsp/article. jsp?id=1139565913200.
190. See Nathan Vardi, Patent Pirates, FORBES, May 7, 2007, at 44 (describing a private investment firm's investment in an exploitation intermediary solely for the purpose of receiving a percentage of the winnings in a pending patent lawsuit).
191. See Alan Cane, Trolls control the Rickety-Rackety Bridge of Intellectual Property, FIN. TIMES (London), Sept. 20, 2006, at 2 (noting that exploitation intermediaries are free to seek injunctions because they have no market share or business relations to lose).
192. Stone, supra note 135, at 60.
193. This discussion substantially oversimplifies the business model of Intellectual Ventures. A large part of the acquisition strategy of Intellectual Ventures is wholly unrelated to any reasonably foreseeable enforcement of the patents. Rather, it is designed to provide freedom to innovate in areas in which Intellectual Ventures hopes to be filing its own patent applications based on its own innovative activities. See id. (describing Intellectual Ventures' business plan).
194. See Mann, supra note 62, at 978 (noting that a basic problem for software firms at all stages is the sense that even with a patent it is often difficult for a firm to appropriate the value of its invention).
195. See id. at 1005 (describing IBM's historic market dominance).
196. See supra notes 5-8 and accompanying text.
197. See NAT'L RESEARCH COUNCIL OF THE NAT'L ACADS., A PATENT SYSTEM FOR THE 21ST CENTURY 87-94 (Stephen A. Merrill, Richard C. Levin & Mark B. Myers eds., 2004) (arguing that the obviousness test should be changed).
198. Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc., 126 S. Ct. 2921 (2006) (per curiam).
199. Brief of International Business Machines Corp. as Amicus Curiae in Support of Neither Party at 30, Metabolite, 126 S. Ct. 2921 (2006) (No. 04-607);
200. see also Supplemental Letter Brief of United States Patent and Trademark Office, In re Comiskey, No. 2006-1286 (Fed. Cir. filed Jan. 30, 2006) (arguing that business methods are not patentable under 35 U.S.C. § 101 (2000)). The patents at issue in IBMv. Amazon.com, Inc., No. 9:06 Civ. 242 (E.D. Tex. filed Oct. 23, 2006), and IBM v. Amazon.com, Inc., No. 6:06 Civ. 452 (E.D. Tex. filed Oct. 23, 2006) appear to be precisely the kind of "technical method" patents that would be upheld under the position IBM urged in Metabolite.
201. See FedCirc.us, Case Page for IBM v. Amazon, http://www.fedcirc.us/case-pages/ibm-v.-amazon.html. To be sure, some believe that "business methods" defines such an imprecise category that any effort to limit their patentability will be undermined by arbitrary line drawing and strategic gamesmanship by applicants.
202. See John R. Allison & Starling D. Hunter, On the Feasibility of Improving Patent Quality One Technology at a Time: The Case of Business Methods, 21 BERKELEY TECH. L.J. 729, 758-89 (2006) (discussing the insurmountable difficulties encountered in defining a "business method");
203. Jeffrey R. Kuester & Lawrence E. Thompson, Risks Associated with Restricting Business Method and E-Commerce Patents, 17 GA. ST. U. L. REV. 657, 675-79 (2001) (discussing proposed legislation that would have raised the bar for obtaining business-method patents).
204. See, e.g., John R. Allison & Mark A. Lemley, Empirical Evidence on the Validity of Litigated Patents, 26 AIPLA Q.J. 185, 206 (1998) ("[W]e cannot predict with confidence that patents in general are more likely to be held valid than invalid.");
205. Bhaven N. Sampat, Determinants of Patent Quality: An Empirical Analysis 3 (Sept. 2005) (unpublished manuscript), available at http://siepr. stanford.edu/programs/SST_Seminars/patentquality_new.pdf_1.pdf (finding that patent examiners are less likely to discover nonpatent prior art and foreign patents).
206. Empirical evidence reveals, however, that problems with patent quality are not localized-at least not in the case of software or software-implemented business methods. See, e.g., John R. Allison & Emerson H. Tiller, The Business Method Patent Myth, 13 BERKELEY TECH. L.J. 987, 1036-77 (finding that Internet-related business-method patents issued through December 31, 1999, were not of lower quality and value than the average patent and patents in most other technology areas);
207. Allison & Mann, supra note 7 (manuscript at 20-41) (finding evidence in a data set of 20,000 computer-industry patents that software patents vary greatly in quality and value, but as a whole appear to be of higher quality and value than nonsoftware patents issued to the same group of firms and of higher quality and value than the general population of patents);
208. Allison & Hunter, supra note 151, at 789 (arguing that problems with patent quality are systemic rather than localized and that reform efforts should focus on all subject matter areas);
209. Allison et al., supra note 130, at 448-64 (finding that patents in all areas of technology in the general population of patents are of apparently lower quality and value than those in all areas of technology that are litigated).
210. For details on the progress of that initiative, see The Peer to Patent Project: Community Patent Review, http://dotank.nyls.edu/communitypatent/.
211. U.S. PATENT AND TRADEMARK OFFICE, 2007-2012 STRATEGIC PLAN (2007), available at http://www.uspto.gov/web/offices/com/strat2007/stratplan2007-2012.pdf.
212. See, e.g., John P. Mello Jr., Patent Office Says Critics Wrong, Complete Review Provided, TECHNEWSWORLD, Apr. 12, 2005, http://www.technewsworld.com/story/42207.html (reporting criticism by IBM's vice president for intellectual property that the PTO is unable to expeditiously process applications or adequately review prior art).
213. The idea of gold-plated patents is that applicants who are willing to pay for a more thorough prior art search and more rigorous examination should receive a stronger presumption of validity for their patents than those who are not. Mark Lemley, et al., What to Do About Bad Patents?, REGULATION, Winter 2005-2006, at 10.
214. See, e.g., Brief of IBM in KSR, supra note 4, at 26-30 (proposing an alternative test for nonobviousness that would allow the PTO to reject more patents).
215. See Brief Amici Curiae of Martin Cooper et al. in Support of Respondent at 2, eBay Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006) (No. 05-130) ("[T]he right of exclusivity means nothing without injunctive relief."); Brief for Technology Patents & Licensing Inc. et al. as Amici Curiae Supporting Respondent at 30, eBay, 126 S. Ct. 1837 (No. 05-130) (urging the Court not to disturb "the general rule that, in the usual case, injunctive relief is appropriate where infringement and validity of a patent have been proved"); Brief of Amici Curiae Qualcomm Incorporated and Tessera, Inc. in Support of Respondent at 4, eBay, 126 S. Ct. 1837 (No. 05-130) ("The current patent injunction principles do not require any judicial adjustment."); Brief of Amicus Curiae Pharmaceutical Research and Manufacturers of America in Support of Respondent at 3, eBay, 126 S. Ct. 1837 (No. 05-130) ("Given the ease with which infringers can reverse engineer pharmaceutical products ... injunctive relief offers in many circumstances the only effective protection."); Brief of Rembrandt in eBay, supra note 126, at 1-3 (arguing that injunctive relief should remain available to "non-practicing entities" that invest in patents but do not practice them); Brief of Wisconsin Alumni Research Foundation et al. as Amici Curiae in Support of Respondent at 8, eBay, 126 S. Ct. 1837 (No. 05-130) (arguing that the Court should not change the rule that "a patentee's non-use of an invention does not bar the issuance of a permanent injunction"); Brief of United Inventors Association et al. in eBay, supra note 126, at 3 ("[T]his Court should reaffirm its precedents rejecting compulsory licensing and excluding non-use as a factor in granting patent injunctions.").
216. See Brief of Business Software Alliance in eBay, supra note 4, at 3 (arguing that district courts should apply traditional equitable factors in patent cases to determine whether injunctive relief is appropriate in a particular case); Brief of Research in Motion, Ltd. as Amicus Curiae in Support of Petitioners at 3, eBay, 126 S. Ct. 1837 (No. 05-130) [hereinafter Brief of Research in Motion in eBay] (" [I]njunctive relief ... is a discretionary remedy that may be accorded to patent owners only upon consideration of the equities of a particular case.").
217. See Brief of Business Software Alliance in eBay, supra note 4, at 23 (arguing that it would be difficult for a nonpracticing entity to demonstrate the irreparable harm necessary for injunctive relief); Brief of Research in Motion in eBay, supra note 160, at 14 (arguing that a patent assertion firm that "values its claim based solely on the damage it can inflict does not show irreparable harm").
218. See eBay, 126 S. Ct. at 1842 (Kennedy, J., concurring).
219. See, e.g., Candace Lombardi, Microsoft Tries to Lure 'Mom and Pop' Companies, CNET NEWS.COM, Oct. 30, 2006, http://news.com.com/ 2100-1012_3-6130582.html (describing Microsoft's Office Accounting Express 2007 as "an example of how Microsoft has been forced to change its business model as more software for small-business owners becomes freely available").