CEOs of big telcos sign letter against Europarl Amendments

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The Text

Minister Rocco Buttiglione, Competitiveness Council Commissioners Frederik Bolkestein and Erkki Liikanen, European Commission

November 07, 2003

Dear Minister and Commissioners,

Re: Proposed Directive on the Patentability of Computer-Implemented Inventions (CIIs)

As chief executive officers of five of Europe's leading telecommunications and consumer electronics companies, we write to express our deepest concerns about the amendments recently adopted by the European Parliament to the Commission's proposed Directive on Patentability of Computer-Implemented Inventions (CIIs), commonly known as the Software Patents Directive.

It may be worth noting that the abbreviation "CII" is not used in the original directive title. The corporate patent lawyer who wrote this (Tim Frain from Nokia?) seems very eager to use every appropriate and inappropriate opportunity to launch "CII" as an abbreviation for replacing the colloquial term "software patents". It is clear that this is a patent lawyer wording, not a wording of CEOs of telecommunication companies. More on the campaign around the term "computer-implemented inventions", which was started at the EPO in May 2000, is found in the documentation What is a Computer-Implemented Invention?.

Collectively, our companies invest Euros 15 billion per annum in R&D. In some fields as much as 90% of these investments are in CIIs as defined in the directive proposal.

The R&D investements of the undersingned companies are concentrated on the development and deployment of telecommunication machinery and solutions. About 5-10% of this money^[1] is spent on patent acuisition. The development of new computing ideas, as expressed in the patents owned by these companies, accounts for far less than that, probably below 1% of their expenses. Patents are moreover only one of several forms of formal and informal ways in which these companies protect their investments.

Details about the patent portfolio and typical software patents of the companies in question can be found at

Having a stable and reliable patent system in place is vital to protect R&D investment and to encourage future innovation in Europe.

This may be the case for the pharma industry. As far as the subject matter of the directive is concerned, it contradicts all common knowledge and evidence gathered from economic studies so far.

The original aim of the directive was (1) to harmonise the law in Europe, and (2) stop the drift towards the US approach of patenting pure business methods and non-technical software, while (3) safeguarding interoperability. We firmly support all these aims.

The European Commission indeed claimed that these were the aims of its directive proposal, but upon a closer look, the proposal achieved none of these aims. Instead it achieved other unnamed aims, such as unlimited patentability of "computer-implemented business methods" and absolute priority of such patents over any interoperability considerations. The patent departments of the companies undersigned under this letter were major supporters of these real aims. One should judge the tree by its fruits.

The directive was also intended to maintain and codify the status quo in Europe based on current best practice, which has enabled open source software business models to flourish alongside patents, while also protecting the interests of small software developers and SMEs generally. We firmly support these aims as well.

By "status quo in Europe based on current best practise", the bosses are referring to a practise of the European Patent Office which is not significantly different from that of the USPTO. If there was anything that protected small businesses in Europe, then it was the legal uncertainty which results from the fact that this "best practise" is at odds with the written law.

As a report by the French State Planning Commission (Commissariat du Plan) of 2002 says:

Only the armistice which is currently prevailing, precisely due to the legal uncertainty around the notion of software patent, explains in effect that the existing patents are not more frequently used.

The stated aim of the directive proposal advocated by the European Commission and the undersigned CEOs was precisely to remove this "legal uncertainty" which has been "protecting the interests of small software developers and SMEs generally".

However, the vote in Parliament on 24 September 2003 has completely turned the Commission's original proposal around, removing effective patent protection for much and in the case of telecommunications and consumer electronics, probably most - of our R&D investment. This would have devastating consequences for our companies. It would be open for all-comers to exploit the results of our expensive R&D programmes at no cost, and even without any R&D overheads of their own. This is contrary to what was stated at the Lisbon European Council, namely that "innovation and ideas must be adequately rewarded within the new knowledge-based economy, particularly through patent protection".

This bold statement contradicts all common knowledge about the economics of software development in the telecom field as in other fields.

Anyone who wants to compete with one of the undersigned companies would have to incur huge costs. Imitating and reimplementing software itself is an extremely costly process, especially when, as is regularly the case, the software is available only in binary form and copyright has to be observed.

see Statement of Robert Barr, IPR department of CISCO

The loss of effective patent protection would put our companies at a competitive disadvantage in the short term, and in the longer term reduce the incentive for further investment in R&D in Europe. Overall there will be less software-related innovation in Europe, and ultimately Europe is unlikely to meet the Lisbon goal of becoming the "most competitive and dynamic, knowledge-based economy in the world".

This unreasoned assertion contradicts the common sense of software developpers, including about more than 500 employees of the undersigned companies who have signed the NoEPatents Petition. From conversations with managers at some of the undersigned companies (and from testimonies such as the one of Robert Barr from Cisco, see above) we know that patents are widely perceived to be a brake on innovation even at big telcomunication and electronics companies.

Parliament's amendments suggest that Europe is ready to fly in the face of international obligations under the TRIPS Agreement.

This again is a well-documented lie.

See The TRIPs Treaty and Software Patents

Furthermore they would change the legal climate in Europe so suddenly, dramatically and unexpectedly, that they already send a message to the rest of the world that one of the legal cornerstones necessary for attaining a viable European Information Society is unstable, unpredictable, and unreliable.

While the patent system may be a corner stone of a viable pharma industry, no serious economic study has ever claimed that it is beneficial, let alone indispensable, for the information society. Rather, the information society needs a stable, predictable and reliable reassurance that everyone is free to create and publish his own copyrighted works and to interoperate with other systems. The Parliament's amendments provide precisely this reassurance.

We therefore believe the Council and the Commission need to take appropriate measures affirmatively to redress the current situation by sending a strong counter-signal that the law in Europe will not be changed suddenly and dramatically, and confirming that Europe will not ignore or flout international obligations.

In other words the bosses of 5 large companies are calling on administration officials to take legislative decisions against the European Patent Convention and against the EU's only democratically elected legislative body.

The Directive as amended by Parliament will deal a severe, perhaps fatal, blow to our shared aspirations declared at the Lisbon Summit for Europe to become the most competitive knowledge based economy in the world.

The current legal framework for CIIs in Europe is serving all stakeholders well. We do not want to see any sudden or dramatic reduction in the scope of what is patentable. If a solution cannot be found which codifies the status quo, it would be better to have no directive at all than a directive which does untold damage to European industry.

Sincerely,

These concluding remarks show that the support of the signators for the professed goals of "harmonisation" and "clarification" are indeed of minor importance.

The CEOs of the five companies have allowed themselves to be abused by their patent departments. These patent departments have been producing thousands of broad and trivial patents on methods of organisation and calculation every year, and they want a directive that makes these patents enforcable. If they do not get such a directive, they prefer to have an unclear situation (where their patents can at least continue to be collected for corporate accounting and tax evasion).

Some of the undersigned CEOs like to present themselves as leaders with a scientific mind and and a sense of social responsibility. Quoting this letter may "deal a severe, perhaps fatal, blow" to that aspiration.

Annotated Links

telcoceos031107.pdf
PDF version derived from the original msword document which contained traces hinting to (someone at) Nokia as the author.
EICTA calls on Commission, Council to Kill Parliament Vote: The Eicta press release was largely copy&pasted from this "CEO letter". It was explained to the press by Tim Frain, patent chief of Nokia. Its contents also reflect Frain's personal style.
Kai Brandt 2003: Patent Protection in Europe in Danger: In an internal journal of Siemens, Dr. Kai Brandt, an independent patent attorney residing in Munich and member of the Siemens patent department, writes that the European Parliament voted to ban patenting of all innovative industrial processes that make use of software, that there is no R&D without patents, that the European Commission's original proposal was well balanced, that the EP voted for amendments because it was misled to believe that patents and opensource software are incompatible, and that Siemens boss Heinrich von Pierer has teamed up with other CEOs and associations to prevent this disaster, which is only in the interest of a few software distributors and against the interests of all innovative SMEs. Brandt fails to give his audience any usable pointers that could allow them to inform themselves about the other side's arguments.
Reuters echoing the telcos FUD: An article by Reuters News Agency which reports about the letter of the 5 CEOs and adds some comments by a leading employee of Ericsson who is worried that since the use of computers is progressing hand making "inventing" very easy, what formerly was a patentable invention no longer be so in the future. But without patent protection, Ericsson would go broke and therefore Ericsson would have to move out of Sweden. Note that Ericsson is already under obligation to move out of Sweden, because swedish voters didn't heed their CEO's threats when voting to stay out of the euro zone for another few years.
Business Week on European Parliament's vote: leftists erasing billions in intellectual property: An editorial of the US magazine BusinessWeek reports that a group of "left-leaning politicians" and "open-source advocates" by "last-minute lobbying" "upended" a directive proposal in such a way that it actually "bans software patents", thereby creating an "industry-specific exemption" which violates the TRIPs treaty amd "erases billions in intellectual property granted by the EPO". The author gives Europe a lot of advice, demanding that Europe should set an example by finding a formula that "spurs innovation while safeguarding intellectual property". The article contains various contradictions and false assertions. Jim Bessen (innovation economics researcher at MIT) and others have written letters to the editor.
Reactions to the EU Parliament's Vote of 2003/09/24: Frits Bolkestein, Malcolm Harbour and other politicians have joined in a choir of patent lawyers who are saying that "the European Parliament ruined its chances of democratic participation" by failing to vote as the patent establishment had asked it to vote. Preparations are under way to withdraw the directive and legalise software patents by means of an agreement between national patent officials, who are used to deciding patent policies among themselves.
Nokia and Software Patents: Tim Frain, head of Nokia's patent department, is a "permanent resident" of the European parliament and has used every opportunity to ask politicians in Brussels and in Finland to support the European Commission's software patentability directive. He is present at conferences everywhere. He argues that small companies badly need software patents because otherwise their ideas might be stolen by large companies. Interestingly, most of the software which Nokia uses in its mobile phones is written by Opera, a relatively small (120 employees) company which has actively supported the Eurolinux campaign against software patents. Frain's department is one of the most active producers of software patents in Europe. Here you find an overview of their applications at the European Patent Office.
Ericsson and Software Patents: A report by the Swedish telecommunication giant Ericsson estimated in 2001 that "Like other companies operating in the telecommunications industry, because our products comprise complex technology, we experience litigation regarding patent and other intellectual property rights. Third parties have asserted, and in the future may assert, claims against us alleging that we infringe their intellectual property rights. If we do not succeed in any such litigation, we could be required to expend significant resources to pay damages, develop non-infringing technology or to obtain licenses to the technology which is the subject of such litigation. However, we cannot be certain that any such licenses, if available at all, will be available to us on commercially reasonable terms." Ericsson is currently (2003) facing software patent infringment charges in a US court where the plaintiff is demanding 1 billion USD in damages. The patent activities of the swedish telecommunication giant Ericsson are cited in MEP Arlene McCarthy's software patentability directive proposal as a reason for legalising software patents in Europe. Here we take a close look at the software patent applications of Ericsson at the European Patent Office. Although Ericsson's patent portfolio is gigantic, we cannot find the "1000 patents per year" which McCarthy talks about, nor does it seem likely that Ericsson's R&D is dependent on the availability of software patents. The Ericsson paper itself writes: "We rely upon a combination of trade secrets, confidentiality policies, nondisclosure and other contractual arrangements, and patent, copyright and trademark laws to protect our intellectual property rights...". In order to defent itself against litigation threats and earn itself the freedom to develop products, Ericsson it is patenting masses of ideas and concepts which any normal engineer or software developper would hardly consider as "inventions".
Alcatel and Software Patents: In 2002, the french telecom giant published a paper which complains in harsh words about negative effects of patents such as legal insecurity and diversion of funds from R&D to litigation. On the other hand, Alcatel, as a global telecom player, owns a large software patent portfolio, and Alcatel's patent department is actively lobbying politicians to assure that Alcatel's patenting efforts will pay off in Europe in the same way as in the US. Jonas Heitto, Alcatel patent lawyer trained at MPI in Munich, seems to be present at every related meeting in Brussels and some national capitals. He is not the only one. Alcatel participated in the European Commission's "Consultation Exercise" of 2000 in its own name as well as in the name of IT associations such as ANIEL from Spain. Alcatel has recently been pursuing a strategy "fabless company", i.e. outsource as much production as possible to partners in countries where production is cheap (e.g. China) while keeping a lean headquarter (financial and legal services and some R&D) in France and/or the Bahamas/Bermudas, depending on where taxes are lower. Patents are said to be helpful in implementing this strategy and in transferring money to tax havens. In the rationale for her software patentability directive proposal, MEP Arlene McCarthy cites Alcatel as an example and stresses that patents are needed to protect European businesses at a time where production costs are high here. Here we try to take a closer look at Alcatel's patent-related strategies and in particular their software patent applications at the European Patent Office. Most of Alcatel's developments are in the area of software, and recently Alcatel is more than ever focussing on "next generation Internet" communication standards and applications.
Siemens and Software Patents: Siemens has always been at the forefront of the patent movement. Yet, even those Siemens patent cadres who most actively promote software patentability within industrial and governmental organisations do not try to argue that this is beneficial, either for Siemens or for the world. They merely say that Europe has to follow the lead of the US, which sets the standards in the global market. Meanwhile, many Siemens managers in IT and telecommunications believe that patents are putting brakes on their activities and doing substantial harm to the industry.
Philips and Software Patents: The dutch electronics giant grew big in the early 20th century when Holland had abolished patent law. Historians say that Philips owes its growth to the absence of patents in Holland at that time. Nowadays Philips is one of the largest European software patent applicants at the European Patent Office (EPO), and the patent department of Philips is pressing heavily to have software patents legalised. They say that Philps is earning more than 1 bn eur from "IPR licenses". This figure probably consists mostly of hardware patents and even copyright licenses. Statements of Philips patent lawyers at the European Commission's consultation show that their thinking is shaped by the consensus of the patent lawyer community rather than by specific interests of Philips, and it is difficult to know to what degree the managment of Philips is interested in questions of patent law at all. Yet some smaller companies that have Philips as a customer are afraid of publicly voicing concern about software patents.


Software Patents > Journal > History > News of 2003 > Nokia & Co 03/11/07
News of 2003	Nokia & Co 03/11/07	AT&T 03/11/21	EICTA 03/11/27	UK Libdem Youth demands strong position against software patents	bswk1216	Intel 03/12/11	WIPO 03/11/04

CEOs of big telcos sign letter against Europarl Amendments

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