Software patent portfolios of companies gone up in smoke?

Last week in a land mark decision the US Appeals Court for the Federal Circuit decided that in most cases software processes are not patentable. This would mean that millions of dollars for many companies has gone up in smoke as for most software companies patented software processes account for up to 70% of their asset value. Wonder what this means for the valuations of companies like Google and Microsoft. (This is one of those decisions that has such far reaching implications that it most probably will be appealed to the Supreme Court).

Read more about the decision at - Federal Circuit Decides Software No Longer Patentable

Here are the highlights (excerpted from PLI.edu):

• The Federal Circuit rejected the that the "useful, concrete and tangible result" inquiry as being inadequate.

• Patentability under 101 does not depend on process steps, but rather requires a tangible machine or transformation into a different state.

• Software is once again un-patentable in the United States. 

• In order to protect what was formerly known as patentable software we will have to go back to claiming a machine that provides certain functionality.

• Software patents that have been issued under the previous understanding of the law are almost certainly now worthless.

Here is more information from a ZDNet article - http://blogs.zdnet.com/open-source/?p=3052

Pop some champagne! writes Groklaw. ” At issue was whether an abstract idea could be eligible for patent protection. The court says no.”

The authors at PatentlyO do not think this eliminates well-written software patents.

I agree that in many cases software patents are absurd. Here are some examples:

• Jeff Bezos patented his one-click ordering system and took Barnes and Knobles to court so as to make them deliberately complicate their ordering process.
• Even before GPS devices became ubiquitous, a company patented the idea of a GPS based alarm that would go off once you were close to a certain location.
• Dell and Compaq have been sued for transmitting data over a communications line as it was patented by Multi-Tech systems.
• Unisys patent for the LZW algorithm made the GIF format inaccessible to many companies. The PNG format was created as an alternative to GIF file format. Many image libraries started supporting GIF format only after the patent expired.

In software engineering it is very common to take ideas from a different domain (such as biology – evolution and genetic mutation for example) and convert it into an algorithm that can be used in other domains (Genetic algorithms in this case). In my opinion, such reapplication of ideas definitely should not be patentable.

Here are 2 articles from Fortune.CNN.com. One is about the ruling Did big patent ruling doom software patents, and the other is about software patents Ending Software Patents: Has the time come?

Finally, here is an open letter that Dr. Donald Knuth wrote to the patent office where he argues against software patents. http://www.scribd.com/doc/29707/Letter-to-the-Patent-Office-From-Donald-Knuth (For those of you who dont know – Dr. Knuth wrote one of the most important books on software programming - “The Art of Computer Programming” and he is a professor at Stanford).