It is a litigant’s nightmare and a lawyers dream to try to sue anyone in a European court for a patent infringement, and now US company Rovi is learning this. Every country where you issue a suit has slightly different laws and successive attempts to align patent law across Europe have foundered, partly because the US wants to have a say in just how that reform takes place.
Rovi has just lost a UK High Court case against Virgin Media for the use of its three core patents, the court agreeing that the technology was used without license, but concluding that because they were essentially software inventions they were not valid under UK law.
There is currently being no such thing as a European Patent, despite there being a well established European Patent Office, there are instead different patents, obeying slightly differing laws, in different countries. However on the subject of what is patentable and what is not, there is more or less full agreement in Europe, except that software and business models are not.
Back in July 2005 the European Commission tried to introduce a single unified directive for creating separate patent laws in European countries that would allow software and business models to be patented. This was in line with US laws and it was thrown out by a vote in the European parliament. This was a massive mistake by the European Commission, instead of changing the criteria of what was patentable, it should first have set about simply setting up a central register for patents, which were enforceable.
American companies like Rovi still believe that it is fine to file a software patent with the European Patent Office, simply because it will accept them, when no single statute book in Europe will defend them.
This is why this week we have Rovi (the merger of Gemstar and Macrovision) pledging to fight on in a case against Virgin, when it has already been heard in the UK High Court and there is no appeal court short of the House of Lords. In other words it can’t fight on, apart from asking the Law Lords to sit and potentially change the law or at least its accepted interpretation and we doubt very much that this can happen.
The legal action found that the three patents which protect the Gemstar EPG relate to displaying information in a self aligning grid; selecting some channels as favorites and using the EPG to make a recording, and these were all dismissed by the High Court Judge as all relating to software, and we can see, clear as day, that drawing grids and listing favorites using the grids, are all simple software decisions.
What underlie the Gemstar patents are other things like how components inside a DVR know when a program starts and ends, and a raft of other techniques and we’re pretty sure that something which Gemstar has created among its 4,200 patents are NOT software under UK law, but the basic platform that it decided to take to court, its most basic EPG patents, are quite simply not defensible in UK law.
If the European Parliament HAD agreed in 2005 to grant the changes that the European Commission wanted to the European Patent Directive, it would have meant a dramatic change to patents over here. First off software and business models would automatically be defensible, but also you could file in one place for all of Europe and also sue in one place and it would count across the rest of Europe. That is not yet true nor likely to be true for some time.
If you take a look at the European Patent Office web site, you will see that this week it has filed documents about amendments to the process of how you file a patent, which are supposed to come into force in April 2010. But this is simply reforming the way in which European Patent Office filings are made. It doesn’t mean that EPO filings have any more force in law than they ever did.
Sure, gradually, over perhaps a ten year period, the process in Europe is supposed to move this way. The EPO will be the sole filing site, it will be the only place to file a complaint, and it will rely on laws across Europe which are broadly identical. But that’s not ever going to be in place until a number of issues are resolved, and that includes halting the filing of software and business models, and it must become far simpler and cheaper to file a patent, and during its first year or so also cheaper to argue that it is either obvious or that it is the same as prior art.
Otherwise it is obvious what would happen. Large corporations, be they American, Chinese or European, would find that smaller companies are unprepared to take on the costs of patent filings and patent legal defense, and they would steal their ideas and file them as patents. Result, companies which invented ideas would have to pay someone who copied them a royalty.
That’s the big fear behind the European Parliament revoking legislation that the European Commission placed before it.
Usually the European Parliament just rubber stamps directives that force new laws on European Union members, but this legislation raised everyone’s hackles because it would have inevitably led to more patent litigation in Europe, with the fear that the patent engines of all the major corporations would have gobbled up all the ‘obvious’ business model ideas and charged every smaller business a royalty to conduct existing business, something that happens routinely in the US.
The European Patent Office is known to be in favor of software patents and has already adopted the fundamentals proposed by the failed directive for years and has issued patents involving software, none of which are at all defensible in European law. Last year alone it had 147,000 patents filed (not issued) and the year before 141,000. Over 25% of these patent filings are from US companies, and over half from countries outside of Europe. The EPO granted 60,000 patents last year, and the average time to have a patent granted as 43 months. All for a protection that is now highly questionable.
The European Patent Agreement has spent a period of almost three years in a re-wording process and will re-emerge in front of the European Parliament at some unspecified time in the future ‘ almost certainly to be shot down again on the same principles.
The rewording will focus on ensuring that patent costs won’t go up or hurt small businesses and is unlikely to let software or business model patents in by the back door. Also there will be changes to ensure democratic control, meaning that a system of bureaucracy shouldn’t emerge in patents where no elected official can challenge the interpretation of any given process.
But at the same time the US patent law has been under scrutiny since 2007 and it is due shortly to borrow from other patent laws around the world and switch from the significant date being the date of filing, not the date of invention, so often difficult to prove, and another reason for all the US litigation.
One of the reasons that US patents are so often awarded when they are clearly based on prior art is that there is no place to go and check the bulk of non-US patent’s prior art. A strong EPO will one day lead to this, but right now patents are often issued in the US for inventions that are already being used elsewhere in the world.
It is this new piece of US legislation which is likely to form the basis of any international effort to reform patents, but there is no sign of when it will emerge into public scrutiny. Its aims are very different from the European Commission’s, instead focusing on making US litigation more straightforward in patents, not to protect the smaller inventor.
Meanwhile the effect on Gemstar’s future in Europe is likely to be immediate and it lost 3% off its stock price on the day the suit’s failure was declared. But when some US analysts have time to look deeper they will see that there is practically no reason why all pay TV operators such as those owned in Europe by News Corp and by Liberty Global, should continue to pay EPG license fees to Gemstar. Further, all the equipment suppliers that provide set tops and TV sets and IPTV middleware, will also have no reason to pay Gemstar anything at all where their products are delivered in Europe. Mass renegotiations for global agreements will ensue, as they become due.
The big future EPG goldmine of course was going to be when the mobile industry suddenly began to pay patents to Gemstar, as handsets and Netbooks began to dominate entertainment services. That pay day is now highly suspect, and the simple fact that the creation of a European infrastructure for patents which is sympathetic to companies like Rovi, may take longer to build than the 10 year life that many Rovi designs have left in them as active patents.
“While we are pleased that the court found all of the patents to be infringed by Virgin, we strongly disagree with the court’s ruling on the validity issues, and intend to appeal the decision. We also intend to continue to pursue Virgin and other unlicensed companies for their infringement of our intellectual property, to join the numerous companies who have already taken licenses to our patents issued throughout the world,” said Samir Armaly, SVP of Worldwide Patent Licensing for Rovi.
This is a pretty hollow threat in the light of the setback, and we would expect a complete re-evaluation of the company’s worth to result from a better understanding of how much royalty revenue is at risk here. Our own guess is that it’s not a huge percentage of Rovi’s current royalty, but that it is a huge percentage of what analysts had as future potential for the company, and that this can now be discounted.
Meanwhile this week the European Telecommunications Standards Institute and the European Patent Office have signed a Memorandum of Understanding confirming their commitment to work together on patents, sharing knowledge, information and documentation on technology and standards, to improve the transparency of which patents are getting a boost, and to what extent, when a standard is set in concrete. ETSI rules now make it tough on companies failing to declare their patent interests when offering technology for a standard.