European patent law may hurt small companies, critics say

Increased litigation and licensing costs might drive European open source software developers and small IT companies out of business if the European Union (E.U.) approves legislation to allow the patenting of software, according to participants at a conference in Brussels on Tuesday.

“We are very afraid of litigation costs,” said Jean-Paul Smets-Solanes, a conference speaker and chief executive officer of software development company Nexedi SARL, based in Marcq-en-Baroeul, France.

The Foundation for a Free Information Infrastructure and Green Party members of the European Parliament, among other groups, organized the conference.

If the E.U. software directive is approved, Smets-Solanes said, innovative companies could be forced out of business by the need to pay licensing fees to avoid infringing patent rights. Big vendors can buy patents related to new technology and use them to threaten legal action and block the sale of new products, he said.

“If we are trying to push our products, there are 10,000 patents out there which any large company can buy and could come and see us and say, ‘Give us your patent, we don’t want you to sell (your new product) because we want to include it on our server,’ ” he said.

Smets-Solanes warned that in the future, running a software firm might not be a “worthwhile business.”

Open source software pioneer Bruce Perens predicted even grimmer times for small companies.

“An increased regime of patent protection spells doom for small and medium-sized enterprises engaged in software development in Europe,” he told IDG News Service.

Perens warned that tough patent protection would discriminate against smaller companies in favour of larger ones, because big companies would be able to acquire large holdings of patents and charge other developers for using them. Big vendors also engage in “portfolio bargaining,” in which they swap patents, he said.

“Larger companies can ignore each others’ patents and can engage profitably in software development for which smaller companies have to pay licensing fees,” he warned.

Looking further out, Perens predicted that once Europe instigated a tougher patent protection regime, there would be a wave of litigation worldwide.

“Large patent holders have held off in enforcement until they have patent protection in all major jurisdictions,” he said. What would follow would be a “tremendous shakeout in the software industry,” he predicted.

Contrary to what most large companies say, strict patent protection regimes do not boost innovation, said Jim Bessen, director of innovation research at Boston University School of Law. Companies tend to acquire patent portfolios to “block competitors and have a bargaining chip,” which allows them to “impose an innovation tax” on their rivals.

However, efforts to reject a version of the new patent directive agreed by the member states in the Council of Ministers in May are cause for optimism, some convention speakers said.

There is only a “razor thin majority” in favour of the Council text, according to Florian M

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