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Software Patents in Europe[ Introduction | Background | Status | Further Reading ]
Software patents putting International Financial Report Standards (IFRS) in danger
5 April 2005
The European Information & Communications Technology Industry Association (EICTA) combines 32 national ICT/CE associations from 24 European countries with 48 direct company members. EICTA altogether represents more than 10.000 enterprises in Europe with more than 2 million employees and revenues of over 200 billion. The Association heavily supports the monopolisation of software ideas. Mr Provoost is president of EICTA and represents Philips Consumer Electronics as Senior Vice President and Chief Executive Officer.
Dear Mr. Provoost,
The European Council and European Commission are pushing for the introduction of software patents in Europe to such an extent and in such ways that they raise justified doubts in the democratic roots of Europe.
Your association, the European Information & Communications Technology Industry Association (EICTA) has strongly supported this agenda in the past. In the discussion, you raised the argument that "We must be allowed to protect out innovations."
This statement we fully agree with. However, if you believe that software patents help protect innovation, it seems you were being misinformed, as the role of software patents is not to protect, but to prevent innovation. Bill Gates pointed this out in an internal Microsoft memo in 1991:
"If people had understood how patents would be granted when most of today's ideas were invented and had taken out patents, the industry would be at a complete stand-still today."
He said this because he understood that patents on software inevitably are monopolies on abstract logic and ideas.
If Pythagoras was to come up with his theorem today, in a software patent regime he would clearly be entitled to get a monopoly on it. Pythagoras could then arbitrarily select the conditions under which others could make use of or build upon his idea.
Software usually embodies literally thousands of abstract ideas. Under a software patent regime, each of these could be turned into a monopoly and would constitute a no-go zone for competitors. That is why Bill Gates also said:
"A future start-up with no patents of its own will be forced to pay whatever price the giants choose to impose. That price might be high: Established companies have an interest in excluding future competitors."
In other words: software patents are an anti-competitive tool that serves to raise the burden on innovation. The height of that barrier is flexible and can easily be raised to trip established companies, such as Philips, and innovative newcomers alike.
In previous letters we have explained how software patents cost jobs and economic power in Europe. Today we would like to inform you how they pose a threat to the International Financial Reporting Standards (IFRS)  as all the ideas used in these standards will be implemented in software and would therefore be patentable. This will affect all European companies as the IFRS rules have been mandatory to all listed companies in the European Union since 2002.
If you check the US Patent and Trademark Office (USPTO) database, you will find that there are already hundreds of patents on software ideas concerning expressions like "account" or "financial report". One of them protects a system "for financial planning and advice" . That particular patent is held by American Express Financial Corporation (Amex) - a company which we know better for its credit cards than its innovative software.
After establishing a legal basis for software patents in Europe, Amex might arbitrarily choose to determine which software company is allowed to implement the IFRS or similar standards.
This of course assumes that none of Amex' competitors has an interest in blocking such development and uses their patent on another necessary idea to stop the development. But even if no one does: As all systems have many components in common and the number of methods to make computer systems secure is limited, any such software would always be less secure in a software patent regime.
People in Europe often seem to look to the United States for economic advice. This time, the CEO of Computer Associates, John Swainson, has made the message remarkably clear: Europe should not introduce software patents. 
Copyright provides a very efficient protection for computer software, but in order for Copyright to protect your innovation, you first need to have an innovation. That is why we hope EICTA will stand up and oppose software patents because: "We must be allowed to innovate."
With kind regards,