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Software Patents in Europe

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Software patents harm banks

7 February 2005

"Basel II is a round of deliberations by central bankers from around the world, under the auspices of the International Bank of Settlements in Basel, Switzerland, aimed at producing uniformity in the way banks and banking regulators approach risk management across national borders." Mr Nout Wellink is the Chairman of the Board of Directors and President of the International Bank Settlements.

Dear Mr. Wellink,

in our open letter to the head of the Allianz insurance group, Mr. Diekmann, we explained how software patents are likely to become a massive cost and risk factor for all money and information technology intensive businesses like insurance companies. The same holds true for banks.

Software patents establish monopolies on abstract ideas which are available to anyone, including those who do no software development but do have legal departments. Like all larger software projects, all parts of Basel II consist of a multitude of ideas, each of which may become subject to a monopoly by anyone. If you for instance check the database of the US Patent and Trademark Office (USPTO), you will already discover 180 patents on software ideas concerning "credit risk" -- the central issue of Basel II.

There is no compulsory licensing for any of these, the particular patent holder gets to determine the terms on which they will grant or deny use of the monopoly on each individual idea.

But the implementations of Basel II will naturally also depend upon a multitude of standard components, such as file services, databases, transfer protocols and more. Each of these is similarly subject to software patents. Since the number of methods to secure computer systems is limited, this may mean that Basel II will have to implement its features on a known insecure basis.

Once Basel II becomes widely used, a dramatic increase in software patent infringement lawsuits for this area is likely to occur on a global basis. Any bank or any of its customers for Basel II based software may become target of such legal action -- the risk is incalculable and can bring about multi-billion Euro lawsuits.

Most banks are still unaware of this threat -- they have not realized that software patents will affect them to such an extent. When we were recently talking to a German bank, they were shocked when they realized what software patents will mean to their business.

Software patents will dramatically reduce the innovation rate and competitiveness of European economy in general, and to you they mean introducing an incalculable risk that can generate huge damages.

That is why we ask you to protect your interests and take initiatives against software patents -- directly and by supporting our work. Also, should you have further questions, please do not hesitate to get in touch.

Best regards,

Georg Greve
Free Software Foundation Europe (FSFE)