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So, *Now* How Do You Feel About Software Patents?
Thursday, February 24 2005 @ 01:00 AM EST

If this story doesn't get you to view software patents with fear and loathing, I give up.

Europe, are you watching? has the jaw-dropping story about European futures exchanges, brokers and traders preparing for patent infringement claims from Trading Technologies, a US software company, natch, located in Chicago -- where else? -- which has hit on what it appears to view as a pot of gold for itself by obtaining two patents on its MD Trader software product in August of 2004, patents it is now aggressively enforcing. It settled [PDF] two patent infringement cases [PDF] already, under circumstances some are questioning, for some licensing dough, and it is currently suing eSpeed, the electronic arm of Cantor Fitzgerald. eSpeed just had one of its patents ruled invalid in a patent infringement lawsuit it brought in July of 2003, after getting the patent in May, so it's been playing the patent game too. Game? It's like musical chairs. You may also recall eSpeed's Wagner patent. And they say *Linux* needs to grow up.

TT has suggested to the four main futures exchanges –- two in Chicago and two in Europe, Euronext.Liffe and Eurex –- that they should cross its palm with silver to keep it from launching patent infringement lawsuits against them.

Here's what it would like or else: 2 1/2 cents for each side of a trade, which would amount to revenue of about $130 million annually. Note that would be an eternal toll, as opposed to the limited term that patent licenses could be sold. What's the Or Else? If it doesn't get its 2 1/2 cents, the company said in an Open Letter [PDF] in the Wall St. Journal and the Financial Times "it would instead raise the price of its software and step up its litigation programme. But it also said it might accept a takeover offer if the right offer emerged." I recommend that you read their open letter in its entirety, to get a taste of their reasoning. Here's how TT phrased the offer they hope the exchanges can't refuse:

The solution that TT has offered to each of the ‘big four’ exchanges is as follows:

• TT and the participating exchange (PE) would guarantee each other level access, permanently.

• Inside the world of PE futures and future options (this includes traders, customers, FCMs, ISVs, exchanges, etc.), TT would forfeit the right to be the aggressor in any patent infringement lawsuit, permanently; in that way allowing absolutely anyone to use TT’s current and future patent protected concepts any way they desire.

• TT would receive from PE 2.5 cents per side for every PE future and future option transaction, permanently. We believe this 2.5 cent solution is in the best interest of the futures industry.

How's that for encouraging inventions and scientific progress, as patents are purported to do? Actually, it appears it is encouraging the reverse:

"In London this week, lawyers from Clifford Chance briefed a roomful of traders and other futures industry participants on the state of affairs and what they might need to do to defend themselves.

"Vanessa Marsland, a Clifford Chance partner in the intellectual property practice, said: 'In the US, patent damages can be substantial.'

"She added: 'Independent software vendors may have to reconsider the way they do business, and in particular the way they roll out new software to customers.'”

Here's the logic disjoint: patents are a monopoly grant for a term of years. Monopolies don't tend to lead to innovation. Remember Lily Tomlin's Ernestine? "We don't care. We don't have to. We're the phone company."

TT has 80 patents in the pipeline around the world. It just got two [PDF] in the UK, by the way. So much for no software patents across the Atlantic. And would you like to see TT's threat in its baldest form? Here ya go, from their extraordinary Open Letter:

"We believe in capitalism and what it does for the world. Over the past several years, TT's innovations have been a driving force in helping create tremendous profitability for the futures industry. Yet, some in the industry still connect TT's value to our $50 million revenue and $6 million profit, ignoring the fact that TT's business plan to this point has not included maximizing profit. This is letting the trees get in the way of the forest. First, we believe that the futures industry will embrace the 2.5 cent solution. Failing that, it seems inevitable that, once thoroughly educated about TT's value, at least one well-capitalized entity in all of financial services, etc., will offer an acceptable price for TT. Failling both of those opportunities, we control our own destiny. Whenever we desire, TT, as a standalone company, could raise the price of the patent-protected portion of our software and immediately have enormous cash-flow. This would be a last resort, but we would go this route if forced to. . . .

"Every day, exposure and damages have been accumulating. Ultimately, TT should be in a position to collect triple damages for willful infringement. . . . TT believes there is a lot of exposure floating around out there. While we are tied up during the eSpeed litigation, we may not be able to pursue other infringers. However, regardless of when we are freed up, we will enforce our rights, including the right to recover back damages."

What? You thought Darl was the only one who talks like that? They go on most charmingly to say that their software, they believe, is "an end to a process, meaning that there is no way to equal or better the function that it performs." From their Patent Q&A [PDF]:

"While TT cannot comment specifically on what it intends to do with its patents (that is a legal matter), TT can comment generally about patents. If there is an invention covered by a patent, anyone who makes, sells, or uses the patented invention is an infringer and is liable for damages dating back to the issuance of the patent. The amount of damages owed by an infringer is at a minimum based on the value provided to that infringer by the invention. Also, anyone who knowingly or willfully infringes a patent can be liable for triple damages dating back to the issuance of the patent and possibly attorney’s fees. You should check these patent rules, if you are interested, with an independent patent attorney."

They also say that they are "confident that the court system will protect our patented innovation", and sadly, they may be right about that. The way to fix that is to change the law, so patent holdups are no longer possible. Think it over.

So, now how do you feel about our patent laws?

Meanwhile, the patents commons for FOSS software has been enlarged. Computer Associates, under new leadership (John Swainson, an ex-IBM guy) has announced that they will submit some of their patents to open source developers, a la IBM, and they said they will use their patents to defend against any legal action directed at open source products. "Although CA is not known for generating patents, the company has been around for 29 years and has a substantial number of them," the article on ZDNET says.

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