Michelle Mao is an incoming 2L student at Osgoode Hall Law School and an IPilogue writer.

The IP principle that abstract ideas cannot be patented has often been misapplied to the development of software, often boiling down to concluding software to be unpatentable. However, which parts of software are patentable, and which parts are not? The short answer is that while lines of code are not patentable, software can be patentable if it is useful and can be susceptible to commercialization.

�䲹�Բ��岹’s and the (“MOPOP”) both ��guide the (“CIPO”) in issuing patents. Applicants must meet certain requirements for a software patent to be issued. . First, several of patentability must be met, including novelty, non-obviousness, and being of a patentable subject matter. Second, additional criteria often apply to software-related inventions, including needing to have a on the real world or needing to be operated through a , such as a computer.

The above criteria are rooted deeply in the principles of IP law, specifically that abstract ideas, functions, scientific principles, or abstract theorems cannot be patented – as codified in . Those criteria protect the objective of IP law, which is to compensate inventors for innovative ideas while preventing barriers from being created as a result of patenting ideas and basic building blocks that are essential to innovation.

Given all these requirements, it is not hard to see how the misconception that software is not patentable arose – with software seeming like an intangible collection of code performing certain functions. However, with the immediate and ever-increasing utility of computer-based applications, new software patent applications very often meet the criteria of usefulness and novelty, allowing most software patents to be eligible.

Interestingly, a large tech company in 2011 almost failed to adequately define its software patent application. In , Amazon tried to patent a “one-click” shopping feature to increase the speed at which a purchase can be completed. The case was positioned uniquely in the intersection of increasing utility, which fulfills a patent requirement, and an abstract idea, a business method. Originally, the Commissioner had rejected the patent for several reasons, one of which was the unpatentability of an abstract idea. The Federal Court of Appeal, however, found that business methods may be essential to a utility and the mere characteristic of a patent application to be part of a business method does not make it ineligible for patent.

Commercializing new developments in software has been an important concern as the tech sector continues to . Courts have treated the delicate balance between business methods, the features and functions of code, novelty, and protecting innovation carefully for the past several decades.

As of now, the courts have created enough case law to provide a stable guideline for CIPO in software patent applications. It is interesting, however, that statutory provisions dealing specifically with software patents have not been integrated into the Patent Act. Only time will tell whether this allows for flexibility as the tech sector continues to develop or causes continued confusion and debate.

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This article was written in affiliation with Madelaine’s placement at ventureLAB and .

This series provides an in-depth look at different types of intellectual property. As a founder, once you’ve determined what types of Intellectual Property (IP) you need to protect, it’s important to understand the details and requirements of each. A concrete understanding of each type of IP not only allows you to recognize what you may be able to protect, but will also help you to take full advantage of the right.��

‍This article is the second in a 5-part series. ventureLAB’s experts cover everything you need to know when filing for IP protection. Over the next six weeks, we’ll release articles on the following topics. ��to be the first to know when we release an article.��

• Part 2: A Beginner’s Guide to Patenting Software and Artificial Intelligence
• Part 3: Use It or Lose It: How to Acquire and Protect your Trademarks
• Part 4: Don’t You Forget About Me: Protecting Your Company’s Copyrights��
• Part 5: The IP Hidden Gems: Trade Secrets and Industrial Designs

Patenting software, and inventions related to Artificial Intelligence (AI) and machine learning, known as computer-implemented inventions (CII) in patent lingo, is a complicated and evolving area. The difficulty lies in overcoming Patent Office objections related to subject matter eligibility, which prohibits the patenting of abstract concepts and mathematical formulae (for more on this, see��).��

CII, such as algorithms, are frequently deemed an abstract idea, and thus not suitable for patent protection. In order to overcome this obstacle the patent application must explain how the algorithm and the computer are interconnected such that together they form a single invention. To do this, the computer must be deemed an essential element of the invention.

This has been a historically tumultuous area of patent law. The 1981 Canadian Schlumberger case was the first to set out the rule that the use of a computer merely to automate calculations that could otherwise be done by hand is not patentable. This is because the inventive aspect is the calculation itself, not the combination of the calculation and computer. In 2011,����was successful in obtaining a patent on their ‘one-click’ method. This was a controversial decision since not only was it a CII, but it was also considered to be a “business method”, which is notoriously difficult to patent in Canada.

Most recently, in 2020 the Canadian Federal Court decided the case��, which initiated a huge change in the way the patent office evaluates the essential elements that make up an invention. This resulted in the Canadian Intellectual Property Office releasing����on how patent examiners should approach patentable subject matter, particularly for CII.��

Before this decision, patenting was particularly difficult for CII because patent examiners would frequently determine the computer itself was not an essential element of the invention. As a result, what remained was an abstract idea (i.e. the software or algorithm itself) which had no physical substance and was thus deemed unpatentable.��

Now, all elements of an invention are presumed to be essential. Thus, if you include a computer in the claims, it will be assessed as if that computer is essential to the functioning of the invention. This is great news for inventors, since it reduces the likelihood that your CII will be automatically deemed unpatentable.��

Unfortunately, the challenges do not stop here. Having a computer viewed as an essential element of the invention is only the first step in patenting software. Next the patent examiner will look at whether the computer works together with the other essential elements of the invention. Together, the computer and the other elements must form an actual invention that has physicality. This physicality can be physical existence, or the invention can produce a physical effect or change.

The mere use of a computer in a well-known manner, such as to execute the code, will not be sufficient to render the invention patentable. This is because any computer could do that job, and the computer is simply a means to execute the algorithm, which on its own is an abstract theorem or disembodied idea. However, if in processing the algorithm the function of the computer itself is improved, this could be considered a physical effect and thus a unified invention.

In the US the test for patentability is different, but ultimately the outcome is similar. You cannot obtain a patent on a purely abstract idea and merely using a computer in a generic way will not be enough to overcome this hurdle.��

In Europe, the patent office takes a slightly different approach. It is relatively easy to overcome the subject matter barrier as the “any hardware” approach means that simply including a computer in the claim is a first step towards satisfying patentability. However, the patent office also requires a technological solution to a technological problem, which looks only at the technical features that contribute to the solution. Unlike Canada which now presumes most, if not all, elements are essential, a non-technical feature which doesn’t interact with the technical subject matter is essentially ignored.��

Patenting software is a very challenging field. The summary above is a very basic introduction to the field. It is best to seek the advice of a patent professional who can advise on the specific needs of your invention and adapt it for each jurisdiction. A patent professional will consider how your invention integrates the use of a computer, and how the computer and algorithm cooperate to produce a physical effect.

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Natalie Bravo is an IPilogue Writer and a 2L JD Candidate at Osgoode Hall Law School.

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Do you ever get weird emails that are poorly-veiled attempts? Strange requests for payments? These phishing attempts are occurring more frequently, but they are just the tip of the ransomware iceberg. Cybersecurity breaches are a serious concern and the ever-evolving technological landscape is an endless playing field for dedicated malicious actors. Widespread breaches exemplify the need to updated software and security policies across all sectors which use online services. With the pandemic and many working from home, these attacks are on the rise. The Canadian Centre for Cybersecurity reported that ransomware is an and

Many Canadians have not heard of , a malicious software (“”) that attacks computers by user files so that malicious actors can request monetary ransom to decrypt or unlock the files. These are typically, though not always, carried out by an unauthorized or unknown transfer of a Users may download and/or open a file that appears legitimate and unknowingly infect the operating system with malware. Accompanying ransom demands are usually requested in the form of Bitcoin due to the presumed anonymity of the transactions. The use of Bitcoin is rampant in these types of attacks – so much so that they have impacted (“K�۰�”) . Sometimes hackers . In a recent report, McCarthy Tétrault’s Cyber/Data Group estimated that Canadian organizations . Ransomware attacks damaging more than finances as they can disrupt operations and corrupt or destroy sensitive data. During the pandemic, hospitals are of utmost concern. The click of an ad, a visit to a website, or a simple file download could risk your data.

In 2017, a high-profile ransomware attack named devastated various organizations worldwide. The automatically spread throughout networkers and did not require users to open or download any files. It encrypted user files and demanded Bitcoin ransom payments to decrypt them. WannaCry targeted “end of life” or outdated versions of and exploited certain vulnerabilities within the software. Operating systems must frequently be updated to implement security patches that prevent such exploits. However, updates for older computers are usually discontinued as technology progresses. Microsoft quickly released further following the mass attack. The international event was and reported to have impacted more than 200,000 computer systems and caused an estimated hundreds of millions to billions of dollars in damage. The WannaCry attack affected organizations such as factories, telecommunication companies, hospitals, governments, and delivery systems. Years later, ��

WannaCry was terrifying when it happened, but many more concerning high-profile cybersecurity attacks have occurred ��within the past year . Just imagine . Some alarming events in the past three months include the following:

• In May 2021, the largest petroleum pipeline in the United States, Colonial Pipeline is reported to have been hacked via a . The password had access to the company’s internal network and was also unfortunately leaked on the dark web. The hackers utilized the credential to attack and extort Colonial Pipeline. The systems started to shut down and the ransom demanded was $4.4 million in payment. The company stated they had no choice but to
• In June 2021, one of the largest meat producers in the US, JBS made the difficult decision to pay the $11 million USD ransom in Bitcoin to resume plant operations.
• On July 4^th, 2021, the ‘,’ allegedly conducted by Russian-associated hackers REvil, hit during the US holiday weekend. Kaseya, a software firm, was targeted in the . Supply-chain attacks, in brief terms, involve compromising a trusted supplier therefore sabotaging the distribution system. The Kaseya attack largely affected US businesses, but Canada was also impacted. Between 800 and 1,500 organizations across the globe were impacted and essentially paralyzed. They demanded from affected users/companies and expressed some willingness to .

It is difficult to know what will happen next with technology, computers, and software. It is best to be proactive and cautious. I have compiled some tips, supported by and the , to help keep your data and your employer’s networks safe:

• Check your computer(s) for updates frequently, and make sure your operating system is still receiving new updates.
• Back up your data periodically and preferably offline. If you are targeted and your data becomes inaccessible, you will feel so much better knowing you had a back-up or two handy.
• Make sure you are running a trusted anti-virus program, sometimes they are installed on your computer.
• Understand how to your data in the event of a breach and practice the recovery methods.
• Keep your passwords safe and unique - reusing passwords is never a good idea.
• Familiarize yourself with common types and methods of malware. You can find a handy list .
• Contact your organization’s IT department whenever you see anything suspicious, just in case.

Stay safe, don’t interact with strange emails, and always update and backup if possible! Feel free to comment below any tips or advice you may have.

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These questions are at the forefront of ����research and were the topic of discussion at his recent talk as part of the IP Osgoode Speaks Series.�� Prof. Pasquale brought with him a simple message to his talk: the law ought to be “A Rule of Persons, Not Machines.”

Correcting Bias with Bias

To begin, take the pinnacle actor of our legal system: the judge. Judges are human, after all, and they bring human biases with them to the court room. Studies demonstrate that judicial outcomes can depend on variables such as the performance of the ��or whether the decision was made before or after the . In contrast, computer algorithms can produce more consistent legal outcomes across a given set of cases. Humans are biased, after all, so why not replace them?

Algorithms have biases too, answers Prof. Pasquale. Their outcomes depend on the humans that develop their code. Which factors should be given heavier weight in a computer’s decision? How much room should be carved for the protection of constitutional rights? What if the software contains undiscovered errors? How should the system import contemporary societal values into its decision? In considering these questions, Prof. Pasquale shows that greater consistency does not equate to fewer biases.

In addition to these coding difficulties, computer algorithms are much better at evaluating backward-looking inputs than solving forward-looking problems. They may therefore be unable to effectively replace the law-making role of the judiciary. Take, for example, a situation where a computer must decide if constitutional rights should be extended to novel situations. Analysing historical data to determine the likelihood of a human judge allowing such an extension is not difficult, but fully predicting the extension’s effects on society is. It’s almost near-impossible: there are simply too many variables to consider, many of which, such as personal values, cannot be reduced to simple metrics.

Finally, Prof. Pasquale contends that algorithms lack transparency. Human-made judgments reduce legal logic into an intelligible, written form. This writing may be applied, built upon, or criticized by subsequent thinkers in the legal system. Algorithmic judgments do no such thing. Perhaps the coding and mathematics used to process inputs are intelligible, but they provide no guidance as to how the law is, was or ought to be applied.

Blockchain and Property Law: A Legal “Wild West”

Prof. Pasquale turns to ��concerns with emerging blockchain technologies like ��to demonstrate the real-world legal problems that arise when cold, efficient machines replace human judgement.

Institutions operated by human beings have traditionally been responsible for tracking and facilitating the exchange of goods and services for currency, at least for big-ticket items. If X purchased a car from Y, the bank would ensure a precise number of dollars transfer from X’s account to Y’s account, and the vehicle would be registered with the state in X’s name. Money is traded for ownership, and each step is traceable.

This is not the case with blockchain.

Instead of relying on trusted, human-run institutions to maintain the records, blockchain technology relies on its users – the public at large – to track one-another’s balances on their computers. A transfer’s legitimacy is verifiable because each user holds a secret digital key that they use to authorize the movement of their funds or property. This key is nothing more than a sequence of numbers – it has no name attached to it, and the only requirement to use it is knowledge of its sequence.

Although blockchain is revolutionizing transactions by cutting out the “middle man” and making them instantaneous and secure, they cause some serious legal headache. First, losing your authentication key means that you lose access to its value stored on the blockchain. If your car title is recorded on the blockchain in association with your digital key, losing your key means you’ve lost the only proof you have that you own the car. Compare this to losing your paper title to the car: you’d simply need to stop by your local registry with identification and pick up a new one.

Second, imagine your digital key gets stolen by a hacker who hops in your car and drives off into the sunset. Not only do you lack proof that he stole it, but, for all intents and purposes, the blockchain now considers him the true owner. The law cannot help you.

Finally, consider the law’s benefits and protections conferred on you by virtue of you owning your car. If the car is defective, you can return it to the seller. If your friend doesn’t return the car after you lend it to them, the law can force them to give it back. Consumer protections like these and many others are simply unavailable to you if the law does not recognize your ownership.

Prof. Pasquale makes it clear that although blockchain may become useful for certain applications, it illustrates the danger of replacing human-run systems with purely algorithmic ones. Blockchain is not going to make property law go away.

Algorithmic Accountability

It is a grim future, argues Prof. Pasquale, where machines replace the role of human judgement in its entirety. What role, then, does he see computers filling in the legal world? Artificial intelligence should enrich professional judgement, he suggests, not replace it. What constitutes a “better way” to do law must be decided with a broad, social understanding of the systems that the law serves; not through applying technology for the sole sake of efficiency. There is massive room for computers to improve the way that we do law, but it must be approached through a critical lens.

Principles of algorithmic accountability must be interwoven into these systems. Models must be transparent, data must be unbiased and algorithms must be applied to appropriate tasks. Leading thinkers and the public alike must be able to critique these systems and lend their voices to the software’s development. Technology is strengthened when subjected to an open and free exchange of ideas and criticisms, so legal innovation must evolve with public accountability.

Prof. Pasquale left the room with a parting thought: the legal profession needs to carefully shape the algorithmic systems it deploys, or else those systems will shape the legal profession. Using the words of Douglas Rushkoff, Prof. Pasquale warns,

“Program or be programmed.”

Mike Noel is an IPilogue Editor and a JD Candidate at Osgoode Hall Law School.

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Setting the Stage for the Future

Last April, I had the pleasure of participating in the 20^th annual and Berkeley Technology Law Journal Symposium. The symposium was focused on the past, present, and future of software intellectual property (“IP”) from a theoretical as well as a practical perspective in the aftermath of the US Supreme Court decision in (2014) and the denial of Google’s petition for certiorari in the Oracle case.[1] The symposium also generated remarkable discussions that called attention to contemporary IP technology industry dilemmas. In a way, the future development of IP law (as the Cheshire Cat states in Alice in Wonderland) ‘depends a good deal on where [we] want to get to.’

Technological Advancements: A Look-Back

In his presentation, , a partner at and leading IP expert, described changes in IP law due to technological advancements over the past several decades.

In the first part of his presentation, Mr. Hayes laid out the relevant technological developments between the 1960s and the end of the millennium’s first decade. The first innovative landmark goes back to the mainframe era, with the release of IBM’s first transistor in 1959. In the 1970s, Digital Equipment Corporation launched its PDP 11 minicomputers. The 1980s was the mini PC decade, and in 1993, the Mosaic web browser initiated the Internet revolution. The millennium saw the rise of and However, the most recent milestone in our current decade can be attributed to Google’s and Apple’s operating systems, which have expedited the development of cellphone and tablet applications.

Divide and Conquer: Patents, Copyright, and Trade Secrets

While the above-noted advancements have significantly impacted how society uses technology, the law has not responded to every change in kind. Indeed, changes in law often lag behind changes in society and technological development. In the following paragraphs, I will provide a bird's-eye view of the developments of software protection in three different dimensions: Patents, Copyright, and Trade-Secrets.

Patents

Mr. Hayes described the rise and fall of patents as a protection mechanism, tracing it from the Freeman-Walter-Abele Test – synthesized from the three US Supreme Court cases (1972), (1978), and (1981)��– to the 1994 the Federal Circuit decision that developed the Useful, Concrete, and Tangible Test. In Bilski (2008), the Court rejected both the Freeman-Walter-Abele Test and the Useful, Concrete, and Tangible Test, adopting instead the Machine or Transformation Test. However, just two years later in (2010), the US Supreme Court rejected the Machine or Transformation Test as the sole test of process patent eligibility, holding the test to be ‘a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101.’ The Court held the claims unpatentable because they were directed toward the abstract idea of hedging risk. The latest milestone in the patent saga has been the well-known case of (2014). In Alice, the US Supreme Court established The Two-Step Test. Consequently, as Mr. Hayes explained, there has been a near complete collapse of business method patents and a substantial decrease in other patents directed at computer-implemented innovations.[2]

Copyright

Computer programs and copyright protection have never been considered a good match. In the first stages of computer software development in the 1960s and 1970s, IP law did not offer protection for software. In 1974, the US Congress decided to establish the Commission on New Technological Uses of Copyrighted Works (CONTU). After years of deliberation, CONTU concluded that computer programs are indeed forms of expression and should be accorded the same rights as other works of expression, subsequently leading to the . Following this, the Third Circuit Court decided in the case of . (1983) to extend copyright protection to operating systems and application programs, even if fixed in source code or embodied in ROM only. According to (1982), both source code and object would henceforth be protected. In these decisions, the courts acknowledged that a computer program is not only the code itself but also the product of the codes.

The difficulties of distinguishing between the idea and the expression in computer software led to uncertainty in the outcome of copyright infringement cases. Thus in (1992), the Second Circuit Court stepped in and implemented a more reliable analytical framework, the Abstraction-Filtration-Comparison Test. In ., the US Federal Court reaffirmed this test.

Trade Secret Protection

According to Mr. Hayes, trade secret protection was important during the mainframe era (the 1960s), since at the time software was rarely distributed in source code form. However, in the PC era (the 1990s), the importance of trade secret protection was diminished. Mr. Hayes provides two reasons for the trade secret decline: the rise of copyright protection and the Internet revolution, which made it relatively easy to view the functional coding behind webpages.[3] The decrease of trade secret protection began to level out with the rise of cloud computing company in 1999. The advent of at the beginning of 1999 also heralded multiplayer games like World of Warcraft (2004) and programs like Microsoft Office365 (2011) that contributed to the rise of trade secret protection.[4] Until the 2014 decision in , the use of trade secret protection in the software industry remained fairly constant. Mr. Hayes opined that the US Supreme Court decision in Alice might enhance the importance of trade secret protection in the future, mainly due to the diminished possibility of patent protection.

Mr. Hayes ended his presentation by synthesizing seven key characteristics of software that will affect the type of IP protection appropriate in the foreseeable future:

1. Software is inherently functional. Though it requires creativity, the goal is a functional outcome. Creativity is considered a disadvantage for computer programs, and in most cases, programmers combine efforts to create the simplest, easy, and straightforward program.
2. Software embodies multiple types of creativity. It may contain traditional copyrightable expression (as in the case of a game), line-by-line code, non-literal internal elements (such data abstractions, schemas, ), and external interfaces (such as APIs, input formats, GUI); all of which can be embodied in one program.
3. Software evolution is often incremental. There is a limited record of prior art that often exists only in other source code, making it difficult to determine where patent protection is merited. Protection of object-oriented incremental changes in the code may not be imperative because of their small size and frequent reuse of code; in this case, innovation may be avoided. An efficient design is the simplest one.
4. Software is increasingly short-lived. Mainframe software generally lasted 10 to 20 years; PC software could last six months to two years, and today’s mobile applications have an effective lifetime of a few weeks.
5. Software development methodology has evolved. In the mainframe era, small development teams, usually employed by a hardware vendor like IBM, worked over an extended period of time to create complicated programs. Now, large enterprise development teams can develop incremental improvements in software multiple times per day.
6. Software exists in many different markets. There are small, discrete markets for mainframe software, medium-sized markets for enterprise software, mass markets for consumer software, and essentially infinite markets for mobile applications. Each of these markets has unique characteristics driving different types of IP needs over different durations.
7. Software has many distribution and use architectures. These strongly influence the type of IP protection that may be appropriate for a particular business model. Software can be on-site, client/server, cloud computing (private/public), SaaS/ASP/on-demand, grid computing, or involve other forms of distributed computing technologies such as peer-to-peer connections (with or without authorization) and mobile computing – all with their own intended distribution and life-cycle characteristics.

The conference’s main theme pondered the question: ‘What comes next?’ What is going to be the next test or idea that the courts will adopt? While the industry craves simple answers and reasonable legal method, the complexity of such tests, along with never-ending technological developments, leave the courts playing catch-up and implementing difficult and sometimes contradictory tests, and in the midst of this legal maze is the legal community trying to foresee the future in an unstable environment.

I posit that we are heading towards a more flexible era. In the future, the technology itself may set the rules of the legal ‘game’ and fix the boundaries. The legal role in this future may well remain in the outskirts of the technology realm with the courts restricting their judicial review to the reasonableness standard and deferring to the expert opinions of engineers and software developers.[5]

Aviv Gaon is a Ph.D. candidate at Osgoode Hall Law School. His research explores whether AI creations can have a claim to copyright protection. The author is grateful to Paul Blizzard, JD candidate at Osgoode Hall Law School and a Professional Engineer, for helpful comments and suggestions for this article.

[1] It should be noted that on May 26, only one month after the conference concluded, a federal jury decided for Google against Oracle claiming that Google Android system did not infringe Oracle copyright Java API’s since Google’s use is considered a “fair-use”.

[2] The main difficulty in Alice relates to the requirement that the software will add something extra, embodying the concept of incentive. As explained further here, software must be simple in order to be useful. ����������’s innovative arguments make it much harder to produce applicable candidates for patent protection that are both useful software and also encompass ‘something extra’.

[3] While some software languages such as JavaScript are interpreted by the browser and thus visible, much of the code running on the server itself is still under trade secret protection, and thus not viewable by the user.

[4] It’s easier to protect cloud-based programs since large portions of the code (the trade secret candidate) exist on secure severs rather than on end users’ computers (as in traditional software). Hence, the common method of reverse engineering (the main loopholes of trade secret protection) is much harder to apply.

[5] In recent decades, courts have taken a very intrusive approach; they examine the technology thoroughly, scrutinizing each component to decide whether the technology meets creativity requirements. This is very different from the legal approach in administrative procedures, for example, where courts only seek to decide whether the decision or claim at hand is reasonable. Courts do not interfere with reasonable decisions, leaving the matter for government agencies. Another example comes from torts claim, where courts rely on the opinion of experts (though in a different way, and to a different extent, than in administrative appeals).

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The US doctrine of copyright exhaustion ()��states that a copyright owner's exclusive right of distribution in a copyright-protected work is exhausted upon first sale of that item (hence the doctrine of exhaustion's other name: the first-sale doctrine).�� Although Canada's��Copyright Act among those rights enjoyed by the owner of copyright in a work, Canadian copyright law has functional equivalency by operation of other doctrines. �� However, copyright exhaustion is an important consideration elsewhere in the world as the question of whether purely digital goods such as ebooks, MP3s, and audiobooks may be resold on secondary markets is still a contentious question.

On June 15, the German Court of Appeal of Hamm released the first appellate-level decision��on the application of the doctrine of copyright exhaustion to digital goods��since the Court of Justice of the European Union (CJEU) decided����in 2012.��UsedSoft��was a case involving the resale of licences to software distributed by Oracle. After passing through Germany's court system, the case reached the CJEU, which ruled that the doctrine of exhaustion applied to Oracle's exclusive right to distribute the software in question. Further, it held that the second owner of the software licences could use those licences to download updated versions of the software from Oracle.��

Last week's decision by the Court of Appeal of Hamm��is currently only , but from what information is , the appeal court upheld the decision of the trial court and concluded that the��UsedSoft decision was��lex specialis��and only applied to the . The Software Directive, as its name suggests, governs software, while other kinds of digital media such as ebooks and audiobooks instead fall under the purview of the .��

After UsedSoft, there was much speculation about whether the CJEU’s decision regarding copyright exhaustion under the Software Directive would also apply to works falling under the scope of the InfoSoc Directive. With this decision, it appears that computer programs like the one at issue in UsedSoft are subject to different judicial treatment than other commonly-traded digital goods such as ebooks.

The court’s decision here was a victory for copyright owners and distributors of works in digital format, as it provides them more control over the sale and resale of such goods online. However, even if the court had extended the doctrine of exhaustion to the InfoSoc Directive, it is likely that copyright owners could have used other exclusive rights granted by copyright statutes to block the development of secondary markets for digital-format works. The copyright owner’s exclusive right of reproduction is a strong tool against the��resale of digital goods as the transfer of a file from one user to another necessarily requires the reproduction of that file. This tactic was used in the United States case in response to efforts by ReDigi to launch a pre-owned marketplace for digital music using the doctrine of exhaustion as a defence. Capitol Records successfully argued that even if its distribution rights in the music files were exhausted, it retained its exclusive right of reproduction. Because of the nature of online file transfer, it contended that every transfer of a copyright-protected file would constitute copyright infringement by way of the reproduction of the file on the recipient’s computer.

While there may be other legal routes to the establishment of secondary markets for digital-format goods, it appears that one of the more promising arguments in favour of digital resale has been dealt yet another blow with the latest decision out of Germany. It remains to be seen whether inventive defences to copyright claims may allow for the creation of such markets, but the legal battles over the growing market for digital goods are only just beginning.

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Are computer-implemented inventions patentable subject matter?��

This case between Alice Corporation Pty Ltd (Alice) and CLS Bank International (CLS) is one of many recent disputes stemming from the ambiguity of the patentability of software and business processes in the United States. (The IPilogue has previously covered a similar issue��in����.) The patents in question all involve a computerized system for processing financial transactions.��A particularly contested area��in the��dispute is the scope of patentable subject matter, and the various legal tests involving abstract ideas and inventive concepts in patent claims. The question poses is:

Whether claims to computer-implemented inventions – including claims to systems and machines, processes, and items of manufacture – are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101 as interpreted by this Court.

Title 35 U.S.C. § 101 is a provision of that provides:

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

Alice is essentially asking the court if computer implemented inventions are patentable subject matter as processes, machines and items of manufacture under US patent law. this appeal to the Supreme Court as inevitable after��the decision in the��appeal to the Federal Court��resulted in 6 separate decisions spanning��, all applying different legal analyses to the issue of patentability.

Who is interested?

This case has generated an extraordinary , including 11 briefs filed at the petition stage where the court decides if it will hear the appeal, and 41 briefs at the merits stage where the court makes a decision. In addition, the US Solicitor General was granted permission to participate in the oral arguments. The amount of interest is indicative both of the ambiguity in the current law, and the extent of the interests at stake.

Software and business process patents in general have garnered much attention recently, particularly in the US which is one of the most lucrative worldwide. Much of the debate over these kinds of patents stems from the overriding concept in patent law about the difference between implemented inventions and abstract ideas. All patent law systems share the common feature that abstract ideas and scientific principles cannot be patented. Only novel inventions that actually perform a real-world function are patentable. There are numerous areas where this distinction comes up, but it is most notable in software patents.

In many jurisdictions, including the US, pure software algorithms are . Written software code is protected by��copyright, but this only protects against verbatim reproduction. Copyright does not protect the underlying ideas, or against independent invention. As such, many software companies have looked for ways to patent software, thus expanding their monopoly beyond the literal code.

One way to achieve this is by incorporating the software or business process into a larger invention, which builds upon other patentable subject matter. This has lead to the "do it with a computer" argument, where patents granted for otherwise��ineligible��subject matter simply through the addition of an integrated device.

What is on the line?

Much has been written recently about the scope of patent protection, particularly in light of (NPE), some of which are pure innovation��companies, and others who obtain patent rights with the sole intent of enforcing them against infringing parties. These NPEs have been��criticized��by some industry members and�� [see 16:02-18:39] alike for��taxing��innovation, and abusing the patent system without adding any benefit. This��phenomenon��has been particularly pronounced in��software��patents, which are for being broad, ambiguous, or obvious.

Conversely, many industries are increasingly deriving and from their business processes and software algorithms. As industry increasingly shifts to a knowledge economy, businesses have more incentive to pursue monopolies through intellectual property law for their processes and algorithms.

What is the answer?

As with many areas of intellectual property law, the best decision will balance the needs of all stakeholders involved. The very nature of intellectual property is granting a time-limited, state-enforced monopoly in exchange for innovation and investment. The overriding policy goal is to encourage future developments by balancing the economic incentives of a monopoly with the need to avoid making that monopoly so broad that it stifles innovation. Hopefully the US Supreme Court, assisted by volumes of supporting briefs from a wide spectrum of parties, will be able to strike that balance for software and business process patents.

Alex Buonassisi is an IPilogue Editor and a JD Candidate at the University of British Columbia.

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The age-old question on the use of free and open source software in the Italian Public Administration (PA) seems to be coming to an end. Last January the Agency for Digital Italy (Agenzia per l’Italia Digitale) opened a work and discussion table to all stakeholders, focusing on the comparative assessment pursuant to art. 68 of the Digital Administration Code (Legislative decree no. 82/2005). The table was closed last month. Now, the Agency will launch a public consultation and will adopt a final text for guidelines. These guidelines will provide the Italian PA with all the operational tools for acquisition of softwares.

Public administrations are expected to provide efficient public services to businesses and citizens across Europe, sharing software solutions, discussing good practice and exchanging their experiences. These are the goals of the programme on Interoperability Solutions for European Public Administrations (ISA) established by the European Commission and where the Open Source Observatory is hosted.

Italian PA is so obliged to give priority to free and open source software (this is common ground, pursuant to paragraph 1 ter of the above mentioned article 68), however, this preference can not be given without a “comparative evaluation”. In fact, one of the tasks of the Agency, for which the table has been set up, is indeed to establish procedures and criteria that will help to justify the choices of the PA in the acquisition of computer programs.

That said, every public body may now ask itself what really would make it different from any other person as to whether to acquire and release software under conditions of free and open source software. The answer is simple: nothing.

The PA, even when is an active subject in the design and implementation of software, and not only when limited to acquire it, basically is a user of the same. Barring exceptional cases, the purpose of the PA is to serve the community and the citizens according to their own goals and skills. For this reason, even when it makes use of external instrumental bodies, including those of non-public nature (such as joint ventures or wholly owned) the activity of the PA is never mainly directed at making profits or at the acquisition of a market position. The economic activity may be carried out only to achieve the satisfaction of the public interest pursued.

It is no exception if – directly or through any of the operational tools made ​​available by the administrative law – the PA makes designs, develops and distributes software; therefore the value of the software that is acquired or created is not of a commercial nature, nor is it the potential sale price of acquired rights on the software. This value lies in the use, namely the in the ability to make the administrative apparatus and the persecution of its own purposes more efficient for the concerned PA in an effective way. In other words, for the PA software is not a product, rather it is a service and not only in the sense on the rules of contracts of the PA, but in the sense given to it in the corporate world.

For the PA it is important that the software works in a consistent way with the purpose for which it was procured, what it is worth in itself is irrelevant. This leads to the conclusion that the return on investment is measured essentially in terms of efficiency. Efficiency which in turn must be measured both in immediate terms (saving of resources with an equal output or increased output utilizing the same resources), both in terms of long-term savings (lower investment for the update, adaptation, migration to the achievement of obsolescence or the appearance of more efficient systems), and – finally – in terms of positive effects to the general or local economy (“spillover effects”).

The PA has the right to acquire software under conditions of free and open source software. There is no doubt about this. Both in the case of a pure acquisition of pre-packaged software (generic), as a simple office application (typical examples: an Internet browser, a word processor, an email client or an operating system) but also if the software is being acquired by the PA through ad hoc customization, where there is a substantial economic investment and in which the software is subject to the rules on re-use.

All the above-expressed concepts have been upheld by the Italian Constitutional Court in 2010, with Decision no. 122 of 22 March. In essence, free and open source software do not refer to a particular technology, brand or product, but rather express a legal feature. What differentiates free and open source software from proprietary software is the different licensed rights on the program. Decision about the adoption of one or the other contractual setting belongs to the user, hence, to the Public Administration, with a strong preference to the free and open source software way.

(Published on��)

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concerned two patents: (Patent ‘607) and (Patent ‘828). Patent ‘607 is a hardware patent that discloses a capacitive sensing medium for multi-touch functionality by measuring displaced charge using an electrode grid to determine the location of the touch. This patent also discloses how to make the touch screen appear transparent using Indium Tin Oxide (ITO) electrodes and “dummy” ITO to fill in the gaps thereby making the electrode matrix uniform. Patent ‘828 discloses a method of determining whether the displaced charge is as a result of a finger touching the screen whereby the touch panel software is able to mathematically fit an ellipse around the nodes where touch had been detected and track this movement.


The majority opinion was a medley of decisions by the court: affirming in-part, reversing in-part, vacating in-part, and remanding for further proceedings. Claims 1-7 of Patent ‘607 were affirmed to have been anticipated by , which discloses a sensor matrix with two matrix-scanning algorithms��able to detect more than one finger touch at one time,��considered by the Court to be very similar to Patent ‘607,��overlying a transparent layer and an electronic display. As such, they were considered invalid.


Claim 10, which relates to the “display arrangement” was given a more rigorous analysis by the Court. In agreement with the ITC an article describing “Smartskin,” a prior touchscreen system, was determined to be unanticipatory as the system disclosed an opaque system of copper electrodes rather than the transparent system of ITO electrodes as claimed. The ITC declared, however, that the claimed system would be obvious in light of . In turn, Apple argued that the Commission incorrectly applied a “hindsight analysis” and disregarded objective evidence, including commercial success and evidence of copying, which suggested that this invention would not have been obvious to a person skilled in the art. ��The Court of Appeals��determined that although a strong prima facie case was established disclosing every limitation of Claim 10 that the ITC failed to follow precedent by allowing this to conclude the ultimate determination of obviousness. As such, the decision of the ITC was vacated. The court remanded the proceedings to allow the ITC to consider the prima facie case in conjunction with the objective evidence to determine the question of obviousness.


Finally, issue was taken with the decision of the ITC not to review the construction of the term “mathematically fitting an ellipse” in Patent ‘828. This was determined by the administrative tribunal to require a two step mathematical process whereby an ellipse is fitted to the data and after which parameters are calculated. As a result of this determination Motorola’s products were considered not to infringe on the Apple patent. Upon an assessment of the plain language of the claims, the Court of Appeals considered this term to refer to the software mathematically fitting an ellipse to the parameters, implying that there is no separate step of calculating ellipse parameters. As such, the ITC conclusion that Motorola does not infringe on Patent ’828 was vacated and remanded for further proceedings to the ITC to consider whether the products in question infringe under this construction of “mathematically fitting an ellipse”.


These types of patent infringement cases generally represent high stakes for both companies (an example of this is an ongoing dispute in Germany regarding Apple’s iCloud was cited to represent ). Although by this point the current dispute around multi-touch patents relates to "dated" technology, the release of the Motorola Xoom tablet may, upon further investigation, The Xoom angle may allow Apple the opportunity to argue that newer Motorola devices infringe on these patents and potentially have them In any event, it appears that the conflict between Apple and Motorola is far from over. The ultimate outcome should determine the functionality of��this technology��and may determine whether we will see greater similarity or evolutionary divergence in our��future smartphones.


Naomi Metcalfe is an IPilogue Editor and a JD Candidate at Western University

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Although new games could still be installed by using the disc and saved in the memory of different consoles, they could only be played if the original user was connected to his/her personal account. As a result, the secondary market of games could be controlled by Microsoft. Even if the game discs themselves could be exchanged or resold, the second users could not play these games without or of the first user. It is important to note that Microsoft´s measure was not explicitly designed to combat game piracy, but to place greater control on the retailer-driven secondary market.

In proposing restrictions against the freedom to dispose of used games for the Xbox One, Microsoft gave rise to a point of tension between copyright holders and consumers. This issue has been openly discussed in relation to the music industry and for the use of protected works on the internet for some years.

From the perspective of the video game industry, there are a number of valid reasons to implement such measures. Considering that profits and activities of video game companies have been threatened due to the and to the by several retailers, increasing revenue by controlling the secondary market would provide greater sustainability in the competitive video game market. By doing this, companies would have money not only to remain in the market, but also in developing new technologies in the medium- and long-term.��Furthermore, the increase of profits might contribute to the overall reduction of cost for original games, as the risk of losses arising from the independent secondary market would not be included in the price.

��

At this point, it is important to highlight that the adoption of measures of restriction of the secondary market is not something new in the digital age. The use of "one-way" CD-keys for activating software on computers and consoles has been used for some years, which combats against piracy and places greater control on the secondary market. Similarly, digital rights management (DRM) services such as - used by PC-gamers since 2002 - bind the games to the purchaser's account through the use of a licence.

In spite of these advantages, the changes purposed by Microsoft received a large number of . In binding the original games to a specific user account, users might be forced to pay costs to game publishers in order to acquire a licence needed to play an used game and would not be able to recover part of these costs through resale of the physical copy. Although it is argued that increased profits in the video game industry might help reduce the price of new games and promote the development of new games and consoles, there is no assurance that��(i)��it will really occur, and��(ii)��if it occurs, the price reduction and technology development will be satisfactory to compensate the restrictions imposed by Microsoft.

For these reasons, many gamers rejected the new system adopted by Microsoft and not to use this model in their upcoming competitor console, the Playstation 4. After the outcry, Sony confirmed that used game sales would by the Playstation 4.�� Microsoft, in fear of losing a considerable number of sales, , ensuring that XBox One games may be freely exchanged and resold without the need of purchasing a new licence.

While the license-based system of games sale proposed by Microsoft won't be implemented by the company in this hardware cycle, there are some legal and policy issues of great importance that should be highlighted.

Proposals such as this give rise to discussions about the boundaries of copyright law. Considering that intellectual property rights are often used as an instrument to increase market share and to maximize profits, their function would better be justified under a social and collective perspective than under an individualistic perspective. In that respect, the scope of copyrights should be limited to the function of promoting creativity. In my opinion, the development of the video game market in the last two decades shows that creativity and innovation in this sector is possible even if a secondary market is not restricted. Here, Microsoft's business strategy may require some fine-tuning.

Furthermore, the approach initially proposed by Microsoft might , a fundamental principle of property law. If Microsoft went ahead with their initial plans, discs would circulate in the market, but the games contained on them could not be played by other users without acquiring a new licence. By licensing access, publishers would effectively retain their right to control the product of its intellectual creation after its first sale in the market. In my view, in countries where the exhaustion of rights for creative works and software is ensured (i.e. USA, Brazil, EU-countries), sidestepping the practical effects of the "first sale doctrine" via licensing should be considered incompatible with the copyright system. If allowed, interests protected by the exhaustion doctrine would be ignored. If the measure suggested by Microsoft is performed by a company in the future, the Courts and legislative bodies should take into account its effect on the exhaustion of rights in order to shape the laws of the digital age appropriately.

The initially-proposed measure of controlling the secondary market might be considered at odds with the purpose of copyright and of the "first sale doctrine." In this situation, we saw that market forces stayed Microsoft's hand, but we must wait to see what the future brings as business models continue to evolve, and large and well-reputed players like Microsoft continue to commercialize new technologies.

Pedro Henrique Dias Batista is an IPilogue Editor and a PhD student at Ludwig Maximilian University of Munich.

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