GORDON IRLAM LEAGUE FOR PROGRAMMING FREEDOM MR. IRLAM: Good day. The League for Programming Freedom's an or- ganization of roughly six hundred people within the software in- dustry. It's a combination of software developers employed by various companies and small people who own their own business which typically are anywhere between like one or two people up to fifty or a hundred people, and they also have a number of members that are either academics, researchers or students. The League for Programming Freedom has two main policy areas it's cprned with. It has a belief in doing software development on the basis of competition and between different implementations of what could be the same technology, and we believe by doing that that such software is going to be in a sense like economically more efficient impact, if you can get multiple products that will represent the same technology; and prices __ and efficiencies are going to be driven up by the competitive ventures involved. So to do that we believe in what you might term a traditional literal aspects doctrine of copyright. That's very useful for software developers. It basically means if you copy code, you know, you can't do that, but if you wrote the code yourself, that's all you need to know. You can then go out and sell it, and you're safe in the knowledge that you can, and you won't be sued later on. You know you owned it. So based on this belief the League has two positions. We're op- posed to the look and feel copyright, and extensions that seem to have been happening over ttast few years, and we're also opposed to software patents. And we take various actions to try and raise these issues and submit these to courts and so on. Fundamentally I think this whole question of software patents is being approached in what might be the wrong direction. In fact I think the whole issue has to be looked at as one of economics, and not either based on, you know, the direct, uh, interests of any party or, uh, you know, you've got to stand back a bit and take a big picture view of, you know, what effect do software pa- tents have on competition and market structure. So therefore I'm rather disappointed, but as far as I know, there hasn't been any- body with any economic background that's been speaking on these matters. And you know, I think it would be really important if the Commission or whatever could like seek out people with an economic background that can provide the input on these matters. And so I think, you know, if you start analyzing patents and in particular software patents frox economic standpoint, then you'll get a lot of benefit. But I think it should be obvious that every industry has different economic characteristics. This is both like market size, market structure, with availability of market information, extent of competition, and there's just a huge range of economic parameters that differentiate, for in- stance, the pharmaceutical industry from the software industry, and you know, because of this, the application of patents to one industry might be sound public policy, but the application of the same rules to another industry will have an adverse effect on the overall public welfare. So for instance, one of the big things about computer software is it's protected by copyright in a way that pharmaceuticals, for instance, aren't. And that provides a good basis for allowing different people to develop different products and compete, so you know, the important thing is if you look at it from an economic standpoint, every industry's different, and so the im- pact of patent|ll be different on every industry; and I contend that in the software industry, patents are harmful. And I believe it's because, based on my experience, the software industry appears to be a highly competitive industry, and I feel software patents have potential to stifle this competition in terms of they can take away profits from, you know, some of the firms, perhaps significant value to the industry, and they'll be transferred to firms that don't add a lot of economic value. I think the important thing about software is it's not so much new ideas that are important; it's building real products that solve customer problems, and I'm a software engineer in my regu- lar employment, and my job doesn't consist of trying to come up with new ideas all the time. There's just hundreds of ideas. It's trying to implement those ideas, build real products that solve real customer problems and, you know, if they solve them well, that both they integrate well with other products and are __ and easily usable. I thinkyou look at the last ten or twenty years with like the microcomputer revolution, that's what it's really all been about, you know, the firms that have been successful are the firms that have been able to take ideas and turn them into something that's useful for end_users, and add value that way. So you know, the successful firms are companies like Microsoft, Novell, Borland, Adobe, and you know, the list goes on, all these new companies that have, you know, typically been started some time in the last ten to fifteen years. And so when you start looking at software patents you'll find that it's quite disturbing because if these are the companies you want to attract, if you actually start to count which companies have how many software patents, you'll find things that are quite alarming in terms of the companies that you'd imagine should be being rewarded by the patent system for developing real economic value hardly hold any patents. And indeed, many of them don't even hold any patents at all. And evenhe large company such as Microsoft count very few patents. And on the other hand, if you look at companies like Hitachi and IBM and AT&T which people within the software industry will tell you have been more or less totally inept at bringing their software ideas to market, they can come up with ideas but they just can't implement them suc- cessfully in a way that fulfills real customer needs. And so I think if the software patent system continues, then it's going to have a very adverse effect in terms of resources from the economy are going to be diverted away from the firms that are adding real value and put towards these very large conglomerates which are like multifactored concerns that have large patent hierarchies. And so because of this I think, you know, the patent system's got to be analyzed from an economic point of view and, you know, in the case of software I believe that that's __ the patents are harmful to the software industry and I think the best solution will be to make software nonpatent. You know, I'd like to just mention briefly on the issue of economics, there seems to be very little real research into like the fundamental functioning of the patent system in terms of I know there was a study way back in I think 1958 by Fritz Matlock (phonetic) that, you know, did an economic evaluation for the Senate, and raised an awful lot of questions about the patent system, which I think was good, but then they tended to be just left off, and I feel, you know, if someone had taken those ques- tions and started evaluating them and gathering real data, we'd be in a much better position today to actually know what the state of the patent system is, exactly how it works on deciding important public policy issues such as this. All right. In the remaining time I'd like to just read, if I may, one or two things by some of our members who haven't been able to attend today, have sent. Okay. So this is from James Hellman (phonetic) who's a member of the League for Programming Freedom, and he says, "Aple of years ago I was involved in a start_up that was shut down by a bogus software patent. We were well on our way to having several hundred thousand dollars of private_placement venture capital. Out of the blue another company was awarded an extremely broad software sys- tems patent for an obvious concept through substantial existing prior art. We received a cease and desist letter and our funding evaporated. The sad thing is that the company that received the patent were so incompetent that they went out of business shortly afterwards. Business success should be determined by who has the best ideas, best implementations and best marketing. Okay. Have you got any questions? COMMISSIONER LEHMAN: No, other than to say that I think you make a very good point about lack of really effective economic analysis about how the patent system works. It is something that is lacking. I know we've attempted to survey the literature on that subject, and there really isn't any. It's interesting that certainly thearing was made available to everybody; we're within a few miles of one of the great research institutions in this area of the country. Nobody, no professor, no great economist saw this subject as worthy of advising us on and it's a problem we have, frankly, it's a problem, and unless we go out and com- mission the work to be done I'm not sure that we're going to get that kind of information, but it does put us at some kind of disadvantage so we have to do the next best thing and that is get the kind of anecdotal information that we're getting here today from people like you and other witnesses. The difficulty with that is that we're hearing exactly the opposite thing from several different witnesses. We heard people earlier who testi- fied that it's an absolute fact that there would not have been investments made in innovation, companies would not have been formed if they had not had the patent incentive. You've given us in your letter that you just read to us an assertion of an exact opposite situation. we'll have to sort through all of this. MR. IRLAM: I believe there will be value if, you know, longer term, the Patent Office was to maybe develop some of its own skills at doing like economic analysis for its like policy sec- tion or whatever that may exist. COMMISSIONER LEHMAN: Well, we may well have to do that. Thank you very much. Next I'd like to ask Mr. Robert Yoches to step forward, who has, I assume, come all the way out there from Washington, Finnegan, Henderson, Farabow, Garrett & Dunner.