Google’s Open Source Strategy and the U.S. Patent Reform Act of 2009

Brian Prentice of the Gartner Blog Network raises an interesting possibility in his post about Google’s long-term business strategy. He speculates that Google’s advocacy for the Patent Reform Act of 2009 coupled with its support of the open-source movement may not be as altruistic as one might first be led to think. The proposed legislation outlines various standards for calculating a reasonable royalty depending on the specifics of an infringement case. One of these methods is to base royalties on the terms of licenses of “sufficiently similar noninfringing substitutes [to the claimed invention] in the relevant market”. Prentice points out that if these non-infringing substitutes happen to be open-source products that do not have licensing fees, then the damages could be zero.

Prentice gives an account of how this could work in Google’s favour by asking, “[i]f Google Wave, hypothetically, infringes a patent that IBM holds and they’re found guilty of doing so, could they simply claim that the relative market value is zero because there are existing free OSS mail and IM solutions?” Matt Asay of CNET News calls it a “patent-busting scheme“. It seems that the consequences of this damages provision will hinge on the interpretation of “relevant market”. If open source Application X is capable of doing the same things as costly Application Y, but is geared towards a different user base or is meant to be used on different hardware, would it not be available as the comparison in a damages assessment for infringing Application Z, which is more similar to Application Y with respect to those factors? Another point to note is the potential difficulty of actually finding “sufficiently similar substitutes” that are themselves non-infringing, depending on how widely these terms are construed.

Even though Google’s applications themselves may not have licensing fees, they will likely still be able to bring in revenue through other indirect means. It could be the case that this weakening of penalties against infringing software producers may have greater benefits for those larger companies that can afford to not rely on licensing fees, but rather on how their new open-source applications make use of and interact with their large established base of other products. Smaller companies that are just starting out often rely on the revenue directly generated from licensing fees in order to further their products, so damage awards are likely to be more crucial for them. Just because there are free alternatives to a particular product does not mean that no one is willing to pay for it. Users have preferences for intangible factors that cannot be summed up simply by the functions and code of a particular application. Perhaps a more reasonable damages assessment method would be to take into account existing non-open source applications as well as open-source ones that are both sufficiently similar, and to strike a balance as an estimate of lost revenue.

One thing that is not mentioned in the Act is the remedy of an injunction to stop making the infringing product available, which presumably continues to exist. Though in these types of cases an injunction could potentially have harsher consequences for the infringing party than damages, the owner of the patent being infringed would not likely feel an equally opposite benefit. Since software is relatively simple to copy, once it has been put out there in cyberspace, shutting off the source of the infringing software would not prevent it from continuing to be spread, and thus continuing to chip away at the market for the party with the original patented software.

Software patents have been hotly debated in the policy realm for some time now. The Bilski case, though still somewhat unclear, can generally be viewed as a setback for the patentability of some forms of software, though it is currently under leave to appeal to the Supreme Court of the United States. It will be interesting to see the outcome of that decision as well as the outcome for the proposed Patent Reform Act of 2009. If Google truly does have the type of plan speculated by some bloggers, it will surely be watching very closely.