Publications
European IP Bulletin, Issue 24, July - Hot Topics
Hot Topics
1. P2P In Light of the Supreme Court Decision in Grokster
Peer-to-peer (P2P) networks are networks that allow computers within the network to communicate with each other without the use of a central server. The main advantages of such systems are speed and capacity. Each time a new user joins the network, the bandwidth of his computer can be utilised. Therefore, adding a new user increases the capacity of the network and avoids the risk of the network being slowed down by routing a new user through an already overloaded central server. These advantages of P2P networks make them ideal for sharing document, visual and audio files. Although they have legitimate uses, P2P networks have been used extensively in order to share music that has been downloaded in a way that infringes copyright.
Two examples of networks that have been used for the exchange of infringing music and film files are Grokster (operated by Grokster Ltd) and Morpheus (operated by StreamServe Networks Inc). These two networks became particularly successful after the owners of a previous P2P network, Napster, were found by the US Seventh Circuit Court of Appeals to have committed secondary copyright infringement by making software available that allowed individual users to exchange files that, in many cases, infringed copyright. Unlike Napster, Grokster and Morpheus did not utilise a central list containing all the files that were available for exchange on their networks.
In Metro-Goldwyn-Mayer Studios Inc v Grokster 545 US (2005), a group of copyright owners, consisting of film and music recording studios, songwriters and music publishers, brought an action in the United States for secondary copyright infringement against Grokster and StreamServe Networks Inc (“the Defendants”), claiming that distribution of Morpheus and Grokster software gave rise to liability. It was revealed during preparation for the trial that approximately 90% of the files that were exchanged over the networks had been generated through copyright infringement by the users. There was no doubt that the individual users had committed copyright infringements, but this did not automatically mean that the Defendants, who had made available the means to disseminate the infringing files, were also liable. Both sides moved for summary judgment and, unlike in the Napster case, the District Court and the Court of Appeals found that the Defendants were not liable. According to the Court of Appeals, a defendant must have knowledge of a direct infringement and have materially contributed to that infringement in order to be secondarily liable. The Defendants did not fit into that definition since their software had non-infringing uses and its decentralised structure meant that they did not know of any specific infringement. Also, they had not materially contributed since it was users who operated the software in order to exchange infringing files.
The Supreme Court agreed to hear the case, the question before it being whether the Court of Appeals had erred in absolving the Defendants from liability for the acts of the individual users of the network.
The Supreme Court answered this question in the affirmative. The US doctrine of secondary liability for copyright infringement has developed in the common law. In particular, in the Sony v Universal Studios case, the Supreme Court considered the liability of one who distributes goods which can be used to commit copyright infringement (in that case, video recorders). The Supreme Court had identified the “staple article of commerce” doctrine, which originated in patent law, as also applicable to copyright law. Under that doctrine, the distribution of a device that infringes a patent will not so infringe if the device is suitable for use in non-infringing ways. Likewise, the distributor of a product that can be used to infringe copyright will not be found secondarily liable if the item is capable of substantial lawful uses. In both cases, the doctrine serves the interests of competition – it would be anticompetitive if the holder of an IP right were allowed to prevent the distribution of a product that was capable being used legally as well as to infringe his rights.
Much of the debate before the Supreme Court had focused on whether the 10% of Grokster and Morpheus files that were non-infringing constituted a sufficiently high percentage of use to qualify the two networks for protection under the “staple article of commerce” doctrine. Likewise, the Court of Appeals had read the Sony case as stating that, where an article is capable of substantial non-infringing uses, its producer can never be held liable for secondary copyright infringement. However, the court in Sony had not intended to displace other theories of secondary liability and it was under one of these other theories – the inducement rule - that the Defendants could potentially be held liable.
Under the inducement rule, a defendant who distributes a device and promotes its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the infringements of third parties whose infringements he induces. Two elements are important: (i) a defendant’s intention and (ii) the expression of that intention. It is not crucial to show that the message to infringe was sent out to the direct infringers, but such a message would be helpful.
In Grokster, there were three types of evidence of the Defendants’ unlawful purpose. First, each company aimed to satisfy a market of known infringers – former Napster users. Secondly, neither company attempted to develop tools to filter or diminish any infringing use of their software. Thirdly, the Defendants’ business plans and revenues depended on the sharing of the most frequently demanded works, which was shown to infringe various copyrights. Evidence of actual infringement was also needed, which was available in abundance. Thus, the Court of Appeals had erred in finding no infringement under the Sony doctrine and the case was remanded for further consideration by the lower court.
The Supreme Court’s decision preserves the safe-harbour granted to defendants who produce products that have both infringing and non-infringing uses. However, the scope of this protection from secondary liability remains unclear since the Court did not attempt to quantify what constitutes a “substantial” non-infringing use. It is clear that defendants who intend for their products to be used to infringe and who communicate this intention to their potential and actual customers will not be able to evade liability.
No case in Europe has had as high a profile as the Supreme Court’s Grokster litigation. However, legal developments have been taking place with regard to European P2P networks. In Norway, the student who established the Napster.no website was found to have infringed copyright and was fined (reported in EIPB Issue 19). Aside from this, the closest analogy in the case law is perhaps the German case Hit Bit Software GmbH v AOL Bertelsmann Online GmbH & Co KG [2001] E.C.D.R. 27. The owners of the copyright in a song were successful in showing that AOL, by hosting a forum on its website where users could upload and download MIDI files, had engaged in secondary infringement. The analogy is a strong one since, although the defendant did not host a P2P network, users both provided and downloaded the infringing material, as was the case in Grokster.
Actions against those who provide the means to infringe copyright are only part of the story. Action against individual downloaders remains a possibility, such as those undertaken by the British Phonographic Industry in the UK in October 2004 (reported in EIPB Issue 21). This can prove difficult though, and sometimes has to be backed up by legal proceedings to force internet service providers to disclose details of their subscribers who have taken part in downloading (see, for example, the unsuccessful attempt to force disclosure in the German courts, reported in EIPB Issue 19). Following Grokster, it may prove more cost-efficient for copyright owners in the US to pursue P2P network providers, rather than having to pursue thousands of individual downloaders.
Prevention is another possibility. The issue of illegal downloading will not arise if technological measures make it impossible for uploaders to “rip” works from CDs and DVDs. Such measures are being developed by Macrovision (reported in EIPB Issue 20) and Sony (reported in EIPB Issue 23).
Copyright owners are also looking for ways to recoup revenue lost by file sharing. In Germany, the VG Wort Collecting Society has obtained an order that Fujistu Siemens must pay a levy for each new computer the company sells, since computers can be used to make copies of copyright works (reported in EIPB Issue 19). In the Netherlands, a tax on MP3 players has been proposed (reported in EIPB Issue 22).
One potential obstacle to successful action against P2P users is the number of quirks within the copyright legislation of the separate European nations. In Russia, a site offering MP3 files was found to be legal since Russian copyright law did not cover digital files (reported in EIPB Issue 21). Likewise, Sweden has just removed a loophole in its law that made uploading illegal but did not censure downloading.
Finally, one of the most effective ways of preventing illegal downloading is to provide easy, affordable and legitimate online downloading services. To this end, the European Commission has produced a report on the way in which copyright for musical works is licensed for use on the internet and is considering the reform of the way in which the licensing agencies of the 25 Member States cooperate.
Grokster -style litigation remains a (largely untested) option for copyright holders in Europe. However, as explained above, copyright owners have taken a wide variety of other steps in order to realise and preserve the financial benefits that accrue to them through their intellectual property rights.
2. Software Patents Remain Available in Europe
lOn 6 July 2005, European technology industries sighed with relief as the European Parliament voted, overwhelmingly, to reject the draft Directive on patent protection for computer-implemented inventions.
This vote means that existing patent law and established software case law prevails in Europe. Importantly, the damaging changes to the law proposed in the later texts of the draft Directive no longer threaten to lower the level of patent protection available in Europe for software and computer-implemented inventions. Now, under the existing patent law, computer-implemented inventions, including software inventions, qualify for patent protection in Europe provided there is technical character, such as a technical effect which goes beyond the normal physical interaction between software and the computer on which it is executed. Such inventions also have to meet the usual criteria of novelty, inventive step and industrial applicability.
The European Parliament’s vote followed a vociferous debate in which anti-patent groups lobbied for drastic changes to the law, whereas the European Council, supported by European technology interests, called for the Directive to do no more than clarify existing law so as to harmonise it throughout the European Union. Technology companies, large and small, had become very concerned about the legal uncertainty surrounding the level of protection proposed in the Parliament’s version of the Directive. This came to a head on 21 June 2005 with the Parliament’s own legal affairs committee electing not to support many of the amendments previously introduced by the Parliament. Prospects for the Directive deteriorated further when a number of the larger political groups agreed to withdraw support for the Directive, in any form, after a debate on 5 July. Finally, Parliament, presumably concerned about its ability to achieve the amendments it wanted, voted overwhelmingly to reject the Directive on the following day.
The European Commission, responsible for the original proposal on the Directive, initially indicated it would respect Parliament’s wishes and therefore had no plans to submit fresh proposals in this area of law. However, it has since been reported that the Commission has offered to discuss options for a future proposal with Parliament’s committees, if Parliament so desires. Therefore, a further proposal in this area at some time in the future cannot be completely ruled out.
In What Ways Does Europe Differ from the United States?
There is considerable overlap in the types of computer-implemented inventions the US Patent and Trademark Office (USPTO) and European Patent Office will allow, although the USPTO has more tolerance in less technical fields.
The last decade has seen the United States liberalise its patent granting practice such that inventions which have “a useful, concrete and tangible result” can qualify for protection by patents. While novelty and non-obviousness are required, the USPTO test for patentability does not require a technical contribution to the field in question. Thus, non‑technical software and non‑technical business methods qualify for protection in the US provided there is novelty and inventive step.
In contrast, Europe requires all inventions to have “technical character.” The usual interaction between software and the hardware on which it runs is not sufficient. However, the hurdle has traditionally been low in that technical character has been recognised in many aspects. Technical character tends to be recognised, for example, where software concerns:
- control of industrial processes;
- processing of data representing physical entities (e.g. images);
- internal functioning of computer systems, interfaces or networks, for example:
- improvements in efficiency, such as processing speed or data rate;
- increased security or reliability; and
- better management of resources, etc.
This list is obviously not exhaustive.
lAccordingly, in Europe, the use of an algorithm is patentable where the algorithm is reduced to an application which confers technical character by means of some programmable apparatus or technical method. However, for methods in particular, specifying technical means for purely non‑technical purposes or for processing non‑technical information will not automatically confer technical character. It is therefore recommended that important cases are reviewed by a European patent attorney as early as possible to check that the requirements for technical character are met.
Assessment of Software Inventive Step in Europe
The recent practice in the European Patent Office has been to look for a technical contribution to the art in a non-excluded area. In general, whether or not software makes this technical contribution is determined as part of the assessment of inventive step. In their assessment of inventive step European examiners usually identify an objective technical problem which is solved by the invention. The solution to the problem is what constitutes the technical contribution to the art. For example, if the problem is to overcome speed limitations in a prior art computer processor, the solution (technical contribution) could lie in a novel and inventive mode of control of mathematical operators (hardware) in the processor’s execution unit.
Again, patent prosecutors need to take care to ensure the specifications they are drafting provide adequate technical disclosure, in an appropriate form, of the components and methods which will later be used to demonstrate technical contribution. Not all specifications exported from the United States meet these requirements, although they may be perfectly acceptable under USPTO patent provisions.
Software Implementations of Business Methods
Particular expertise is required when the subject matter of a claim to a computer-implemented invention looks like a business method or something otherwise replaceable by a mental act. Inventions to playing games also fall into this category. Consummate with the above discussion, these types of computer-implemented inventions are allowable only where the required technical contribution can be demonstrated. The required technical contribution is often present in the computer systems and software for implementing business methods and the like, but it tends be more difficult to demonstrate for inventions in these areas, particularly if the specifications are not drafted sensitively.
In fact, recent case law of the Boards of Appeal of the European Patent Office attempts to modify the problem and solution test for determining inventive step of such inventions. Many regard this modified test, which disregards aspects of the problem relating to business methods (or relevant excluded matter), to be somewhat artificial, and in certain respects also legally flawed. However, this is the direction the Boards of Appeal appear to taking, for now at least, and it means getting patents to computer implemented business methods is becoming slightly more difficult where the computer implementation or software does not make the technical contribution.
Pure business methods, considered separately from the computer system which implements them, have never been allowable in Europe and will not be allowable in future. The same applies to computer code per se, algorithms, mental acts and methods of playing games, when such subject matter is presented and claimed in abstract.
Claim Formats Acceptable in Europe
On the assumption an invention meets the requirements for patentability, it may be appropriate for it to be claimed by means of a number of different claim categories available for computer-implemented inventions and software in Europe. The most appropriate language for use before the European Patent Office is indicated in established case law but may be interpreted differently, or may be unallowable altogether, in certain national offices or courts. For this reason specifications should aim to claim the invention by using an assortment of different claim formats, with the intention that at least some prevail in every jurisdiction. At the same time a commercial approach to claiming is essential, i.e. one should take into account what is offered or sold and how it is distributed, to ensure the monopoly is effective.
Pitfalls
If, as is sometimes the case, only human activities or mental acts are described in a patent specification, it is almost certain to be rejected in Europe. Likewise, describing and claiming only high level business processes is not recommended because there is nothing to fall back on when asked to demonstrate what the technical effect or contribution of the invention is.
Given that rejection of the Directive means the desired harmonisation was not achieved, one should bear in mind that the national courts and patent offices of individual European countries will continue to apply their own variations of the tests for patentability and validity and will still rely on national case law, perhaps in addition to case law from the Boards of Appeal of the European Patent Office, to interpret relevant statutes.
Click here to return to the Summary page, or on any of the headings below to see the full case notes for that topic:
