The explanatory statement opens by reciting the large number of patents granted for computer-related inventions (not limited to computer programs) as evidence of the demand for patents. This is dangerously misleading without a proper understanding of the context, as is the suggestion later in the document that companies with substantial software-related research may be expected to spend 5-10% of R&D on patenting. Both higher numbers of patents and high expenditures on patents may be symptomatic of strategic portfolio building. As the CEO of an SME testified at the FTC/DOJ hearings:

“I have no idea whether my product infringes on upwards of 120 different patents, all of which are held by large companies who could sue me without thinking about it. The end result, much like Borland, I have now issued a directive that we reallocate roughly 20 to 35 percent of our developers’ resources and sign on two separate law firms to increase our patent portfolio to be able to engage in the patent spew conflict.”

In the same hearings, Robert Barr, Vice President of Cisco, said

“Where the patent system enables true innovation, true progress, where it enables companies to bring new products to consumers in circumstances where they otherwise would not do it, or where it disseminates knowledge that others need and want, then it’s working. There are certainly examples of industries where it serves these purposes, and these benefits must be preserved. But in my experience at Cisco and my prior experience representing a variety of companies, the negative effects of stockpiling patents, the consequences of innocent infringement through independent development, the cost of proving non-infringement or invalidity through patent litigation and the exploitation of the patent system as a revenue generating tool in its own right have hindered true innovation and outweighed the benefits.”

Both executives are responding to the fact that the patenting increase in the computing and communications technology area in the United States has been driven by the strategic motive of piling up patents for defensive use and use in cross-licensing negotiations and not by the need to secure returns to innovation.[6] It is noteworthy that the majority of U.S. patents in software technology are not taken out by package software publishers, but by hardware manufacturers plus IBM (which is classified as a computing service provider). The growth in patenting in this areas is disproportionately driven by large U.S. firms involved in the manufacture of semiconductors, computers, and communications equipment, who are amassing patents specifically for defensive purposes as described by both the speakers quoted above. While cross-licensing is commonplace among the large companies, many are now using their portfolios to extract offset fees from companies that bring smaller portfolios to the table.