Patent Law News + Insights

Should Software Startups Seek Patent Protection?

May 24, 2018

Software patents are somewhat controversial in both the legal and technical worlds. There’s a well-documented public policy debate about whether software patents are good or bad for the economy overall. For example,  a 2015 whitepaper by the Electronic Frontier Foundation analyzed insights from 16,500 people to discuss how the current system can be exploited by bad actors to discourage innovation.

Further, the Supreme Court’s 2014 decision on Alice Corp. created a lot of uncertainty around the future of software patents. The Court ruled that implementing abstract ideas on a computer didn’t meet intellectual property standards — but also refused to define what constitutes an “abstract idea.” In the wake of Alice, many business methods and software patents were invalidated.

But software is still generally eligible for patent protection, and lots of people are still pursuing software patents. Notably, some of the biggest software companies are simultaneously filing huge volumes of patent applications while they lobby against strong patent rights.

So regardless of your views on software patents as a matter of public policy, tech companies who are developing innovative software solutions should take an objective look at the value of pursuing patent protection as a part of their overall business strategy. You can gain many business advantages from patenting your software — here’s what you need to consider.

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7 reasons not to pursue software patents

There are many valid arguments against software patents as part of a business strategy. Depending on the particular type of software you’re developing and your business model, some of these reasons might apply to you.

1. The patent process is slow

On average, it takes about two to three years for an application to mature into a patent. But in the fast-paced world of software development, that can be a lifetime: By the time your patent issues, your software may be outdated, or its code might have evolved significantly.

2. The costs don’t always justify the investment

Patent prosecution isn’t cheap, and you should evaluate whether the benefits will justify the cost.

Notably, you might not see much return on investment if you seek patent protection for an invention with a short shelf life — and the rate of technological change for many types of software is extremely high.

3. You can pursue lower-cost IP protections

You can use copyrights or trade secrecy (or both!) to protect your software for a much lower cost.

Besides, in order to file for a patent, you must publicly disclose the technique used in your software — which may not benefit your business. By contrast, neither copyrights nor trade secrecy require public disclosure.

4. IP might not be your most valuable asset

Typically, you want to invest the most in your core business assets. “IP-centric” companies consider their technological innovations to be among their most important business assets and will set aside a significant portion of their R&D budget for patent prosecution.

But many software companies’ strongest assets are their brand, user base and industry adoption — meaning a particular innovation or patentable feature won’t be as valuable towards their business strategy. In this case, you might prefer to protect your IP using less costly options.

5. Software doesn’t require a high R&D investment

In addition, “IP-centric” companies typically have long R&D cycles. And because patents exclude competing products from the market for up to 20 years, they’re essential for recouping high R&D investment.

But many types of software don’t require the same level of R&D commitment as many other fields of technology. For this reason, patents may not be a necessary tool to maximize your profit margins.

6. Software patentability isn’t guaranteed

In the wake of the Alice decision, the patent process is far less predictable for software inventions than it used to be. Even though software can be patent-eligible, the U.S. patent office has created a moving target for meeting the patent-eligibility standards. You might prefer to invest in a more certain maneuver.

7. Open-source models could undermine the value of your patents

If your business utilizes open-source software licensing, patents could complicate your strategy.

Generally speaking, you can pursue patent protection for software that includes open-source code.

If you patent an open-source software tool that you developed, you could potentially exclude competitors from distributing competing products. However, open-source models aren’t compatible with typical royalty-based patent licensing terms, and your open source distribution would end up weakening your ability to enforce your patent.

There’s no clear best practice for how to handle patents involving open-source software, in part because there are a variety of commonly-used open source licenses, and they all treat patents a little differently. While it’s possible for the strategy to work out in your favor, we strongly encourage speaking to a patent professional about your specific situation.

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6 reasons to pursue software patents

Pursuing software patents can be a tricky process. But when done right, software patents can give your business a competitive edge.

1. Attract venture capital funding

If you’re a startup or otherwise plan to raise funding for your business, whether through venture capital or other sources, you need to understand where the value is in your company. Having a solid patent portfolio can increase your company’s valuation and prove that you have unique technology on your hands.

2. Protect the functionality of your software

As mentioned earlier, copyrights are a more affordable option for protecting your software. But keep in mind that copyrights cover only the expression of your software (i.e., code). So copyrights prevent people from copying your code.

But if a competitor develops their own competing software (without copying your code), copyright would not protect you — even if they reverse engineered your product.

By contrast, patents protect the functionality of your software, allowing you to exclude competing products that perform the same algorithm or computation.

3. Gain a competitive advantage

If you have a patent on valuable software, your competitors will have to expend additional resources to deal with the risk of infringing your patent. And even if they manage to code around your patent rights, they might end up with a lower-quality product.

These barriers to entry can be especially useful for deterring large companies that would otherwise have the resources to copy your work and bring a similar product to market first.

4. Licensing revenue

Patents give you leverage to negotiate licenses, which allow other companies to use or sell your software in exchange for royalty payments. Licensing can help generate significant revenue for your business.

It’s a cliche to say that software is ubiquitous in our economy. Virtually every industry relies on software in their products, customer service, or back-end operations. Automotive, airline, oil and gas, banking… even groceries, just to name a few!

You might be able to license your software to businesses in these other industries. But in most cases, entering a new industry requires partnering with a company who already has a customer base and assets within that industry (why did Amazon acquire Whole Foods?).

If you don’t have patents, big players in another industry won’t have much incentive to pay you for your software solution. For example, they probably have the resources to develop their own software if you haven’t created any IP obstacles.

5. Patent applications themselves have value

Your business could benefit simply from filing a patent application — even if the application doesn’t mature into a patent, or you never actually enforce its claims.

For example, your patent application might prevent another company from getting their own patent on the algorithm you developed.

Besides, if you don’t want your patent to issue or last for the full 20-year term, you can always abandon it; you won’t be responsible for subsequent costs.

(But if your goal is to obtain an enforceable patent quickly, the USPTO does offer several options to speed up patent prosecution.)

6. Get acquired

Are you hoping that your startup will get acquired or adopted by a major software company?

All major software companies are filing patent applications to protect their inventions. If you want to attract the big players, it always helps to follow industry best practices.

Pursue patent protection when it benefits your business

It’s easy to get caught up in the fervent public policy debate surrounding software patents. Ultimately, keep in mind that patents are not simply tools to prove how innovative your work is — they are first and foremost business assets. You should pursue software patents if they can add value to your business overall.

Considering patenting your software? Use our FREE checklist to determine whether it’s the right next step for you — and what to do if it isn’t. Download it now!

Free patent protection checklist download

POSTED IN: All Posts, Startups, Patent Prosecution

Michael Henry

Michael Henry is a principal and the founding member of Henry Patent Law Firm PLLC. Michael specializes in creating comprehensive, growth-oriented IP strategies for early-stage companies who are developing emerging technologies.

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