Startup Software Patents: The Good, The Bad, and The Ugly

The software patent debate has been on slow burn for a while, and every so often it flames up. The cons continue conning and the pros continue, well, pro-ing.

Software patents are bad, and here’s why: they stifle innovation.

Well, no they don’t. True innovation generally comes down to the work of a small group of 1, 2 or 3 people (yes, I realise that “1” is not a group). Even the largest of corporations generally cite 2-4 inventors for their software patents, granting them the privilege and esteem of invention, while retaining the beneficial assignment of the IP for the company. Contrast that with many academic papers which typically have a long list of authors, some of whom may or may not have actually worked on the project (can you say “thesis advisor”?). Monoliths such as Microsoft, Google, Apple, Cisco, and Intel have large patent portfolios, clearly showing their novel contributions to “the art”. So much for stifling innovation.

Now for the ugly. Where the USPTO erred, and this is only my opinion, is when they began granting patents for “business processes” and began to see code as copyrightable. While there are quite a few programming languages, there are just so many ways to code a function. Copyrighting code does exactly what? Protects your product because no one else can write the code precisely the way you did? If this is your biggest competitive advantage then I have some news for you: you don’t have a competitive advantage. One of the downsides of the proliferation of software patents is the rise and dominance of the patent troll. Their business process is to buy patents or represent patent holders, and then be on the prowl for companies who may be violating them.

You can look at patents in two ways: the patent trolls use them as an offensive measure, while the large patent holders – meaning the ones who actually patented their own inventions – keep them handy if they need to be on the defensive. In order to play this game you need but one attribute: deep pockets.

The good guys play a different game. The Open Source movement – the antithesis of the patent culture – protects the esteem of code jockeys, while letting others stand on their shoulders. And often this is a good start for a software-based startup.

Depending on who you ask, VCs don’t consider software patents to be all that important, although the U.S Dept. of Commerce and USPTO think they’re the cat’s pyjamas. But startups shouldn’t automatically pass up on patents. Trying to prosecute your patent is not a good business model, and don’t expect to raise venture capital on that basis, but registering your intellectual capital has value. There have been not a few “talent acquisitions” in the industry lately, and I think that patenting your technology ultimately does increase the valuation of your company. From the side of the purchaser patents are forever (ok, 17 years), but talent is somewhat more mobile.

There certainly are legitimate reasons for litigating a patent. A patent can easily take 5-7 years until it is granted. That is plenty of time for someone else to come up with roughly the same idea and implement it. One of the parameters that U.S. courts should be looking at – and you out there in Texas, yes, I’m talking to you – is the feasibility of the plaintiff producing the product described in the patent he is prosecuting. It may be a fine line between someone with the intellectual capacity to describe their invention and the technical inability to produce it, and those who have absolutely no technical means, or will, to bring the invention to fruition, yet want to prosecute others for not being as quick to paper as they were, or those from whom they bought the patent.

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4 thoughts on “Startup Software Patents: The Good, The Bad, and The Ugly

  1. I don’t see how you get from “Microsoft, Google, Apple, Cisco, and Intel have large patent portfolios [and are innovative]” to “software patents do not stifle innovation”, in particular by smaller companies. BillG’s 1991 observation is classic: “If people had taken out patents when most of today’s ideas were invented, the industry would be at a complete standstill today.”

    A few paragraphs later you write that “large patent holders keep patents handy if they need to be on the defensive.” This is an excellent example of the deadweight losses of software patents – if they did not exist, the resources spent on patent lawyering could be better spent.

    There is also a clear barrier to entry created by patents: “In order to play this game you need but one attribute: deep pockets.”

    I do agree with your practical comments, in particular that in the current legal environment, startups should acquire patents. However, my hypothesis is that the existence of software patents mainly makes startup payoffs more volatile, not greater on average.

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