usptoDuring my tech days, I co-authored four software patents. Each cost my startup about $15,000—which seemed like a fortune in those days. I didn’t really expect these to give me any advantage; after all if my competitors had half a brain, they would simply learn all they could from my patent filing and do things better. But I needed to raise financing, and VCs wouldn’t give me the time of day unless I could tell a convincing story about how we, alone, owned the intellectual property for our secret sauce.   We got the financing, and the plaques of the patents looked great in our reception area, so the expense was worth it. But there was definitely no competitive advantage.

Patents make a lot of sense in many industries; they are needed to protect the designs of industrial equipment, pharmaceutical formulations, biotechnology products and methods, biomedical devices, consumer products (toothpaste, shampoo, contact lenses, etc.), advanced materials & composites, and of course, widgets (lighting fixtures & elements, batteries, toys, tools, etc.). But in software these are just nuclear weapons in an arms race. They don’t foster innovation, they inhibit it. That’s because things change rapidly in this industry. Speed and technological obsolescence are the only protections that matter. Fledgling startups have to worry more about some big player or patent troll pulling out a big gun and bankrupting them with a frivolous lawsuit than they do about someone stealing their ideas.

New research by Berkeley professors Stuart J.H. Graham, Robert P. Merges, Pam Samuelson, and Ted Sichelman highlights the extent of this problem. They surveyed 1332 early-stage technology companies founded since 1998, of which 700 were in the software/internet space. Here is what they foundpatents 1

  • In software, only 24% of startups even bothered to file a patent. In medical devices, this proportion was 76%; and in biotech, 75%.  Far more venture-backed companies file patents:  in software, 67%; in medical devices, 94%; and in biotech, 97%.
  • Venture-backed companies also file more patents than others that file patents. They file, on average, 5.9 patents as against the all-company average of 1.7. In medical devices and biotech, this is 25.2 vs. 15.0 and 34.6 vs. 9.7, respectively.
  • Software executives consider patents to be the least important factor for competitiveness. They perceive gaining first mover advantage to be the most important factor, followed by acquisition of complementary assets, copyrights, trademarks, secrecy, and making software difficult to reverse engineer.
  • Companies file patents to prevent competitors from copying their products, to improve their chances of securing an investment or liquidity event (IPO, acquisition, etc.), improving the company’s reputation, and to gain bargaining power against others. Surprisingly, companies that held patents—even venture backed—didn’t believe that patents made them more likely to innovate. Even more surprising, a quarter of companies that licensed technology from others said they did this to avoid lawsuits—not to gain technology or knowledge. In other words, the patent constituted a weapon or a trophy rather than a way to obtain revenues from others’ commercial adoption of their technology.

Pam Samuelson, one of the co-authors of the report, says that her conclusion from the research is that the world may be better off without software patents; that the biggest beneficiaries of software patents are patent lawyers and patent trolls, not entrepreneurs.

Meanwhile, the U.S. patent system is clogged and dysfunctional. John Schmid, of the Milwaukee Journal Sentinel, analyzed U.S. Patent and Trademark Office data and found that as of 2009, there were more than 1.2 million patents awaiting approval—nearly triple the number a decade earlier.  In 2009, the patent agency took an average 3.5 years to deal with a patent request—more than twice the 18-month target. What is most alarming is that patent office automatically publishes applications online after the 18 months—outlining each innovation in detail regardless of whether an examiner has begun considering the application. Competitors anywhere in the world can steal ideas. This effectively undermines the entire purpose of the patent system: the patent office is charging the applicant serious money for giving it the privilege of giving away their commercial secrets.

To make matters worse, the patent office is rejecting applications at an unprecedented pace—with fewer than 50% being approved, compared to 70% a decade ago. One estimate is that this costs entrepreneurs at least $6.4 billion each year in “forgone innovation”–legitimate technologies that cannot get licensed and start-ups that cannot get funded. So the agency charged with protecting U.S. intellectual property and aiding innovation is often doing the exact opposite.

Brad Feld, managing director at Foundry Group, says that we should simply abolish software patents.  He believes that the system has spun completely out of control, with the vast majority of filings not passing the fundamental tests of a patent (that it be non-obvious, novel, and unique innovation).  Copyright and trade secrets have historically been the primary protection mechanisms for software intellectual property, and they are still the best solutions.  Feld notes that technology companies are now forced to divert huge resources to defend themselves from patent trolls rather than advance their innovations.

The founders of the United States considered intellectual property worthy of a special place in the Constitution—“To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” They had the concept right, but they surely never conceived of Amazon.com patenting clicks in an online shopping cart and methods for having an online discussion, or Microsoft patenting methods for activating double click applications with a single click. It’s time to do as Brad Feld suggests: simply abolish these abominations.

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  • http://www.johnbrobb.com/ John B. Robb

    If software patents are such a good idea, why not extend the idea to ideas themselves. Then all intellectual progress in all fields, not just software, will come to a screeching halt.

    I was a software developer for 30+ years (mainframes, minicomputers, and microcomputers) and I have done just about every kind of programming there is, and I say that any programmer worth his salt can translate a worked out idea, or an algorithm, into code, be it his idea or someone else’s. So it’s about patenting ideas, not code.

    There were no software patents in the 1980s, and there was more software innovation in any year of that decade than there has been in the two decades since. I’m not talking about programs, I’m talking about instantiated ideas – new ways of doing things, either at the application level, or under the hood. Patents stifle innovation; they don’t promote it.

    I got out of software in the 1990s because Microsoft killed the companies which made the quality software development tools and replaced them with their patented junk. I also abandoned at that time an entrepreneurial idea – a revolutionary new application program I designed which could have had a significant impact in its field because I didn’t feel like devoting a couple of years to making a product out of it and then see it suppressed by the likes of Microsoft or other patent monopolists with the deep pockets to maintain a stable of patent attorneys. I note that in the almost 20 years since I decided to shelve this project, no one else has come out with anything remotely comparable, and it might be another 20 years or never before any progress is made in that field. Or else it will be done by the Chinese or other more enlightened societies which value innovation over enriching the vested interests.

  • http://WWW.REFORMATION.COM Mark Syman

    I know a number of people who have used their patents to shut down competitors, which is what a patent is all about.

    My startup expects to get funding in the next few weeks from a man who protected his markets quite from competitors using patents. You can’t tell him patents are worth it. We are currently commissioning a very through patent to make him happy.

    Maybe too many patent attorneys can’t explain the value of patents that simply.

  • http://www,luxefaire.com Bill Gallagher

    Inventions are many times best served by writing plan-sets and teaching people how to do something by selling the instructions to build the invention….self publishing works well and the internet facilitates all that. As to patenting ideas, a similar phenom occurs when a mineral claim is processed through the governments offices: that action not only alerts any and all poachers to a new claim, but also becomes a publicly accessible map by which said poacher may obtain directions to the site. Many mineral and gem miners refuse to file claims for these reasons, unless a claim can be manned 24-7 and is exploitable commercially at upper levels.
    Protection of intellectual property is a true catch-22 in many ways, though it seems to me the brunt of the responsibility is on the creator of the new way or thing, and always will be. The government is nothing so much as tax enforcement anymore, their lawyers are protecting and fostering federal reserve law which is not in the strictest interpretation (Or even loosely interpreted) constitutional law. Their activities are not protecting the inventors, nor are they actually meant to. They abscond.

  • Alex

    Thank you for the timely response. I have begun reading some of your previous posts. The matter is a little more complicated than I had anticipated. At any rate, your article has already sparked much debate across the blogosphere. I still think that “abolishing software patents” is a little too radical a move for my taste. I’m certain that there are other measures that can be taken, yet I suppose that many have already tried to fix it. Abolishing something, if people are unhappy with it and they’ve tried fixing it to no avail, then maybe in such a dilemma it’s better to move on and find other ways to ensure all inventors – software developers and other innovators – have a fair chance at being remunerated for work which in essence is be beneficial to society. I think I didn’t pay enough attention to your opening paragraph, which legitimizes & illuminates your perspective. As an artist, I’m fighting another battle altogether, more in line with the debate on IP, than the one on patent laws. Thanks again for the timely response.

  • Alex

    How does it follow that because patent lawyers and patent trolls are the biggest beneficiaries of software patents, that we should abolish them altogether? Software is a form of writing, and those who write it deserve sole ownership of their intellectual property rights.

    That the Founding Fathers never conceived of Amazon.com patenting clicks in an online shopping cart does not mean that their Constitution was only right in concept. I am not following the logic of these arguments.

    How is it that “the agency charged with protecting U.S. intellectual property and aiding innovation is often doing the exact opposite”, where is the supporting evidence / argument(s)? People have the right to have stupid ideas & fruitless inventions, so there goes that mysterious 50%, maybe their ideas were lukewarm. The U.S. patent system has the right to not award one one’s patent.

    I believe patents to be a great way to provide job security. If it’s the patent lawyers and patent trolls who are in the wrong, then they should be discriminated against, by the Legal System if they are breaking the law. If the trolls are law-abiding citizens, then they have the right to free enterprise as much as I do. It’s a competitive market, and justly so, why would Apple make so many patents, and why would Facebook have just purchased millions of dollars of patents, if it wasn’t lucrative to have Software Patents?

    • Administrator

      Alex, you are missing the point. Software patents impede innovation for entrepreneurs. Technology changes so fast that the only real competitive defense is to “upgrade and obsolete”. What ends up happening is that entrepreneurs have to fear land mines planted by the big players and the patent trolls. Facebook purchases patents to defend itself from the same trolls, by the way. When they buy companies, they do this for working technology with market share–not IP.

      These don’t provide job security for anyone. The lawyers you are worried about could, instead, be helping startups incorporate and negotiate contracts as they grow. More startups=more jobs and more innovation. Please read some of my previous posts about entrepreneurship to understand what I am saying. Kauffman Foundation has documented that startups create the majority of American jobs.

      For the record, I am a strong believer in patents and IP. But in software these don’t work mainly because things change too fast for these to be relevant. Perhaps one solution is to shorten the duration to perhaps 2-3 years.

      And I may have been born abroad, but am as patriotic as you are. This is also my country and all of my research and writing is focused on helping America maintain its global competitive advantage.

      Vivek