How To Monetize Software Patents: Turning Intellectual Property into Profit

9 minutes

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Picture of Andrew Rapacke
Andrew Rapacke is a registered patent attorney and serves as Managing Partner at The Rapacke Law Group, a full service intellectual property law firm.
How To Monetize Software Patents

Software patents are more than simply legal protection in the rapidly growing field of artificial intelligence, software and technology, they are potentially untapped gold mines. But how can you turn these intangible intellectual property assets into real money? Welcome to the world of software patent monetization.

In this article, we explore strategies to generate revenue from software patents, helping you transform your intellectual property into a force for making money. Ready to optimize your business model, safeguard your intellectual property, and unleash the hidden power of your software? Let’s dive in.

What is a Software Patent?

Often the most valuable form of intellectual property protection in the SaaS and AI industry is a patent, especially when you pair them with the right strategy to monetize software patents. Software patents provide the exclusive right to make, sell, and use a proprietary technology for 20 years. For software companies whose business model is derived from a proprietary software platform, a patent can provide both short- and long-term value. A strategic patent strategy to monetize software patents for your company will not only provide a barrier of entry for competitors but will make your company more attractive to investors, licensing opportunities, and merger and acquisition deals. Remember, a savvy investor is unlikely to invest in a software company that does not have any intellectual property protection around their propriety software platform as there is no deterrent to stop a competitor from replicating your software features. While “first to market” does have limited competitive advantages and may provide some short-term monetization, the competitive market will eventually catch up and your advantage will be gone. An issued patent based on your proprietary software process will provide long-term monetization opportunities and keep competitors away for the duration of your patent term.

Why Startups Should Monetize Software Patents

While it may seem expensive and unnecessary for an early-stage company to file a patent application on its software platform, a strategic patent portfolio will enable a company to license its technology and immediately collect a royalty ultimately retaining ownership of the intellectual property. While startups are often more concerned with marketing and advertisement budgets, a wise strategy to monetize software patents can be its best long-term investment.

For most startups, their proprietary software whether its SaaS, AI, IoT, Cloud Computing, BC, Big data analytics, and Mobile App’s base their entire valuation around their proprietary technology and software within these systems.  While most startups will raise and spend millions of dollars in software development, they often forget that a patent is the legal barrier that will keep competitors from copying and replicating their platform. 

Common Misconceptions about Software Patents

When you conduct a cursory search of the web for information about software patents, you will inevitably find half-truths, misconceptions, and even some bald-faced lies about the validity and value of software patents. The most common of these myths is that software cannot be patented, does not justify patenting, and that a patent can be overcome without a successful legal challenge. Each of these claims is based on false information. 35 U.S.C. 101 provides “processes, machines, manufactures and compositions of matter” as requisite for subject matter eligibility. For patenting purposes and to monetize software patents, software products may qualify as a “process.”

There is also a misconception that the United States Patent and Trademark Office (USPTO) drags its feet when considering patent applications to protect software. That is simply not the case as over 63% of all patents granted last year were software related.  The average length of time for an initial USPTO action is 20 months. It is possible that the application will move out of pending status before the 20-month mark.

Others incorrectly assume software patents cannot be enforced or somehow have limited rights compared with other industries. A patent holder is legally empowered to enforce the rights to a patent as soon as the patent is issued.  The breadth and scope of your patent rights are found in the issued claims.

Finally, there is a common misconception that it is impossible to expedite the examination of a software patent application. The USPTO provides the option of prioritized examination through a program that accepts upwards of 15,000 applications on an annual basis. Such applications are filed within the Track One Prioritized Examination that aims at providing a final disposition for your application within twelve months of filing.

The Importance of Strategies to Monetize Software Patents in Business Growth

To monetize software patents is the key to both short and long-term revenue generation for your software platform. For example, the software titan ISM has generated more than 27 billion dollars in licensing revenue since 1996. [1]While patent application and maintenance costs may seem expensive, with the proper monetization strategies you will be able to collect multiple royalty streams for the duration of your utility patent (20 years).   Without patent protection, you will not likely be able to take advantage of monetization opportunities, but your software platform is vulnerable to copying and reverse engineering.

Patent and licensing monetization factors include:

  • The scope and duration of your granted patent rights.
  • Your company’s vertical and competitive landscape.
  • Revenue generation.
  • Future patent and intellectual property filings.

How to Monetize Software Patents for Revenue Generation

Identify, acquiring and retaining customers is the lifeblood of every software business. However, your monthly recurring revenue and subscription model is not the way to monetize your software platform. When you monetize software patents, they become assets that have the potential to be just as valuable as traditional software revenue models. Remembering owning a single patent or portfolio of patent is an asset that can generate revenue through licensing without rescinding ownership.

Lean on the experts to assess your patent or portfolio of patents, and to help you monetize software patents, and you might find the one-time sale is quite lucrative, especially compared with the projected potential revenue generated by the patent(s).

Let’s take a quick look at a couple of examples of companies that monetized software patents.

Case Studies of Successful Software Patent Monetization

The value of a strategic patent portfolio generation and management can be seen by America’s largest technology companies. For example, in 2016 IBM set a record for having earned the most patents at just over 8,000. If you’re intimidated by this statistic, wondering how a company can earn so many patents when it can be a struggle to even file a single application, the answer is very simple: continuous software development and business acquisitions (in 2016 IBM acquired 12 businesses). While most startups do not have the resources to buy multiple businesses and their corresponding patent portfolios, they do have the ability to think about patent filings as they continuously develop and refine their software.

A further example of the benefits of a strategic patent portfolio is epitomized by Google’s acquisition and subsequent sale of Motorola. Google bought the company for $12.5 billion, just to sell it two years later for under $3 billion. This acquisition propelled Google into the smartphone industry. Their reliance on Motorola’s Android operating system gave them everything they needed to not only exclude others from using the intellectual property but to protect themselves from Apple and other giants battling in the smartphone patent wars.

While it’s easy for any business to dismiss this information to say “I don’t have the resources of a major tech company” starting with a single patent is often the seed of investment that will bear long-term fruit. In today’s hyper-competitive digital economy, the development of a patent portfolio and the ability to monetize software patents can often mean the difference between market sustainability and bankruptcy.

Selling the Rights to the Software Patent

Don’t overlook the value of licensing.  Licensing creates an opportunity for financial gain by allowing a licensee the right to use, create, or sell your patented software under agreed-upon parameters, be it the right to sell the platform in specified geographic locations or over a period of time, at which point all rights revert to you, the rightful owner of the patent. Licensing your software can be thought of as a form of free marketing as well as, by the time the licensing agreement expires, your software product will have been exposed to many more consumers than it may have otherwise.

To monetize software patents through licensing requires market research, meetings, and negotiating a strong licensing agreement with the right provisions and material terms. As important as it is to protect your software with a patent, it is of equal importance to create a strong licensing agreement, so your rights properly revert upon termination or expiration of the agreement.

Patent Acquisition

Patent acquisition can be a very lucrative endeavor.  Selling your software patent has the potential to yield large financial gain than merely using the patent to generate sales revenue. Though selling patent rights provides an influx of capital, the downside is that such a sale is typically structured for a one-time payout and relinquishing of all rights to the IP through a patent brokerage. With the right patent strategy, you may be able to license your software platform for a defined term and then eventually sell your patent rights in your software patent.

Leveraging Software Patents for Fundraising

Leveraging and finding ways to monetize software patents can play an important role in your capital raise efforts. As mentioned, protecting your software technology with a patent will make your company and platform more attractive to investors by assuring them that their investment has legal protections around it and may not be replicated without recourse.

The bottom line is software patents hold value to your business and your client acquisition strategy, as well as those willing to lend financial support during fundraising. The right strategy will establish lucrative relationships that prove mutually beneficial to all parties.

Commercializing a Product or Service Based on the Patent

Once your software platform is “patent pending” you may begin to publicly commercialize and monetize software patents. For most software companies, that entails creating a strategic marketing plan to target their desired audience, generate monthly recurring revenue, and develop a marketing strategy to identify, acquire, and retain potential customers. Knowing your software platform is protected will help you focus on the important things such as building exceptional customer service and research and development.

It is imperative to understand that you have 12 months to file a patent application (can be a provisional or a non-provisional patent application) for your first date of public disclosure. After twelve months of the initial public disclosure, if no application has been filed, your software will be considered “time-barred” and rendered unpatentable under 35 U.S.C. § 102 (a). While most new software companies are primarily concerned with developing customer acquisition and retention plans, understanding the timing and scope of software patent rights is the key to building a patent portfolio and licensing opportunities.

On March 13, 2016, the USPTO shifted to a first-to-file system, bestowing the right of a granted patent to the first person to file a patent application for the corresponding invention, regardless of the date of actual invention. This new streamlined system incentivizes an inventor to immediately establish their patent rights by promptly filing a provisional or non-provisional patent application. Further, once you have filed an application and are “patent pending,” you may seek licensing and monetization opportunities, capital investment, and openly disclose your software platform with developers.

Enforcing Your Software Patent Rights

Patent enforcement, a key part of the strategy to monetize software patents, is exactly as it sounds — it is the legal enforcement of your granted patent rights against an infringing party. Choose an attorney with experience in enforcing software patent rights, and you’ll rest easy knowing this professional will advocate on your behalf in and out of court to prevent another party from financially benefiting from your unique software or other proprietary technology.

Successful patent enforcement may include both injunctive relief and monetary damages including attorney’s fees and costs.  In the case of will patent infringement those damages may be enhanced.  However, it all starts with obtaining an issued patent!

Keep a close eye on the competition to get a sense of whether their software is similar or identical to your patented software. Consult with your attorney if you are even slightly suspicious that another party is financially benefitting from your intellectual property.  If you believe there may be infringement, start with a comprehensive infringement analysis to verify your suspicions. 

Pros and cons of software patent enforcement

The pros of patent enforcement are to ensure that you are the exclusive and enforceable owner of the granted patent rights of your software platform. Registering and maintaining a valid patent will ensure you help you establish a barrier of entry for competitors. However, failure to timely enforce your patent rights can be costly and may result in affirmative defenses being asserted against your granted patent rights.

The negative implication of enforcing a patent is, predictably, the time and cost of the federal court of PTAB litigation. As with any legal proceeding, you must weigh the benefits, costs, and uncertainty of litigation. Assessing how much value your software patent adds to your company is a practical “measuring stick” to determine if litigation costs will yield a return. As with any litigation, if the infringement of your legal rights jeopardizes your business future, then litigation is a must.

While patents may be an invaluable resource for a company, enforcement can often be costly and time intensive. Creating a strategic patent approach to monetize software patents around your software platform will ensure that you allot the right resources toward building long-term value for your company.

Speak With an Experienced Software Patent Attorney

Software patents, when you monetize software patents, are an invaluable asset that will bring your company short-and long-term monetization opportunities while keeping competitors away from your proprietary process. At RLG, our attorneys have the experience and expertise in preparing your software patent application including drafting a thorough disclosure document and outlining your software system’s processes of use and point of novelty.  We will work closely with you to draft a comprehensive application and corresponding drawings for one transparent fixed fee to ensure your software patent will be issued and have sustainable legal protections in the future.  

The RLG Guarantee

In addition to a fixed-fee billing approach, RLG offers a money-back guarantee on all prior art searches, provisional patent applications, design patent applications, and trademark applications. To be clear: should our team determine that your invention is not patentable in light of the prior art, a full refund will be provided. If patentable, we will credit the cost of your search towards your new application. For the trademark and design patent applications, this means that if your application does not receive a notice of allowance for any reason, we will provide a full refund. Our trademark and design patent application packages include all search, preparation, office action, USPTO correspondence, and USPTO filing fees. Please call us at (954) 951-0154 for a free consultation or take our intelligent IP quiz to see what protection is best for your invention.


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