During many of our new client consultations, one of the most common concerns raised while evaluating whether the client’s business or startup should pursue software patent protection centers on whether software is patentable. Follow up questions include whether software patents can really be enforced and how easy it would potentially be for another party to develop a “work around.”
Often, these conversations with new software founders include a tall tale they have heard from an anonymous third-party that software is: (a) not patentable, (b) not worth patenting, or (c) can easily be “worked around” by creating minor changes. Unfortunately for many of these prospective clients, this flawed advice is typically based on limited information and, if followed, can often place a business at a strategic competitive disadvantage.
These software patent myths may originate from non-lawyers who lack authority on the subject and who have a limited understanding of patent prosecution. This results in an ever spinning rumor mill of misinformation regarding software patent eligibility. Despite being in the midst of a global software industry boom, with the United States and Europe leading the way, the question remains: is software patentable and worth pursuing? Today we will debunk the software patent myths surrounding software patents.
Imagine you and your team have spent years working diligently to develop a streamlined software solution that provides an answer to a technical deficiency in your industry. You have devoted long nights and weekends developing a prototype and beta testing your software. You probably built a pitch deck and rehearsed your “elevator pitch” hundreds of times in hopes of securing a seed round. Finally, you deploy your software solution (that has become your baby) to the public, along with your it’s proprietary features and functionality. Your software platform becomes the “go-to” Software as a Service (SaaS) solution in the space. You watch as your monthly recurring revenue (MRR) grows, and you have hopes of being of being acquired. However, over time something happened and you start to see your financial scaling pace dwindle only to discover your competitors have integrated your proprietary features into their software platform. Suddenly, you realize you are losing your competitive advantage and your competitors are gaining market share at your expense, a term known as “the second mover advantage.” What could you have done to prevent this injustice? You guessed it. A software patent.
What is a patent and is a software patentable subject matter?
Though skeptics have often described patents as a limited monopoly, they are not. Patents provide exclusive rights granted by the federal government to the patent holder that prevent another party from making, selling, using, offering to sell, or importing into the United States any product that infringes the patent holder’s rights. The origin for this authority is enumerated in the U.S. Constitution, which states under Article I, section 8, that “Congress shall have power… 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.” However, for your invention to be patentable subject matter is must be novel (new), useful, and non-obvious, and must fall under one of the statutory categories of processes, machines, manufactures, or compositions of matter.
The legal system recognized that granting a patent on every software process may stifle innovation in the long run instead of promoting it. Even simple software processes could theoretically be “novel,” if they include new steps performed or provide a technical improve to a known technical deficiency through computer execution. Software processes could also be “novel” in the sense that they are implementations of processes that were previously only performed manually and are now automated using technology. After many years of patents being granted on otherwise seemingly routine business processes implemented as software solutions, in 2014 the Supreme Court of the United States elected to hear a case and weigh in on the issue of software patentability, Alice, which has evolved into the source of many of the software patent myths and misconceptions about software patentability.
Alice Corp v. CLS Bank International, 573 U.S. 208 (2014) was a monumental Supreme Court decision that rocked the foundation of software patents to their core. In a unanimous decision written by Justice Clarence Thomas, the Supreme Court held that patent claims granted for computer-implemented electronic escrow services were directed to abstract ideas and not patentable subject matter. The Alice decision has had a profound impact on the way Examiners at the United States Patent and Trademark Organization (USPTO) examine software patents. The decision laid out a two-step analysis, whereby a determination is first made as to whether the subject matter claimed in a patent is directed to an abstract idea. If yes, the claims need to add “something extra” that embodies an “inventive concept.” While the Supreme Court included several examples of what may or may not qualify as “something more,” the ambiguity of the decision and lack of guidance led to issues in implementing clear and consistent standards by lower courts and during examination by USPTO Examiners. The dramatic effect of the Supreme Court’s decision left many in the software industry wondering whether their software patents had become useless and unenforceable.
The software community has made tremendous strides in the last eight years since the turbulent aftermath of the Alice decision and new USPTO Examiner guidance has been issued on how to best to determine subject-matter eligibility of software patent applications. The result of this new guidance has increased the number of software patent applications being granted by more than 22% in the last three years with over 60% of all applications granted in 2020 being software or computer-implemented technologies.
Benefits of software patent protection
Software Patents are a form of intangible assets that provide a variety of competitive advantages for the patent holder including:
- The right to exclude others from making, selling, using, offering to sell, or importing into the United States any product that infringes the patent holder’s rights and providing legal remedy should that occur.
- The right to recover lost profits or reasonable royalties from an infringing party.
- The ability to monetize the patent through licensing and acquisition.
- The ability to maintain a competitive advantage over competitors in the marketplace.
Best Practices when drafting your software patent application
As you can see, software and computer-implemented processes do not fall neatly into the statutory framework for patent eligibility. While software is broadly defined as “programs and other operating systems used by a computer,” it can feasibly be argued that certain routine functionality or generic automation is too “abstract” to be patentable subject matter. However, by identifying the novel aspects of your software and articulating how your software improves computer functionality you can move your claims out of the abstract and into the tangible. You should also ensure you describe with particularity all systems, sub-systems, and components used to execute your novel process. Further, you should avoid describing generic functionality or merely reciting automation of human activity that has traditionally been manually performed or reciting “conventional actions in a generic way” when drafting your claim set and detailed description.
Major considerations when deciding to file a patent application for software?
Cost – A software patent can be a major asset for any company if properly monetized. When comparing the costs associated with the software patent application process to the total development costs of your platform, a software patent application should be a “no brainer.” However, there are several steps that you should understand before diving into a new software patent application. Hiring the right attorney can often save a client thousands of dollars during prosecution. The first step before preparing any software patent application should be a prior art search to determine the patentability of your software in light of existing patent publication and non-patent literature. These documents are known in the industry as “prior art.” If your application is both statutorily patent eligible and likely patentable after a search, the next step is to determine which type of patent application is best for your situation. Often your stage of software development will determine whether a provisional or non-provisional patent application is best for you.
A provisional patent application provides a 12-month window before filing a non-provisional patent application and provides a means to establish an early filing date for your later filed non-provisional patent application. For companies in the early stages of development this 12-month pendency time can provide valuable time to develop, beta-test, and finalize your application while being “patent pending.” A provisional patent provides lower costs than a non-provisional patent application with fees ranging between $3,500 to $5,000+ depending on the attorney or law firm.
A non-provisional patent application, often nicknamed “the regular” utility application, if granted, provides 20 years of patent protection from the filing date of your application. Your non-provisional application requires a title, background, summary of the invention, detailed description, and at least one claim to meet the legal filing requirements. Most non-provisional patent applications will include 3 independent claims and 20 claims total although the applicant may purchase addition independent and dependent claims by paying the appropriate fees at the time of electronically filing their application though the EFS-Web. The fees for a non-provisional patent application range between $7,000 to $25,000 depending on various factors including the complexity of the invention, prosecution history, and the size of the firm or entity status as defined by the USPTO. You should consider retaining a fixed-fee patent firm to help manage and anticipate your patent prosecution fees and to preemptively alleviate the anxiety caused by billable hours or unknown costs.
Time – The USPTO has recently published its most updated patent pendency data which indicated on average that a first office action pendency period is 20.2 months. What this means for an inventor is they should expect their application to remain pending for 20 -21 months from the date of filing before receiving their first office action. Please keep in mind this is the average pendency time for all applications. Historically, based on the complexity and technologies examined, software and computer-implemented inventions may remain pending up to 30 months. As previously discussed in other articles and below, filing for a Track One Prioritized Examination can reduce this pendency time by at least one year.
Enforceability – A patent holder’s ability to enforce their patent rights begins the moment their patent is issued. If an infringing party makes, uses, sells, or imports the subject matter claimed in the issued patent, the patent owner will have legal recourse against the infringing party. The scope and breadth of your patent rights are defined by the granted claims in your patent. If your patent includes broad claim language, then your right to exclude others is much larger than it would be in the case of a granted patent with narrow claims. While an issued patent is initially presumed valid, it may still be subject to future challenges at the USPTO through the Inter Partes Review (IPR) process or invalidation action in federal court. Although very uncommon (less than 9,000 IPR proceedings are filed per year), patent rights are not absolute and the possibility exists that they may be later challenged, and in some cases invalidated.
Considering the challenges in acquiring a software patent (due to cost, time, enforceability, and initial examination challenges resulting from Alice)and weighing them against the upsides of patent protection (including monetization opportunities through licensing and acquisition, and legal recourse against infringers), is it worth it to file for software patent protection? The answer a resounding YES.
How can I speed up the patent process?
For software companies interested in fast-tracking their application, the USPTO offers a Prioritized Patent Examination program which allows up to 15,000 applications per year to be filed under Track One Prioritized Examination. There are a number of advantages afforded by this special status, including moving your patent application forward in the examination queue and receiving a final disposition on patentability within twelve months without having to perform a pre-examination search.
Any applicant may “request” Track One Prioritized Examination at the time of filing the application or at the time of filing a Request for Continued Examination, along with the “Prioritized Examination Request” form PTO/AIA/424 and filing fees which range between $1,000-$3,000 depending on entity status. Though it’s one of most overlooked programs offered by the USPTO, its highly recommended for companies looking to accelerate their prosecution time.
What can you do if you are unable to secure a software patent?
Consider the effort, time, and cost required to develop a software application. The months and years of planning, meetings and long days and nights of programming that have been put toward creating a solution that will, hopefully, be profitable in the long term. What recourse do software developers have against parties who might steal or implement identical features?
While not a perfect solution for protecting software, filing a patent application and is arguably the best and broadest solution. Patent claims directed to a particular process or method not only provide broader protection than copyrights, but can be asserted against another infringing party who may be attempting to copy or clown your software functionality by rewriting or refactoring the original computer code.
Copyright protection can provide recourse against infringers through a copyright infringement suit, but copyright protections are limited in scope to the specifics of the source and object code that is copied and not the claimed functional aspects. Code is frequently edited as newer modifications are developed and software characteristics are improved. Copyright protection may not protect these latest software updates and iterations, but patents can protect broader features that are executed in a different process or method.
Where Software Patents are a “Must”
The most obvious scenario where patent protection is beneficial happens when a competitor or newcomer in an industry copies a software company’s product and begins to directly compete. In such scenario, an patent infringement lawsuit and injunction are a viable option to immediately stop the infringement, but only if the company has an issued patent.
Another scenario in today’s cyber connect world are constant security breaches of senative data and personal identifying information for modern data driven financial and technology companies, especially those whose products are software based. While companies spend a significant amount of money on preventative security measures against cyber attacks, bad actors are still able to evade detection or hack their way through the security software barriers and firewalls. The results can be devastating to a brand, who may have their valuable code or sensitive data held for ransom or even sold to highest bidder. Stories about companies like Code Spaces, Nirvanix (under six weeks from breach to dissolution), and MyBizHomepage (valued over $100,000,000 at one point) serve as cautionary tales where their firewalls were breached and senative data stolen were unable to recover and eventually went out of business. If any of these companies had built a patent portfolio around their software’s innovative aspects, they may have had some legal recourse against anyone who later began to make, use, sell, or import their patent protected innovation.
One can also consider the familiar scenario of the software startup who built a streamline proprietary solution and who properly scaled and became an industry leader. The startup’s efficient customer acquisition, impeccable customer service, and a superior product quickly propelled it to become the “go to” solution in the industry. However, due to the company’s, lack of foresight, or misunderstanding on the value of a software patent, failed to file patent applications on its most innovative software features. After going public, former employees leave the company and decide to launch a competing software platform in the same space with similar or identical features.. Suddenly your competitive advantage is lost, and your market share starts to get diluted by competitors offering the same software solutions. Before long your MRR starts to drop, and your stock price is tanking.
The company has little recourse and can’t file a new application as their software platform has already been disclosed in the public domain for more than one year. Without strong patents or other intellectual property protections, the company is forced to spend years in litigation because its litigation counsel cannot file suit for patent infringement and ask the court for an injunction to immediately stop the infringement. Alhough you may think this could never happen to your company, or it’s a “long shot” this is a fairly common scenario in the software industry that could have simply been avoid by taking the neccasary steps to protect your intellectual property early.
Don’t forget about the advantages of a design patent
Design patent application filings are also worthy of consideration for software. Patent protection of Graphical User Interfaces (GUI), loading screen changes, and other ornamental elements can result in highly valuable assets for software companies looking to protect the ornamental aspects of their software platforms. Your GUI may be patentable and may meet the “article of manufacture” requirement if your GUI’s two-dimensional image is shown on a computer screen, tablet, or mobile device. Your GUI design patent application may include multiple embodiments as long as those embodiments relate to a single GUI design. The application should include at least one area in dashed or broken lines, and the outer boundary of the device in broken lines. A broken line statement are essential in defining what portions of the GUI are claimed.
Design patents for GUIs are advantageous as compared to non-provisional utility patents for a number of reasons including a faster prosecution time, higher allowance rates, and lower costs.
For those still on the fence
Undoubtedly there will always be some that still believe that, despite the evidence presented here and available online, patent protection for software is not enforceable or too costly. However, when faced with the danger of losing your valuable technology, losing market share to a competitor or losing the company entirely, we encourage you to reconsider and strategically evaluate where you see your company in the future and what proprietary innovations are at jeopardy should you elect not to pursue patent protection. Then ask yourself: would you still be able to achieve those goals if you lost your competitive advantage or had your proprietary functions copied?
After analyzing the points raised in this article, our hope is that you have a more informed understanding of the issues surrounding software patentability and the benefits of filing for software patent protection. Patents can provide the best protection and some of the only direct recourse against theft and misappropriation of proprietary software technology that could make or break a company’s future.
At the Rapacke Law Group, we have a deep understanding of the software application process. We are a intellectual property law firm built for the speed of startups, with business and patent attorneys experienced in software, SaaS, FinTech, and cloud technologies. Our Firm engages in no hourly billing and does not charge for calls or emails. We offer startups and business, our IP legal services for a transparent flat fee to ensure our clients understand exactly both the scope of any work and costs before beginning their new matter.