Sunday, January 15, 2012

Software Patents - Merely A Dog or Software Startup's Best Friend? Part 1

In A Generation of Software Patents (2011) James Bessen examines patenting behavior in the software industry since the 1990s. He argues we saw a large increase in software patents after In re Alappat in 1994, because the Federal Circuit held a novel software algorithm with "a trivial physical step" eligible for a US patent. I'm not sure why it was "a trivial physical step" given Alappat's claims are drawn to a rasterizer to smooth waveform data prior to displaying a waveform on an digital oscilloscope. On the other hand, I agree software patenting increased dramatically in the 1990s.

Mr. Bessen concludes software patents are not a net societal benefit, but acknowledges they account for one quarter of all US patent grants and one quarter of the lawsuits. Even if his numbers are only roughly accurate, they speak to a motive for continued controversy regarding software patents-- big money is at stake. 

Software patents will continue to be sought by startups and large companies. Nearly 2/3 of VC backed software companies seek patent protection. Large software companies also perceive their value and have sought to patent or purchase as many software patents as possible (e.g., Apple and Microsoft's $4.5B purchase of the Nortel patents and Google's $12.5B purchase of Motorola Mobility). In 2011, Microsoft was sixth in US patent grants. According to Microsoft owns 19,405 US patents, Apple owns 4,509 US patents, among which 2,606 mention software, Oracle owns 2,431 US patents, and Adobe Systems owns 1,248 US patents. Do I need to mention IBM

Twenty years ago, Bill Gates sent a confidential memo to senior executives. It indicates what has led to Microsoft's major increase in software patenting:
I feel certain that some large company will patent some obvious thing related to interface, object orientation, algorithm, application extension, or other crucial technique. If we assume this company has no need of any of our patents, then they have a 17-year right to take as much of our profits as they want. The solution to this is patent exchanges with large companies and patenting as much as we can. Amazingly we haven't done any patent exchanges that I am aware of. Amazingly we haven't found a way to use our licensing position to avoid having our own customers cause patent problems for us. I know these aren't simple problems, but they deserve more effort by both legal and other groups. For example, we need to do a patent exchange with HP as part of our new relationship.
Sure Mr. Gate didn't foresee patent trolls but in other respects his insight has proven correct. Around this time, the League for Programming Freedom questioned the value of patent exchanges for small companies stating they only allow companies like Microsoft, Apple, and IBM to continue and would shut new companies out of the field. As we watch the continued growth of the software industry, this prediction has not occurred. However, small companies may not be in good shape if they have nothing to exchange. For details see my post on You Have to Pay for that Banana! As the League paper stated, "A future start-up with no patents of its own will be forced to pay whatever price the giants choose to impose. That price might be high: established companies have an interest in excluding future competitors." 

Copyright © 2012 Robert Moll. All rights reserved.