UK: How SMEs Protect Computer Software

A recent survey of small and medium sized enterprises (SMEs) has demonstrated that the most common methods they employ to protect computer software are copyright, technical systems of protection, licensing and secrecy. They apparently patent less, as they find the system complicated, expensive and do not view patents as conferring any particular advantage for their software-based products. Patenting was thought to be laborious and complex and made no sense in the fast pace development environment of software development. They think that patenting is not particularly appropriate for their software products as other forms of IP protection, such as informal methods – technical systems and licensing – are equally effective. The most effective technical systems of protection involved use of dongles, encryption, stenographic techniques, key diskettes, firewalls and passwords.

The survey found that 27% of the SMEs interviewed regard licensing as the most effective means of protection and 24% ranked technical systems of protection as the most important means. 21% found copyright effective, while only 8% thought that patents were of any use.

Yet another survey shows that SMEs recognise the importance of IP for their business. However, generally, they find informal methods of protection generally more effective than formal ones, such as patenting. SMEs which use copyright to protect their software were satisfied with its effectiveness. They also appear to have a penchant for methods of protection based on trust, secrecy and contract. As to the benefits to be gained from patenting software, the study shows that there is little evidence that SMEs would obtain any further gains from expanded patent and copyright systems. Indeed, SMEs are more focused on getting their products to the market place as quickly as possible, rather than worry about how to formally protect their software creations.

However, SMEs are aware of and understand the basic methods of protection such as copyright, trade marks and patent. They know what these can do for their businesses, however they are not overly fixated with them nor do they approve of expansions of these rights which they fear will only lead to complexity and increased costs.

Almost all UK and European software companies resort to copyright protection because it is cheap and automatic. A small number resorted to escrowing their source codes. Although some were aware of the possibility of registering their copyright with private agencies like the United Kingdom Copyright Service (UKCS), few did so. The few who had come across infringements of their software copyright, almost never resorted to legal action but contented themselves with the use of "bad publicity" to "naming and shaming" the miscreants. There is general satisfaction with the efficacy of the protection afforded by copyright. A small fraction attempted to patent their software usually because they intended to market in the US. Some who felt that they would have been entitled to a patent, did not proceed because of the fear of disclosing valuable information. They preferred to rely on licensing and copyright.

Ultimately, SMEs feel that intellectual property rights (IPRs) are only one way of protection and that a combination of copyright and informal methods is likely to be the optimal and most cost-effective way of protecting their interests.

In so far as the benefits that SMEs (involved in the software industry) can derive from patents are concerned, these appear - from the view point of the SMEs – to be negligible. Even those involved in R&D and who view themselves as innovative, feel that patents are irrelevant to them. Again they are more concerned about being first to the market, rather than being infringement concerned. There are two reasons for this: (1) the resources SMEs need for their day-to-day operations and survival are typically fully stretched; and (2) developing first mover advantage is a more practical method of protection than patenting, for the 6 to 9 months it would take infringers to copy them would have made the software out of date. Moreover, there is uncertainty over the commercial exploitability of patents, their ability to deter infringement and lack of resources.

Furthermore, SMEs are not interested in patent specification information to drive their product creativity. They rely rather on customers, suppliers and competitors. The patent system, it is clear, is of more utility to the HPs, Microsofts and IBMs of the world. Nevertheless, it has been found that SMEs appear to display a positive attitude toward potential patenting and possess a sound familiarity with patent information. Moreover, there is the belief that the incremental nature of innovation in respect of software is incompatible with patenting. This is because since software is based on algorithms, it is extremely rare that one can be restricted to one approach to achieve a desired end. So, even if a patent can be awarded for a particular software invention, other ways of achieving the same end are likely to be developed. It follows, therefore, that in the light of the limited life span of most software applications, the time required to put together software patents applications was better spent trying to bring new applications to market as quickly as possible.

Although it was found in one study that most owner-managers of SMEs are not backward at managing their intellectual property – in that they know what is important to them – they are selective about dealing with them. Thus, they put up prominent copyright notices on their website and software packages, because it is cheap, but they are wary about acquiring formal rights such as patents. Accordingly, this affects their willingness to acquire and enforce IPRs. They are willing to employ copyright notices in the case of software and designs and use licensing to protect IPRs, however, instead of spending on expensive items like patents (and to a lesser extent registered design), they prefer to take lead time over their competitors, procure contractual undertakings, use know-how to ensure that products are not easily copied and deal within a market niche, in order to protect their IP.

As to the last, there is much evidence that there is widespread use of trust and market niche in order to protect IPRs. Accordingly, forging high-trust relationships with customers and suppliers reflects both a method of conducting business, as well as a method of IP protection. Market niche appears to be the most favoured form of informal protection.

Generally speaking, therefore, medium-sized firms are more likely to adopt formal rights than SMEs, because, for the most part, they generally have more resources, knowledge and experience in dealing with the IPR system. Unless high commercial benefits are anticipated from the exploitation of their IP, SMEs will not acquire formal IPRs. They would rather use their finite resources for product and process innovation and first mover advantage, rather than acquiring and defending formal IPR. Demonstrably, therefore, the use of secrecy, trusted relationships and lead-time compared to the use of patents in gaining advantage is the preferred route of SMEs in relation to the protection of their IP. This is even true of some medium sized firms. Thus, the assertion that patenting could help develop and maintain competitive advantage, may well be a popular myth!

One of the things that SMEs, in respect of software protection, are most concerned about is the unauthorised use of their computer software inventions. In other words, they fear that their competitors will steal their "ideas" from their products. Another thing that worries them is the creation and implementation of "unwanted legislation"! Yet another is the unauthorised duplication of their software creations. However, not all SMEs appear to be overly concerned about protecting their software creations. Even if they are, they seldom adopt any active protection policy, settling for informal and copyright protection. This, event though many are aware that copyright protection is relatively weak.

In so far as patents are concerned, they are out of favour (not that they ever were otherwise) with SMEs. This is because software patents are seen as not offering a competitive advantage, and other methods of protection as seen as offering sufficient protection