If someone tells you that it is impossible to patent software, they are mistaken. Microsoft has over 40,000 active patents in the U.S. alone (and thousands more in process). It added 3,144 new U.S. patents in 2019, up 32% from 2018. Last year, Salesforce increased its U.S. patents over the prior year by 64%; Facebook by 78%; Oracle by 20%; SAP by 50%; Adobe by 40%, Bank of America by 30%, Alibaba by 96%; Accenture by 36%; and Capital One by a whopping 232%. Similar trends are occurring with much smaller software and internet companies.
Why are companies rushing to patent their software inventions? There are many reasons, all stemming from the fact that patents add value. Fifty years ago, a company's value was largely based on its physical assets. Today, intangible assets make up the greatest percentage of corporate value. Particularly in software-focused companies where innovations can be quickly copied by competitors, patents are critical to protecting the company's value. In fact, patents are often the most significant transferrable asset that software and e-commerce companies hold.
But software patents are not simply trophies to keep in a display case. They can be strategically used in many ways. When competitors get too close, patents can be used to stop them. When revenue is needed, patents can be licensed for added income streams. When companies need access to a competitor's technology, patents can be cross-licensed. Powerful patent portfolios keep their owners out of lawsuits because competitors fear a retaliatory patent infringement lawsuit. And when competitors do sue for patent infringement, patents are the currency that often ends the battle. For the most effective way to get out of a patent infringement lawsuit is to counterclaim for infringement and then settle.
For all these reasons, established software companies invest heavily in patents, and growing software companies are following suit. Even for startups, as the level of investment in a company rises, sophisticated investors insist on a quality patent portfolio, effectively as security against the investment. Patents not only provide investors a measure of exclusivity in competitive markets, but also provide them with an asset that can often be monetized should the company fail.
Software companies need to be careful not to wait until it is too late to patent. if a company waits until it is sued or until the B round to get serious about patents, it is usually too late to obtain patents that will accomplish immediate goals. To position your company to maximize valuation at the later stages, strategic, blocking patents need to be obtained in the earlier stages.
Many companies spin their wheels, wasting time and money on patents. Others are able to quickly develop powerful patent portfolios. There are three tricks to maximizing the chances that your company will be able to quickly obtain powerful patents.
First, don't overreach. Many companies draft their software patents too broadly, leaving the government patent examiner with the impression that the company is reaching for more than it is entitled. When this happens, patent applications can get caught in an endless and costly loop of rejections. On the other hand, reaching for too little can lead to worthless patents that competitors can side-step. Finding the correct balance requires the assistance of a patent strategist with knowledge of what the patent examiner is likely to accept, and who is skilled in crafting the patent in a way that covers what competitors will need in order to compete.
Second, carefully choose your words. As a child, my mother would periodically scold me for something I said. She often reminded me, "it's not what you say, it's how you say it." The same is even more true with patenting. The nuance with which patent applications are written has a major impact on how quickly you will receive patents, or on whether you will even get the patents. For example, there are examining groups in the U.S. patent and Trademark Office that grant patents far less than 40% of the time. And there are other groups that grant patents more than 80% of the time. When patent applications arrive in the Patent Office, administrators assign the applications to examining groups based on certain descriptions in the patent applications. In other words, subtleties of language often determine to which examining group a patent application is assigned. If you can steer your patent applications to the right group, you can maximize the chances of getting your patent. Make sure your patent strategist is sensitive to this issue and has the experience and the analytical tools to steer applications to the easier examining groups.
Third, use the fast track. Almost all of my clients now use the fast track in the U.S. Patent and Trademark Office. It costs a bit more initially, but in the long run it saves money and often results in patents granted in about a year or less. The fast track only works effectively if you are successful with the first two points above. That is, if you overreach or are not able to steer the application away from a bad examining group, the fast track can be ineffective.
As software piracy, both in the form of direct copying and conceptual copying is on the rise, software patents are becoming increasingly important to both startup and mature companies. Using the right tools and techniques, companies can obtain software patents to propel valuation.
Originally published by Calcalist.
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