Member Article

From ISV Insights

In the last 50 years, software has transformed our society. And like with any innovation, companies have been zealous trying to protect their software by seeking patents. Since 2012, the United States Patent and Trademark Office (PTO) has averaged issuing about 300,000 patents a year, and a majority of the issued patents are software related.  While companies like IBM, Google, Amazon, Microsoft, and Apple are among the companies with the most issued patents each year, many smaller software companies have also sought patent protection. The current U.S. patent laws, however, were passed in 1952, well before the onslaught of software into our daily lives and proliferation of software patents. Thus, courts have been forced to fit software as best they can into the pre-existing regulatory scheme, resulting in a mishmash of rules applied inconsistently. Until Congress provides a patent regulatory scheme that specifically addresses software, developers are left to decide if obtaining patents is the right move, a process that can cost up to $50,000.

Under the patent laws, an invention must be a new or improved process, machine, manufacture, or composition of matter. Courts have recognized that laws of nature, natural phenomenon, and abstract ideas are not patentable regardless of whether they fall within one of the four categories of patentable subject matter recognized. In the 1970s, the U.S. Supreme Court issued a string of decisions ruling that software was merely a mathematical formula, and, hence, by itself was abstract and not patentable. Software, however, combined with non-trivial steps could be patentable, such as a new manufacturing process that employed software. Interestingly, the Supreme Court recognized that the existing regulatory scheme did not address software and invited Congress to weigh in as to whether software should be patentable, but Congress did not.

Following these decisions, companies were initially reluctant to obtain software-only patents. In the 1990s, software became more prevalent because of the rise of personal computers, mobile phones, and e-mail. With companies spending more on software-related innovations, companies sought more software related patents to protect their investment. At the same time, the courts expanded their view of when software can be patented. Software previously thought to be unpatentable such as software relating to novel data structures, software stored on a computer readable medium, and business method patents (a business process performed using software), were deemed to be patentable. A perfect storm of technical innovations and an expansive view of software patents lead to a dramatic increase in software patent applications. The number of patent applications being filed each year went from approximately 200,000 in 1994 to almost 630,000 in 2015, with a significant amount of them involving software.

With the proliferation of software patents being granted, there was also an increase in patent litigation. In 1994, there were just over 1,500 patent cases filed. Each year the number of patent cases filed steadily rose, and peaked at almost 6,500 patent cases filed in 2013. Some entities took advantage of the situation by securing questionable software patents and then suing companies who often settled quickly rather than face a long and expensive litigation. These questionable software patents typically covered broad functionality or old ideas being implemented on a computer for the first time. Some of the more notorious examples include auto-completing text types by a user, providing information in response to geographic data, counting calories, storing a user’s product preferences, and using a mobile device to change an order.

In response to the uptick in questionable software patents being asserted in litigation, the courts, and in particular, the Supreme Court, started to narrow what type of software could qualify for patent protection. The pinnacle of these decisions came in 2014 when the Supreme Court found that software implementing a well-known idea was an unpatentable abstract idea unless there was some other non-trivial aspect of the patent claim that transformed the abstract idea into something patentable. After this decision, courts routinely began finding software patents unpatentable for reciting abstract ideas.

With the current anti-software patent climate in the courts, companies might question whether software patents are worth the investment. Software patent costs fluctuate, but it is not inconceivable to pay up to $25,000 for filing a patent application, which includes attorney fees, prior art search fees, and United States Patent & Trademark Office fees. A developer could also easily spend up to another $25,000 for prosecuting the patent before the USPTO, plus additional USPTO fees such as maintenance fees. Is it worth investing up to $50,000, not to mention the cost for any litigation, for a patent that might not be enforceable in court?  The answer will vary depending on the specific software at issue.  Many companies, however, believe it is worth the investment despite the recent narrow view of software patents taken by the courts because companies continue to deluge the PTO with software patent applications.