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Jun 28, 2018

Software Startups: This Is How You Craft A Patent Strategy


Forbes
Stephen Key, CONTRIBUTOR

I write about how to use intellectual property to profit. 
Opinions expressed by Forbes Contributors are their own.


SOFTWARE STARTUPS: THIS IS HOW YOU CRAFT A PATENT STRATEGY

Obtaining patent protection for software is notoriously challenging. Software may have a very short shelf life. It’s difficult to describe precisely. There are issued patents that are written too broadly. In a 3-part series published in 2012, Eric Goldman goes in deep on how software innovations pose unique challenges to patent systems and what might be done about it. (For an alternative diagnosis, read retired software engineer Martin Goetz’ rebuttal.)

Perhaps it is no surprise that confusion reigns over what is eligible for patent protection today. Andrei Iancu, the new director of the United States Patent & Trademark Office, has spoken frequently and forcefully about this issue in recent months.

“In some areas of technology, it is unclear what is patentable and what is not, and that can depress innovation in those particular areas. Our plan at the PTO is to work within Supreme Court jurisprudence to try and provide better guidelines,” he said during a hearing before the House Judiciary Committee in late May.

Nonetheless, it is still possible to obtain patent protection for software. So, how do you get started? I’ve never brought a software related innovation to market, so I asked John Ferrell, my longtime Silicon Valley patent attorney, if I could pick his brain.

Image of John Ferrell

His firm Carr & Ferrell has represented many hundreds of software startups over the years. For much of the 1990s, it represented Apple Computer, along with their subsidiary software company at the time. Other notable software clients of his have included Adobe, Autodesk, Intuit, Oracle and Sega. He was Facebook's first intellectual property attorney. Sony Computer Entertainment (including PlayStation games) has been his client for nearly two decades. He is also an active technology investor

Ferrell told me he loves patents, because his passion is architecting monopolies — and patents are often the cornerstones of strong monopolies.

How important is intellectual property when launching a new innovation in the software space? (Attracting investors and potential partners, dealing with infringement, etc.)

It really depends on the innovation and the product. Some products in the software space are fleeting novelty items with a very short shelf life. Inventions specific only to that product may not be worth protecting. For example, a mobile game that relates to a movie character may be super-hot for a few months, but then can be expected to quickly fade. An invention related to the movement or actions of a specific character, although possible to patent, may not be worth the trouble of patenting.

Even if the patent application is accelerated and issues very quickly, it may not merit the effort if the product will likely fade before the year or so it takes to get the patent issued. (And there are often better ways to protect these kinds of software products, such as brand licensing of the movie character and copyright protection.)

For other products, however, patents can be critically important. Before software became patent eligible, there was an extremely competitive period beginning in the late 1980s when Microsoft put literally hundreds of significant software companies out of business within a few years.

One such company that comes to mind was a fairly large outfit called Software Publishing Corporation (SPC). SPC had the leading presentation software at the time, which was a program called Harvard Graphics. For most business people, Harvard Graphics was the standard for conference and conference room presentations. It sold for about a hundred dollars on floppy disks. There were many other presentation software programs at the time, but Harvard Graphics was the leader.

Microsoft developed a competing program (now called PowerPoint) that was not as good at the time as Harvard Graphics. However, Microsoft bundled PowerPoint with its word processor and spreadsheet programs together for the same price as a copy of Harvard Graphics. This bundling of PowerPoint and other programs into what came to be Microsoft Office eventually killed Harvard Graphics and SPC along with many other companies. The wisdom at the time was that competing directly against Microsoft had become nearly impossible. Because if an application sold well, Microsoft would develop a competitive product and give it away for free in their operating system or Office bundle.

Perhaps it was in response to Microsoft dominating the market, or the natural swing of the evolutionary pendulum, that around this time the courts recognized software patents as allowable subject matter.

By the late 1990s, software companies were able to protect their innovations with patents and creative companies like Adobe, Autodesk, and Intuit began to quickly grow and flourish.

Intellectual property protection of software has played a critical role in the growth of competition in the field over the past two decades.

What would you advise startups and companies developing a software related innovation in the United States do first?

The most important advice I can give to a startup wanting to build strong intellectual property protection is to first understand why people are buying their product or service.

What is it about the particular product that is driving customers to write a check? It's likely not about the technology at all, but rather it's about a unique experience the buyer gets when using the product.

Nobody wants a quarter-inch drill bit. What they really want is a quarter-inch hole. It's the unique experience that we ultimately want the patents to protect. It’s not about the tech.

What’s the right way to think about obtaining patent protection for software?

The key is to not think about software as just software. Software is a tool that lets us do something real, something useful, something important.

Again, customers are not shopping for technology; rather they are looking for solutions to difficult problems. Useful solutions are the essence of invention, and one of the important goals of our patent system is to promote invention. With a very few exceptions (nuclear weapons secrets, laws of nature, etc.), new, useful and non-obvious solutions are always patentable.

How does the software patent application process differ from other types of innovations, such as medical?

So much of our technology today contains software that there are blurred lines between what we used to refer to as software patents and other innovations like medical devices and hardware technology. It wasn't long ago when we understood that tractors were relatively simple mechanical devices, but today tractors are computer platforms jammed full of processors and computer code.

What should startups budget for their intellectual property portfolios?

The need for intellectual property is really a function of the nature of the startup. A donut shop opening in Detroit may decide to register their name as a trademark and leave it at that. A venture funded tech startup, however, may have an immediate need for a monopoly patent portfolio to protect its market from competition.

The key in either event is to have a vision of where the company is going, and what goals would be achieved by investing in intellectual property protections. When cash is tight, as it is with most start-ups in the beginning, it's so important to have a roadmap in order to focus investment only on IP that is strategic to achieving goals. Non-strategic investment is just money wasted.

For individuals, startups and companies on a budget, what intellectual property tools have the most value?

The most valuable IP tool for a startup or for any company is an IP roadmap. Two of the many great benefits of being a startup are that there is a complete absence of historical baggage and second, the possibilities for unimagined success are endless.

But who would start a journey without a destination and a roadmap clearly in mind? If our goal were to get to Cleveland — hey, it’s on my bucket list — we would never think of traveling there by randomly visiting other cities, one perhaps leading to another.

Similarly, if a company’s IP ‘strategy’ is merely to collect patents randomly, then at any point in time all the company will ever own is a box full of random patents.

To build a true monopoly and to protect the unique experience that keeps customers engaged, it’s essential to start with an IP monopoly roadmap of where you are going and a strategy of how you will get there.

HOW TO PROTECT YOUR SOFTWARE INNOVATION WITH PATENTS

This is the second half of my interview with John Ferrell, longtime Silicon Valley patent attorney and angel investor, about intellectual property protection for software.

Programming code on computer screen

Programming code on computer screen/ hiyusukejp / 123RF Stock Photo

Ferrell has advised early stage technology companies including Apple, Adobe, Autodesk, Intuit, Oracle, Sega, Facebook, and Sony Computer Entertainment. Full disclosure: I’ve known him for nearly 20 years. In the early 2000s, I hired his firm Carr & Ferrell to help me obtain and defend a portfolio of patents related to a packaging technology.

Since the requirements concerning patentable subject matter related to software vary from country to country, how do you go about obtaining IP internationally?

Over the past 20 years the patent systems of the world have become increasingly harmonized, certainly among the commercially important countries. A patent that works in one jurisdiction can generally be shoehorned to fit into the others.

One thing I try to keep in mind is that tractors and fertilizers are patentable nearly everywhere — they are easy to understand, and the usefulness of each is clear and undeniable.

Whether it's about an Android app or a new database program, the more I can make a patent claim look like a farm tractor or a pile of fertilizer (in a good way), the easier time I'm going to have at the foreign patent office.

Thinking about a simple tractor, it's a collection of well-known parts that interact with each other, and function together to perform useful work. For example, there is motor, connected to a drive shaft that turns wheels, that pulls a mechanical disking trailer, for use in tilling farmland prior to planting crops. Four pretty simple parts that if uniquely combined would certainly be patentable.

Similarly, an example of a patentable software program might be an automated music application that helps us find radio stations currently playing songs similar to a song we are just now listening to our smartphone. The music app might contain a signature engine that is capable of generating a signature or short mathematical representation of the song being listened to, a communication protocol for comparing the signature against a database of signatures and for producing a just-like-it list of related song signatures, and a search engine for scanning a directory of known radio stations on the internet for stations playing songs contained on the just-like-it list.

There are three pretty simple elements to this app, but because we have described it as a tractor-like machine, this software program should be patentable almost anywhere.

How important is combining software with hardware in terms of obtaining patent protection?

The three requirements for patentability demand that the invention be new, useful and non-obvious. There are a few subject matter exceptions to what is patentable, for example items contrary to the public good, but there is nothing under U.S. patent law that says software itself is not patentable.

Clearly we need a physical processor to execute the software, but beyond that, there are some software inventions that clearly are patentable without the inclusion of other external hardware. For example, an encryption program that receives a software key and reversibly encodes data in a way that allows the data to be decrypted using a separate software key is certainly patentable. Audio and video compression algorithms like MP3 have long been patentable, as have data processing techniques for removing noise from scratchy signals. Auto tune processing techniques that let singers of living room karaoke sound like Andrea Bocelli — well, maybe almost like Bocelli — are patentable.

The difficult cases arise where the software produces an intermediate result that is not in itself completely useful. For example: As a silly but true example of my personal OCD, I have an algorithm running on an over-automated control system in my house that checks my garage door every night at 7pm and shuts the door if it is open. (I have a bad habit of leaving the garage door open when I come home from work.) But because one evening I was leaving for dinner exactly at 7pm, and the door shut on the top of my car as I was backing out of the garage, I programmed an algorithm to test the systems of my house to see whether the door was safe to shut.

For example, the system looks for movement in the house, the recent status and switching of lights, the temperature of the rooms, the movement of images on the garage cameras, and about a dozen other things. After running through this long list of system checks, if all is good according to the algorithm and no one seems to be headed for the garage or moving a car, the garage door will shut.

In this simple example, it seems to me that the go/no-go decision that the door is ok to shut without killing someone is not that useful by itself — it's an intermediate result. To actually get a patent on this garage door safety algorithm (a true waste of a patent filing fee) I would most certainly need to include a step in the algorithm where the door actually gets shut or not. I believe the inclusion of hardware – that is the garage door, would be a critical element of this software patent.

How do you advise navigating the fact that our system is now ‘first inventor to file’ and not ‘first to invent’?

My advice is to file early and file often. Provisional patent applications can be an efficient way to protect an invention for a year, while the commercial details are being worked out. If you write the provisional patent application yourself, the cost to file is only $70-$140.

Also, with a provisional patent application on file you can advertise to the world that you are patent pending.

America’s wide lead in venture capital funding is fading and shifting to Asia. Does this have to do with our weakened patent system?

The real story here is that the global availability of venture funding is increasing. Venture funding in the U.S. has been rising over the last half-dozen years at a healthy rate of a couple of percent a year. It’s been steady and continued growth.

To the extent that America’s lead may be diminishing, it’s not because America has been investing less, but because of the dramatic growth of investment in Asian markets. This is all good news for startup companies, including software companies looking for investment.

Asian investment can come in many forms. There are an increasing number of individuals in the U.S. and Canada that have Asian family wealth they want to invest. There are large technology infrastructure companies looking to invest in new products and capabilities, and it’s becoming increasingly common for Asian manufacturing companies to partner with smaller companies to provide investment in the form of manufacturing services.

One last thought about your reference to our patent system being weakened: For the 30 or so years that I have been practicing patent law, I’ve been reading headlines that complain our patent system has been broken or is dead.

The patent system, although more than 200 years old, continues to breathe and live and change roughly in unison with our society’s creative needs. Although the system may seem a little out of sync at times, I assure you: It is far from broken.

Patents continue, as always, to level the playing field for inventors and make it possible for individuals tinkering in their garages to protect great inventions and maybe build great companies.

Patents still make bigger futures possible.

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