Patent Law: A Hurdle for the Software Industry and Innovation

By: Divya Karthikeyan, AJ Renold, Ashley Christopher Bas Desouza, Haroon Rasheed, and Jake Hartnell


The purpose of a patent is to provide incentive for technological innovation, not only to conceive of an invention, but also to allow the idea/concept to enter the market, so that a substantial benefit can be derived by the public. Yet in light of the Information Revolution, software has presented a unique challenge to the US Patent System. As more and more of the world economy conducts its business online and more and more people become dependent on software in one form or another, the importance of software patents as a means to differentiate oneself in the marketplace has become proportionally important. However, many have come to view current patent law as problematic to the software industry and a hindrance to innovation. Justice Kennedy noted in Bilski v. Kappos, ‘With ever more people seeking patent protections for their inventions, patent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles.’ This balance is very much under threat in the Software industry.

Who benefits?

Under the current system, it has been found that the substantial benefits of software patents have been accrued by a few individuals or corporations. Lately there have been a number of high profile cases involving large companies—Apple v Samsung or Apple v Motorola—suing each other for patent infringement. While these “Patent Wars” generate a lot of interest in the media with commentators lamenting the potential damage to the idea of innovation, these large companies usually reconcile with each other through cross-licensing of their respective patents. They escape most of the trouble patents cause, while enjoying a large share of the power patents confer. This is why the chief supporters of software patents are multinational corporations. They have a great deal of influence with governments.

Large companies also force small companies/developers to cross-license with them. Because of their influence and deep pockets, large companies often try and succeed in getting their features incorporated as industry-wide standards. An example of this took place in the late 1990s when Microsoft, at the time at the peak of its powers, menaced the online community, by obtaining a patent affecting style sheets—after “encouraging” the W3C to incorporate the feature in the standard. This was not the first time that a standards group has been lured into a patent’s maw. Public outcry on that occasion forced Microsoft to refrain from enforcing this patent; but other large corporations might not be so merciful because the economic benefits of enforcing a patent are simply too great.

While small companies can benefit from a patent, they often do not own sizeable patent portfolios. Thus, a large or complicated product risks infringing some previously issued patent. In addition, it is a lot harder for a small inventor to obtain a software patent. With the many recent Supreme Court cases, software innovators now must adhere to various new laws and regulations before obtaining a patent, increasing the costs for preparing and obtaining software patents. A small inventor usually has a difficult time commercializing their products and enforcing a patent. They also lack the resources to track every instance of patent infringement or defend their patents or file petitions to invalidate dubious patents. Litigation is quite complex, even without the difficulty of explaining technologies to juries and judges. All these factors contribute to reducing the incentive for smaller developers to innovate—a departure from the intent of the framers of the patent system.

It is in this environment that the 2nd beneficiary of the current patent system steps in – The “Patent Troll”. These are basically individuals/companies/groups who purchase software patents usually from small inventors who are unable to or unwilling to bring their products to market. Their rationale is that they are leveling the playing field between big companies and inventors and small patent holders, who previously “were getting their rights steamrolled by big companies.” The small inventor gets compensated for his/her work and is not bullied by the big companies to cross-license. Surely, this gets us back to the intent behind patents – i.e. innovation and promoting science and technology. However, a closer look at the business model of the Trolls reveals that they are more opportunistic than altruistic. Trolls run a virtually risk-free business. They buy patents and enforce them through licensing or litigation. They don’t build products but earn revenue by suing others, a very lucrative business model indeed. The key point is that the licensing fee should be low enough to entice the “infringers’ to settle rather than go through messy litigation. They also don’t discriminate between which companies to target. Large companies prefer to settle to avoid unwanted publicity while small companies do so out of compulsion as they lack the resources to defend themselves.

One such Patent Troll is Webvention, which has a patent (United States Patent No. 5,251,294) for the functionality known as a “mouse over” or “preview” that displays a short summary of the information to be found through an internet link when a computer user points the mouse or cursor at the link. Webvention “claims that 339 companies, including Google, Nokia and Orbitz, have paid the one-time licensing fee of $80,000” over the 4 years it has owned the patent. Yet another troll is “PersonalWeb Technologies.” which sued Rackspace for hosting GitHub service. This case is a prime example of the deficiencies of the current Patent Law. GitHub is the one doing the innovating while PersonalWeb is taking advantage of a bad Law for profit. It is uninterested in innovation or the public good.

In the hands of the Trolls, Software patents are weapons of mass extortion. Indeed, there are many technologists who argue that software patents are deleterious to the public good and should be abolished altogether.

Consequences and losers:

The increasing number of Patent lawsuits within the software and technology industry has created a chilling effect on innovation that the media has been quick to point out. In his recent Wired article on software patents, Richard Stallman, a programming freedom advocate, opines that patents protecting computational ideas are stifling the development of software. In part this is due to the fact that software draws on thousands of ideas, many potentially patented designs or computations, to create innovative products. Stallman also asserts that the patent system produces ‘bad quality’ patents, which we will later explore in SurfCast’s recent lawsuit against Microsoft. (Wired Article). Ultimately, the volume of software patents and the volume of patent litigation create huge legal costs and can stifle innovation for both small and large corporations.

For Small corporations, with limited capacity to defend their new software products, the mess of software and design patents creates a blind spot to potential lawsuits from large corporations and patent trolls. A 2011 lawsuit filed by Lodsys against multiple iOS and Android developers alleging their infringement on a patent covering in-app purchases is believed to have targeted small developers in hopes that they would settle for a small licensing fee. Relative to the income of app developers, the licensing percentage would have been less than the cost of litigation and a small business might opt to settle a lawsuit without questioning the validity of the patent. (Lodsys article) In a 2008 case Vlingo was sued by Nuance over five patents relating to voice recognition technology. Vlingo won the first case at a cost of $3 million, yet ultimately sold its business to Nuance because of the financial risk in defending the four remaining patent suits. (NYT) The small innovator’s patent litigation blind spot and their lack of defensive capacity disincentives risk taking and innovation, a result contrary to the objectives of U.S. Patent Law.

Large corporations developing new software and technology products also have a complicated position in software patent law. The well-publicized ‘patent-wars’ have dramatized actors such as Apple, Samsung, Google, and Microsoft, as assembling arsenals of patents and legions of lawyers. Their deep pockets also attract lawsuits from patent trolls, as we will later examine in Surfcast’s suit against Microsoft. The risk of patent litigation has led them to adopt a policy of ‘patenting everything’, as Steve Jobs famously ordered Apple executives, and the rise of the ‘patent everything’ policy likely contributes to the volume of bad-quality patents pointed out in Stallman’s Wired article. (NYT) From the perspective of a manager or developer within a large corporation, the knowledge and responsibility of having a product be the target of scrutiny by corporations possessing arsenals of patents undoubtedly creates a chilling effect on risk taking and innovation. A manager who is not careful might put their job on the line if their product attracts costly litigation.

Taken together, the costs of software patents to small innovators and large corporations alike are estimated to create a so-called patent tax on software and technology products. Boston University researchers estimate that this adds as much as 20% to companies’ research and development costs. (NYT) At the end of the day, these costs are passed to consumers in the form of increased prices and fewer products due to slowing or foregone innovation.

Problems and challenges in resolving patent infringement issues: SurfCast v. Microsoft

There is doubt as to whether the current patent laws are the best suited to resolve software patent issues. Following the launch of Windows 8, which includes self updating dynamic ‘Live tiles’ displaying content from various sources, a Portland based company SurfCast filed a patent infringement claim against Microsoft stating that the concept of tiles was covered in their patent in 2004. To Microsoft’s defense they also had a patent for their ‘Live Tiles’ in 2011.

This brings us to one of the most pressing challenges facing the patent system. The patent office does not determine if an invention to be patented infringes any prior patents. So it is extremely difficult to know during the patent filing process, if a patent infringes prior patents. This being the reason that both SurfCast and Microsoft held patents for the invention of tiles showing dynamic content. In this case when a patent infringement issue comes up, determining whether the two ideas are similar is a complicated problem.

From section 101 of the patent laws, given that ‘Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.’ justifies the patent approval for both the companies as there was innovation in both patent claims. It is not obvious if the fact that SurfCast did not use the idea to produce a product be used against it thereby creating an ambiguity resulting from the inability of current laws to satisfactorily resolve software related patent issues

Microsoft has cited SurfCast’s patent (6,724,403) under the References in their ‘Live Tiles’ patent. So it is obvious that Microsoft was aware of the technology that SurfCast had patented. SurfCast alleges in the lawsuit that Microsoft was aware of the ‘403 patent as early as 2009 much before Microsoft patented the Live Tile design. Sometimes the existing patents are very vague and cover a broad domain. It is difficult to know if someone has already patented a technology that you are independently working on. Unfortunately, independent invention cannot be used as a defense for patent infringement. Companies are often sued for violating patents that they never knew existed.