Bucking the Odds: Why Technology Companies Should Embrace Software Patents Today

Although the Supreme Court’s 2014 decision in Alice v. CLS Bank and its progeny affected the issuance and enforcement of software patents and led to a major shift in U.S. patent policy, software patents still have value today and such protection therefore should be pursued.

1. Algorithmic / Functional Protection

Software patents allow companies to protect their inventions by obtaining protection directed to core functions and algorithms implemented in the software. A piece of software code is one specific implementation of an invention and may be somewhat easily worked around by competitors. However, a well-drafted patent with multiple differing embodiments, examples of practical applications for the invention to help overcome eligibility rejections and validity challenges, and a robust set of claims allows companies to seek protection directed not just to the functionality and algorithms of the specific code, but also variations that perform similar functions in similar ways under the “Doctrine of Equivalents.” For example, while an AI healthcare invention may relate to improving one imaging technique for one particular organ or organ system, a patent based on that invention can be drafted to cover a variety of imaging techniques for substantially any part of one’s body. For a start-up company that is typically focused on one main product or service offering to start, having protection beyond the functionality of the specific code can help both minimize the risk of competitors and provide a pathway for growth if the patent can cover additional use cases outside of the company’s specific technical field, depending on the contents of the disclosure and the scope of the allowed claims.

2. “Patent Pending” Labeling

Filing a patent application, even just a provisional application, allows companies to apply a “Patent Pending” label on its goods or services to put other parties on notice that the company is seeking to obtain patent protection on them. Such patent protection may make the company more marketable to potential investors, especially those investors who place direct value in the “Patent Pending” labeling. Investor confidence may also be boosted because a company’s decision to pursue patent protection can signal to investors that the company’s product offering has technical merit and that the company has a solid foundation if it is developing longer-term goals and strategies. Investors can also be assured that competitors are less likely to develop similar ideas that cut into the value of their investment.

3. Additional Revenue Streams

In addition to promoting revenue from the direct sale of patented products or services, patents can facilitate additional revenue streams for companies. For example, companies can directly or indirectly license their patents to third parties and collect royalties in connection with covered products sold by the third parties. Patents and other IP assets may also be used as collateral for raising capital or to position companies to be part of joint ventures with other companies. In some industries, seeking patent protection for a particular technology may help build a market around that technology, leading to increased sales. Finally, patents themselves can be sold outright to other parties.

4. Defensive Position

Maintaining a patent portfolio may also be used as a defensive strategy should companies be accused of infringing another’s patent themselves. A strong patent portfolio can put the accused company in a position for cross-licensing their own patents as an alternative to litigation. Such a portfolio, even if not asserted, may also dissuade competitors from entering a given market space, lest they face the risk of a portfolio of patents being asserted against them.

5. The Pendulum Is Swinging

While it is undeniable that software patents are currently receiving somewhat unfavorable treatment at the USPTO and in the courts, this has not always been the case and there are signs that the situation may improve in the foreseeable future. Patent attorneys frequently describe the state of the U.S. patent system using the metaphor of a pendulum swinging back and forth between strong patent rights and weaker protections for patentees. Prior to the establishment of the Federal Circuit, which handles all appellate cases in patent litigation, courts in the 1950s and 60s frequently invalidated patents. In a 1971 speech, former Supreme Court Justice Abe Fortas remarked that many, if not most, federal appellate judges at the time “approach[ed] patents with the kind of suspicion and hostility that a city-bred boy feels when he must traverse a jungle full of snakes,” and they felt “it’s their duty to kill everything that moves in this dangerous land,” invalidating about 72% of all adjudicated patents. With cases like Chakrabarty in 1980 affirming that patentable subject matter should “include anything under the sun that is made by man” and the establishment of the Federal Circuit as a specialized body to hear all patent appeals cases, the U.S. patent system flourished, reaching a peak with 1998’s State Street case holding that software and business methods could be patented if the claims involved a practical application that produced a useful, concrete, and tangible result. However, during the mid-2000s, the pendulum had swung the other way when inventors, practitioners, and other stakeholders frustrated with the USPTO’s growing backlog of unexamined applications and falling allowance rates would refer to the Office as the “Patent Rejection Office” and the “Patent Denial Authority.” While a new Director would attempt to reverse course and allowance rates would start to improve, it was not long before cases like Bilski in 2010, Mayo in 2012, and Alice in 2014 caused the pendulum to swing back yet again by limiting the allowability and validity of software patents. The USPTO’s 2019 Patent Subject Matter Eligibility Guidance eventually provided a pathway for the allowability of some software applications post-Alice. With a renewed push for legislative reform, pending bills like the PREVAIL Act, the RESTORE Act, and the Patent Eligibility Restoration Act (PERA) could, if passed, force the pendulum to continue to swing toward strong patent rights. Given the current backlog at the PTO, it is possible that applications filed now may benefit from this potential future legislation. Additionally, recent changes at the Patent Trial and Appeal Board, such as the current Acting Director exercising the power to discretionarily deny institution of inter partes review proceedings, are intended to favor patent owners. Ultimately, if a company chooses to sit on the sidelines waiting for the software patent environment to improve, it may find itself being too late, especially if its competitors are actively pursuing patents.