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Deciding Whether to Patent Software: Eight Factors to Consider

By Jill Gilbert Welytok, Attorney

In the fall of 1997, Amazon.com filed its application for its so-called "one-click" patent. The one-click technology allows the Amazon server to retrieve a purchaser's previously submitted credit card and shipping information and process an order for items in an online "shopping cart." All of this is accomplished with a single mouse click.

On September 28, 1999, two years and one week after filing its application, Amazon was awarded Patent Number 5,960,411. Just twenty two days after that, Amazon.com filed suit against its largest competitor, Barnesandnoble.com, alleging its single click Express Lane feature infringed the Amazon patent.

On December 1, 1999, the eve of the holiday shopping season, a court issued a preliminary injunction against Barnesandnoble.com ordering it to remove the critical Express Lane feature from its Web site. Barnesandnoble.com appealed the injunction and lost. The validity of Amazon's one click patent was subsequently upheld on appeal, and has since withstood a number of "prior art" challenges. Barnesandnoble.com has been forced to shelve its competing Express Lane feature.

A patent operates as a mini-monopoly on a technology. A patent gives you the exclusive right to profit from innovations covered by your patent. A patent allows you to prevent competitors from reverse engineering your software or selling a program with modified code that's designed to accomplish the same functions as your patented program.

Software patents, relatively obscure a decade ago, are becoming more integral to the survival and growth of large and small software companies. Software enhancements and innovations that address a specific, previously unsolved problem often have the requisite level of novelty to qualify for patent protection.

During their start-up phase, small businesses can economically avail themselves of patent protection by filing a Provisional application, which preserves rights but is less expensive to file than a standard patent application. A provisional applicant has up to one year to file a full-fledged regular application.

Is patent protection always desirable for software? The answer is usually a resounding "yes" for the following reasons:

1. Patent Protection is Legally Broader Than Copyright Protection

Copyright protection is helpful in situations of outright piracy, but it is not well suited to deter an aggressive competitor. Copyright protects only against literal copying of your code. A copyright does not prevent your competitors from creating functionally equivalent code through reverse engineering, black box testing or other methods.

Patents carry more valuable and expansive rights than copyrights. A patent makes it more difficult for a competitor to encroach on the market you've established. Patents confer a monopoly type protection against competition from reverse engineering and functional equivalents.

A well-drafted patent can give you a monopoly with respect to the innovative, functional elements of your software. It allows you to prohibit a competitor from marketing a program that performs the same innovative tasks as your patented product, even if that competitor has not copied any of your code.

With a patent, there's no need to prove that a third party has actually copied key elements of your work; only that they've infringed your patent by selling a program that falls within the scope of what you've claimed in your patent.

2. Most New Software Contains Some Protectable Elements

Do you feel that there is a market for your software it because it offers a fills a need for increased efficiency or offers a new and useful solution to a problem? If so, it's likely that at least some aspects of your software may be considered novel enough to patent.

Section 101 of the U.S. Patent Act states:

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvements thereof, may obtain a patent, subject to the conditions and requirements of this title.

The amazon.com "one-click" technology was patentable because it contained novel features in addition to relying on previous e-commerce technology. Software patents cover a range of algorithms and methods for performing calculations and processing numerical and financial data. Examples include insurance application processing, loan application processing, stock/bond trading and management, healthcare information management, reservation systems, auction systems, etc. Your attorney can help you identify the elements of your software that are sufficiently novel to warrant patent protection.

3. "Provisional" Applications Make Patent Protection Economical for Small and Start-Up Businesses to Obtain

A provisional application is a simplified, patent application that's less costly to file than a standard application. You may want to consider filing a provisional application to establish the earliest possible filing date for your patent while continuing to perfect and establish a market for your new software.

In a provisional application, you must sufficiently identity your invention, but your attorney need not draft the detailed clams defining the parameters of your invention that are required in a standard application. Filing a provisional application entitles you to use the "patent pending" designation on your software. On or before the expiration of one year, you must file a standard application with usual detailed claims. Your patent receives the earlier filing of your provisional application.

4. Patents May Be Valuable Portfolio Assets that Can Attract Investors

Investment bankers routinely analyze the patents held by a company as a key indicator of its net worth, and are thus familiar with the vernacular of patents. There can be a relationship between the strength of a patent portfolio and the value of a company's stock when the market for the product is strong.

Ease of enforceability is another factor that makes a patent a more attractive asset to a potential investor than a copyright. U.S. patent law has over 200 years of court precedent. In contrast, the "look and feel" doctrine of copyright is relatively new, and is a comparatively nebulous concept for judges to apply.

5. Patents Can Bring Greater Certainty to Licensing Arrangements

Licensing is an explosive trend. IBM, one of the first of the U.S. companies to adopt an aggressive patent licensing strategy, saw its annual patent licensing revenue increase from about $30 million in 1990 to well in excess of $1 billion by 2001.

Licensing allows software developer to simultaneously receive ongoing revenue from numerous users. However, before licensees will pay a substantial fee, they generally want to know if you hold a valid patent or other intellectual property rights to the software. Licensees want assurance they won't be sued for infringing someone else's patent.

6. Patent Protection is Available for Both Business Methods and Software Algorithms

Patenting software inventions has become easier in the last five years. In 1998 the Federal Circuit decided the State Street Bank case which opened the door to patenting business methods. The State Street court held that a software invention is patentable if it produces a "useful, concrete and tangible result."

In 1999, the Federal Circuit also held that software inventions that include algorithms are patentable under limited circumstances. The Federal Circuit stated in the AT&T case that if a software invention includes a mathematical algorithm, and if the mathematical algorithm is "applied in a practical manner to produce a useful result," then the invention is patentable.

7. Patents Protect You Against A Growing Number of International Competitors

Many countries do not extend patent protection for software, but the list of ones that do is growing. Currently, Australia, Canada, England, Germany, Korea and Japan have laws for protecting software.

The European Patent Office extends patent protection to software that improves the functionality of hardware, facilitates the interoperability of software, or creates a new "technical effect." You have the option of filing a European or International patent application, rather than filing individually in each European country.

8. Delay in Filing May Result in Loss of Your Rights

Delay in filing may permanently jeopardize your ability to obtain patent protection for your software innovation.

Generally, patents are awarded based on who is first to invent, rather than who is first to file an application. However, the inventor, in the event of a dispute, must demonstrate that he or she has been diligent in certain respects, which may include the prompt filing of a patent. Additionally, you risk losing your right to obtain patent protection if you disclose any part of the invention prior to the application date to any third parties who are not under a duty of confidentiality. Recently, the Federal Circuit denied patent protection to an inventor who had explained the invention to a co-worker in sufficient detail to allow him to practice it even though the software used to practice the invention was did not exist at the time it was discussed.

If you intend to market your invention, consult your attorney about creating a non-disclosure agreement that will preserve your patent rights as well as deter illegal copying or imitation.

Copyright 2006 Jill Gilbert Welytok - Absolute Technology Law Group

3316 W. Wisconsin Avenue | Milwaukee, Wisconsin 53208 | Phone: 414-223-1670 | Fax: 414-223-1671 | jw@abtechlaw.com