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Are Software Patent FTO's Really that Hard to Do?: Are Software Patents Impossible to Index, or is No One Trying?

A recent paper by Christina Mulligan and Timothy B. Lee entitled “Scaling the Patent System” (Mulligan, Christina and Lee, Timothy B., Scaling the Patent System (March 6, 2012). NYU Annual Survey of American Law, Forthcoming. Available at SSRN: raises some legitimate issues about the difficulty in performing freedom to operate studies in the software area.  While I have not studied their paper in detail yet, I wanted to compliment them on their scholarship, and also add a few thoughts to the discourse.  Some of these thoughts are anecdotal observations, and some are based on statistics gleaned from practical experience in doing FTO searches on a routine basis, many of them in the software patent space.  First, my observations on the practical aspects of the topic in general, and then a couple of conclusions, for what they are worth to those interested in the topic.

Observations on patent trolls, software patent indexing and freedom to operate (patent clearance) studies:

  1. Often you hear that patent trolls “cost the economy” money.  This of course depends on the economy you are talking about.  If the patent troll is a US company collecting royalties from a foreign entity, it costs the foreign economy money, but brings money to the US economy.  If the US is a leader in world innovation, or at least one of the dominant players, on balance US-based trolls should be bringing money to the US economy, not costing it money.
  2. Even if the transfer of wealth is within the US economy, a licensing payment merely moves the money from one US entity to another, and presumably for the benefit of innovators, an important group to reward.  Yes, it costs money to achieve this transfer (patent lawyers, licensing lawyers, technologists), but there is a lot of overhead in the sale of any product or service.
  3. Ironically, it is very difficult to invent something that gets adopted by others, much less adopted widely in such a way that a “troll”, or more fairly a “non-practicing entity”, would be able to economically license the invention, if even find an infringer.  Were these threatening software patents as easy to get as the fear-mongoring press is so apt to suggest, there would be a multitude of software developers living on easy street.  In fact, that is not the case — not even close.  True, a software patent can be extremely valuable IF the invention finds its way into the mainstream marketplace (and that is always the goal for software inventors) but the reality is that a very large percentage of software inventions/companies fail.  But sometimes these companies fail not because the innovation had no value, but because there was no way to bring it to market due to one or more factors.  So, the invention/patent (if one is obtained) may still have value, and while it usually won’t be worth as much as the money and time lost on the failed commercialization, at least its a consolation prize.
  4. Due to the nature of patenting, the vast majority of patents are narrow in scope.  This is due to the novelty and obviousness requirements, and due to the fact that there is, after all, tons of prior art, much of which is freely available to find on the Internet.  This means that, both in theory and in practice, it is improbable that any software developer will accidentally infringe a patent, unless that patent is one of very few that are truly broad in scope.  If software patents were a minefield for developers, the mines would generally be at least 5 miles apart, making accidentally stepping on one a very low probability occurrence.  If it is a patent on “internal functionality” that would not normally be discernible by observing the software operate or using it, the odds of the patent owner finding out you stepped on their mine are smaller yet.
  5. Due to the “space” between patents, the primary use of software patents is to discourage copyists from closely replicating the functionality of existing software products that are in the marketplace and that have established users/customers.  But there is usually no reason this type of copying is necessary, and if it is, perhaps the would-be competitor would be better off inventing something new instead of duplicating what is already in the market.
  6. The rare, broad patent, most often, if not in the vast majority of cases, covers a technology that takes upwards to ten years or more to achieve widespread adoption in the marketplace.  This means such a patent will lay fallow or dormant for a number of years before  it is recognized to have value.  Again, not exactly an easy business model for inventors or trolls to predict the future of technology ten years out, file a bunch of patents, and then wait to get rich.
  7. On the topic of freedom to operate studies in particular, the cost of an FTO study for a well defined new product is quite reasonable for a well funded enterprise.  For any given software product, the developing entity is only adding value/innovation at a particular layer/customization of the software product they are implementing.  The developing entity need only focus on the software patents applicable to that layer, not to all the sub-components they purchase from other parties, such as database software or web servers or programming languages and libraries, etc…  Each player in the software ecosystem is, generally speaking, responsible for their own part of the overall software “stack” if you will, which reduces greatly the combinatorial complexity of the FTO required for any particular software invention.
  8. For most software start-ups, where the ability to fund FTO is most strained, the core innovative concepts of the proposed software design can be thoroughly researched for under $25,000.00, and the results of that FTO study can be used both to design around, most often, most of the pertinent patents, and also ascertain whether the proposed design will be eligible for its own patent protection.  Given that it typically takes many millions of dollars for a software product to make it to market, this is a small expense.  And, if it takes much less money to get to market than that, the downside risk of reducing the scale or eliminating the FTO study altogether, is proportionately less.  For example, it would make little sense to do an expansive FTO study to launch an app that costs only $10,000.00 to develop, but certainly it would be quite simple to at least check any patents/applications noted on the documentation for a directly competitive app.
  9. As far as FTO goes, it is not very difficult to find virtually all patents that may be relevant to any given software innovation or new product.  There are number of well established and highly reliable methodologies for doing so that can easily overcome differences in terminology, but admittedly  these are not readily known to the amateur sleuth trying to do a “do it yourself” patent clearance search.  It takes an experienced attorney to do it, but it is very simple to do with the right tools.
  10. On another point, I have made before, I have NEVER seen a software start-up get shut down due to being sued for infringement.  I’m sure it happens about .1% of the time, but I’d genuinely be surprised if it is more than that.  Almost all fail due to the inability to get to market, for a wide variety of reasons.  The reality is that no one is going to waste their time suing an entity that is not year in the marketplace.  Even if in the marketplace, about the only time you will ever see a small company get sued is if they are a second or third comer to a product space and have deliberately ignored a preexisting patent held by an incumbent.  But now days most investors, or even software developers willing to invest their time as seed capital, are not interested in blatantly disregarding the patent rights of another party that is likely to defend its turf and has the money to do so.
  11. Now an important observation.  It is actually far from impossible to index patents to make them easier to review for an FTO study.  In fact, if the USPTO or another entity spent as little as $200 per patent indexing the actual claim coverage of the patents to make them easier to research and avoid for infringement purposes, the cost to innovators to do FTO searches could be enormously reduced.  There are systems and methods for doing so that are already in the marketplace (for example see – which my firm helped develop to make it easier to do FTO’s), but have not yet been scaled to cover each and every issued patent.  But systems like those offered by Lucid Patent, LLC, can make it much, much easier to navigate through a large number of patents with minimal effort once those patents are indexed.

I want to make it clear that I am not saying that FTO is a trivial exercise for software developers.  And also I think that all patents, not just software patents, could be much better indexed for the purpose of infringement analysis.  On the other hand, the practical reality of the way software is built from tools and components produced by various entities in the software ecosystem, makes it much easier to navigate software patents than it would first appear, with each entity in the software ecosystem minding their particular corner of innovation for FTO, leaving the aggregator of software components to worry only about the combinations of those components they seek to pursue, which is a very manageable task not much different than most other areas of technology face.

Principal & Chief Innovation Officer

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