Our provisional patent expires today. We chose not to pursue an official, non-provisional one. It was a tough decision.
This is about the decision process Gordon and I went through when we decided to pursue a provisional patent, and the reasons why we chose not to pursue the official one. The short version is: It’s the economy, stupid.
I’ve always had mixed feelings about software patents. As a programmer, I think they’re silly. It’s hard enough to write software as it is. Must I worry about all the thorny intellectual property issues, too? Code is more like sculpture than chemical engineering. Copyright should be enough to protect my work.
As a business owner, I understand why patents are necessary protection against other firms with large patent libraries. To put forth all the R&D and market development effort only to watch it drained away by litigation is a tech entrepreneur’s worst nightmare.
From an investor’s point of view, software patents are protection against downside risk. Unlike copyrights, patents are tradeable. There’s a market for patents, so even if the software business fails, you’ve still got an asset to sell to someone. You can get some of your principal back.
As long as we were in a bootstrapping phase, Gordon and I were content to leave the patent issue alone. Building working software and establishing a business were more important priorities. As a founder in a startup, you’re focused on delivering the upside, not managing the downside.
When we began seeking outside investment, that equation changed. The balance shifted toward getting a patent because it reassures potential investors. Gordon and I aren’t ideologues. We had no problem applying for trademark protection. So we swallowed our distaste and called a lawyer.
If the world of intellectual property seemed like one of those collectible card games from the outside — Hey, I’ll trade you two business method patents for three user interface licenses — it seemed even more so once we started the process.
First, we had the problem of defining our unique IP. You want to stake your claim as soon as possible, but since the software is currently under development, you make the broadest claims you can. We weren’t exactly sure what final form our “affinity engine” was going to take. We just knew that we needed to capture user behavior as a way of ranking the relevance of related items of content.
Then you hire a lawyer or law firm to search the patent office’s database of previous filings to determine whether somebody else has patented something similar. Since somebody else was making equally broad claims, it’s likely that you’ll need to refine your patent application a bit. This gets expensive quickly.
Once you file your official application, it can take quite a while before you find out whether it’s been approved or not. If it’s granted, you now have the ability to sue anyone that infringes on your rights. This is very expensive.
The real point of having the patent is so that you can negotiate with other other patent-holders in case someone alleges infringement. It’s a strategy of mutual assured destruction. Rather than sue, counter-sue, and fight it out in the courts, you simply trade software licenses among yourselves.
The larger your deck of patent rights, the better the chance you hold the cards for something the other player wants.
For a start-up, this can mean that you can get acquired by a big firm solely because you hold an important patent. And if your business flops, you can sell your IP to a patent troll to use as ammunition against other companies. Investors like to see patents because it improves the valuation of a company and hedges against risk.
So it’s a costly and time-consuming distraction for a small business, but often a necessary one. We spent quite a bit of money on our provisional application in the hope that it would help attract additional investment.
But then the economy soured, and investment began to dry up. It no longer made financial sense for us to pay for legal work if we weren’t going to raise additional funding as a result of it.
Another complication is that the future of software patents is in doubt. According to the recent In re Bilski case, software patents are only valid in cases where the software is tied to a physical device or is used to make changes in physical objects. Do either apply to software whose main purpose is to organize digital information?
It seemed dumb to come this far along on a patent only to abandon it, but we had to be pragmatic. It’s water under the bridge. We need to preserve what little cash we have left in the bank until our business gets going and the economy improves.
Building a software company is a long journey. Sometimes you make a wrong turn or stumble into a blind alley. We had no way of knowing when we began this process that venture capital would suffer a major contraction in 2009. It was a reasonable choice to make at the time.
I think that deciding not to go forward with our patent application is a reasonable choice now, given the economy and our need to bootstrap the business longer than we planned.
But that doesn’t make the decision any less hard to make.