Culling the Software Patent Herd

Reporting on the recent flurry of federal court decisions invalidating software patents, the Wall Street Journal’s Ashby Jones likened the results to declaring “open season” on such patents. Clearly the courts are viewing claims of computer-implemented invention differently in the wake of the Alice decision.  But we think a better analogy than unrestricted slaughter might be a vigorous culling of the herd.

Natural selection removes the weaker and less productive members of any ecosystem, and that dynamic is at work in the patent space, as well.  So software patents as a species aren’t doomed – nor should they be – but we are entering a long overdue and welcome downsizing of their role in describing and protecting invention.

Since the Supreme Court issued its Alice decision last summer there have been at least 17 Alice-related decisions handed down in federal venues with 15 motions granted that invalidated the claims in question.  The various venues have obviously interpreted the language of the Alice decision as refuting protection for weak software patents.  But the operative word here is “weak”; most of these invalidated patents read on arguable tenuous inventions, including online dieting tools and web-based bingo games and upselling customers to a different product.  In short, the recent decisions have taken a hard line on defining when an idea is genuinely innovative and when it is just a well-worn idea being put into practice on a computer.

This is a welcome development that we think will go a long way toward raising the bar of patentability and rationalizing the patent ecosystem.  But it is still early days and without more time and data to quantify just how durable this trend is, it’s hard to know with any certainty if – as some of the commentators in the WSJ article believe – these first post-Alice decisions have “changed things fundamentally”.

It’s important to remember that not all software patents are created equal.  Among the millions of patents issued since the rise of digital technologies in the mid-90s there are potentially tens of thousands of poor-quality patents that shouldn’t have been issued – and which probably would not be issued in the wake of Aliceand the post-AIA bolstering of patentability requirements.  At the same time, there probably have also been tens of thousands of software patents issued that describe significant, fundamental inventions that are implemented – and can only be implemented – on a computer.  Those patents remain in circulation and may well meet the criteria laid out in the Alice decision.  Because many of them do arguably infringe technologies at work in existing products and services, they continue to represent a risk to operating companies.

We recently did an analysis of RPX patent acquisition activity over the past six years.  It showed that while lower-quality software patents have long been legitimate sources of risk to be cleared, they don’t make up the bulk of the risk facing technology users.  Of the more than $800 million we’ve spent since starting the company, we believe only 4% of our investment has been on patents that would likely be germane to the Alice criteria.

This apparently low allocation of our acquisition should really be no surprise.  After assessing hundreds of software portfolios over the years, seeing how the market has priced those portfolios and then assessing the ultimate financial impact of those portfolios on operating companies through our ongoing litigation cost study, it has become very clear to us that lower quality patents can – and should – be cleared at lower prices.

So the growing willingness of the courts to invalidate badly conceived software patents is a positive trend because it is signaling to the broader market what RPX has known and focused on for some time: that companies should pay very little for patents that are unlikely to withstand legal scrutiny. Equally encouraging is the rising number of patentability challenges coming from defendants and other interested parties.  And so is the continued targeted investment by companies and aggregators to acquire and clear nuisance software patents when it can be done cost-effectively.

It is highly unlikely that software patents will ever face extinction, but a concerted effort in the courts and in the open market to cull the most egregious assets will ultimately eliminate hundreds of millions of dollars in unnecessary legal costs and settlements.  That effort has received a strong impetus post-Alice and we expect it to continue to gain momentum in the months ahead.