After an economic boom rivaling the Gold Rush in the mid-to-late 1990s, a severe downturn has left many technology companies who overspent and expanded too fast during the boom clambering for survival. As a result, such companies have fallen back on the very thing that embodies their ingenuity – and made them successful to begin with – the patents that protect their innovative technologies. While some companies profit from lice nsing patents, others make money by pursuing judgments against those who infringe on these patents.
And just who are these smaller tech companies targeting? The industry big boys of course. In what has become an increasingly hostile industry environment where only the strong survive, many tech giants (read: Microsoft, IBM, and eBay) are scrambling to squelch the patent litigation fires that are burning.
Consider Microsoft. Eolas Techonolgies, in conjunction with the University of California, and Immersion Corp have each successfully prosecuted patent infringement claims against the tech giant. And then there’s Silicon Valley’s InterTrust, which has already won a preliminary ruling in a case against Microsoft regarding digital rights management patents. In a year when the company was ordered to pay Eolas Techonologies alone $521 million for patent infringement, Microsoft CFO John Connors predicted that “you are probably going to see a big increase in (intellectual property) and patent issues over the next several years.”
The U.S. Association of Patent Law Firms supports Connors’ claims, reporting a significant increase in high-tech and software-related patent-infringement cases.
Microsoft isn’t the only tech giant being targeted. Internet auction site Ebay has had its own problems, being found guilty of two cases of ‘business method’ infractions against Merc Exchange LLC of Great Falls, Virginia, and ordered to pay nearly $30 million in damages. Then there’s IBM, who, for its part, is being sued by Lindon, Utah’s SCO Group over alleged piracy of its UNIX software code.
On the flip side of the coin are companies that use patent protection not for litigation, but to obtain funding and establish corporate support for their technologies.
One of these companies is Palo Alto’s BuyerLeverage, a main beneficiary of these developments. Among BuyerLeverage’s technologies is a self-profiling application that allows consumers and small businesses to benefit from the privacy-effective use of their financial data. While other companies were busy fighting fires and cutting costs during the economic downturn, the company based its start-up strategy on amassing an extensive patent portfolio and currently has over 800 pending claims in multiple umbrella applications.
Remarked BuyerLeverage founder Mark Landesmann, “Our impending patent protection enables us to share the rights to a 20-year monopoly with our investors and potential corporate partners, providing them with a powerful incentive to spend the requisite monies to establish a new and lucrative way of doing business.”
Perhaps for today’s technology startups, the recent wave of patent judgments will make litigation less likely in the long run. Now that the validity of software and business method patents has been clearly established, small companies with valid patent claims are more likely to deter larger companies from the unlicensed use of their patented applications even without having to incur the effort and expense of a court fight. With fewer and shorter legal fights, technology startups can use their patents to be successful in the marketplace, not just in the courtroom.
While the reasons for applying for a patent are numerous, first and foremost is that it enables a company to obtain a 20-year monopoly on the implementation of an idea, which subsequently facilitates the following:
- Obtaining more funding at better valuations;
- Obtaining strategic partnerships with larger companies that wish to avail themselves of the idea/technology;
- The opportunity to embark on a slower and more methodical implementation path, so that if the idea works, larger companies cannot easily move in and steal the market with their superior resources. This methodical approach affords the startup the possibility of protecting its idea before implementing it, and then proving that it works in the marketplace prior to expanding more aggressively;
- The fallback strategy of licensing and/or selling the patent(s) if the company fails to implement the idea itself; and
- Acquisition potential or better positioning for an IPO.
Technology startups can start on their patent application by locating a patent attorney or patent agent – a database is available at the United States Patent and Trademark Office (USPTO) at www.uspto.com. Naturally, it is wise to interview several attorneys/agents before hiring one.
Next, for an $80.00 per-patent fee, the company should file a temporary application that summarizes the idea or technology. This protects the company’s idea while affording the founder time to draft a full specification as further feedback is garnered about the technology’s quality from experts in the marketplace.
Then it’s time to do a “prior art” search of other people’s previous inventions that might reveal that the idea is non-patentable because it is not novel or because it is obvious in light of these prior inventions.
Finally, if the prior art search reveals no significant conflicts, and market research shows that the technology has promise, the company should draft and file the full patent application with the help of their patent attorney or agent (this has to be done within one year of the filing of the temporary application).
Some believe that all of this patent litigation among technology companies may lead to a serious stifling of creativity in an industry known for its brilliant innovations. Others believe that many small technology companies would never have received funding or otherwise been able to pursue their innovative endeavors, were it not for patent protection, and it is simply a case of smaller technology businesses asserting themselves to protect what is rightfully theirs.
The bottom line is that there has been a significant increase in the number of high-tech and software related patent infringement cases in recent years, and they’ve become a “patent” for success in leveling the playing field for smaller tech companies.
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Zach Chouteau is a freelance writer specializing in the high-tech,
business, and travel industries. He can be contacted at
zachchouteau@msn.com.
