SE-KB.4 – Protecting IP Rights in Software

Over the past few decades, intellectual property (IP) has become an increasingly larger portion of the capital investment and assets of U.S. companies. For software companies, in particular, IP legal protection is crucial to secure their assets from theft or copycats.

Pros and Cons of Software Patents. For many software companies, patents serve as a key tool in protecting their rights in and to their software products. U.S. patent owners can prevent others from making, using or selling any products or services that incorporate their patented inventions or methods throughout the U.S. As such, patents can be powerful deterrents to copycats, and can provide patent owners with significant market advantages.

However, software patents are expensive and difficult to maintain, and can be even more expensive and difficult to enforce.   The lifetime cost of obtaining and maintaining a patent in the U.S. can easily top $30,000. Of course, patents expire after a maximum of 20 years, so at some point the patented inventions become open to the pubic.

Also, U.S. patent protection does not protect the invention from users in other countries. Of course, since the U.S. patent process involves a publication of the claims that, thanks to the Internet, are globally available, failure to secure international patents leaves a U.S. patent owner unable to prevent use of their technology by foreigners. As such, U.S. patent owners often seek patent protection in foreign countries, as well, at costs of $30,000 or more for each additional country where patent protection is desired.

In addition, once a patent is obtained, the burden of enforcing patent rights falls upon the patent owners, themselves. Thus, patent owners must bear the cost of investigating potential infringement and, if necessary, filing infringement lawsuits. A recent study by the American Intellectual Property Law Association to find median litigation costs for patent infringement suits can be significant: For claims of less than a $1 million, median legal costs are $650,000. When $1 million to $25 million is considered at risk, total litigation costs can hit $2.5 million. For claims over $25 million, median legal costs are $5 million.

Alternatives to Software Patents. In light of the costs and limitations of software patents, some of which are outlined above, software owners often employ alternative legal tools to protect their IP rights. Some of these alternative software IP protection strategies include the following tools:

  •  Effective use of licenses can grant software owners significant legal powers to use control the use of the software by partners, affiliates, developers, distributors, and users of their software. The main benefit of this tool is that the license language can grant broad powers to the software owner and moves legal considerations from the more nuanced and complex realm of “IP law” (confusing to many courts), and renders them more simple “breach of contract” issues that courts handle on a regular basis. However, a significant limitation to this mechanism is that the licenses can only be enforced against those who agree to it, and not against others.
  • Trade Secrets. Trade secret laws protect a company’s secret items that have commercial value. Items protected by trade secret laws are typically the same subject matter as patents. However, trade secrets do not require any filings or public disclosure, as is required with patents. Moreover, trade secrets do not expire, so a secret can remain protected indefinitely (e.g., the Coca-Cola formula). The mechanics of qualifying for trade secret protection are fairly nominal, but software owners should implement comprehensive protocols to ensure their software is fully protected.
  • Copyright Registration. While not required to create rights in a copyrighted work, registering software with the U.S. Copyright Office grants software owners significant legal protections and enforcement tools, such as: the ability to sue in federal court for infringement, the ability to receive an award of attorneys fees from infringers, and the ability to receive statutory damages (meaning that the injured copyright owner doesn’t have to prove lost revenue or profit to receive a money award).  U.S. Copyright Office registrations are relatively inexpensive to acquire, do not require renewal, and protections can last 100 years or more.
  • Trademark Registration. While trademark registration with the U.S. Patent and Trademark Office (USPTO) won’t protect the underlying code associated with a software program, a USPTO trademark registration can help ensure that no one in the U.S. can market similar products under a name or logo that is “confusingly similar” to the registered mark. The USPTO trademark registration process is much simpler and less expensive than patents, typically costing less than 10% of the cost of patent protection. In addition, USPTO registrations can be renewed indefinitely, as long as the mark remains in use.

Finally, for copyrighted works registered with the U.S. Copyright Office and for trademarks registered with the USPTO, the registration owners can also record their registrations with U.S. Custom and Border Protection (CBP). Once these are recorded, CBP will ensure that no infringing items are imported into the U.S., effectively locking out the entire U.S. market from foreign imports of infringing goods.

The above discussion represents a brief overview of some of the legal tools that software owners can employ instead of, or in addition to, software patents.   The best options and strategies for protecting software will depend on a number of factors, and software owners should consult competent IP legal counsel for advice.