Transfer Pricing Associates

IP Specifics for the Software Industry


The software industry is involved in the development, maintenance, and publication of computer software and digital contents.  There are several types of software and businesses players in this industry.   Infrastructure software, including operating systems and databases are made by companies such as Google and Microsoft.  Enterprise software, on the other hand is the type of software that automates business processes in finance, logistics, and sales and is made companies like Oracle and SAP AG.  Lastly, security software is made by companies such as Symantec and Kaspersky.  Software is technically protected as a copyrighted work of literature under the Berne Convention which allows the creator to prevent another entity from copying the program, though it should be noted that it is possible for patents of software innovation to overlap with copyright.  Protecting the IP that is embedded within these softwares, however, proves the real challenge due to the flurry of issues surrounding protection of software IP and the varying software IP protection rules in different jurisdictions.  The main IP issues that come into play in the software industry are as follows:

Software Piracy & Counterfeiting

According to a study performed last year by the IDC (International Data Corporation) and the BSA (Business Software Association), piracy cost the software industry $91 billion in 2009.  The study also reported that the increase of 2 percentage points in piracy over 2008 was due largely to higher PC shipments and sales, especially in emerging markets such as Brazil, India, and China. One of the biggest markets for pirated software, China, witnessed illegal software value jump to $7.6 billion last year, $900 million more than in 2008.  Since software is an often distributed and abstract technology, it is both difficult to claim and difficult to avoid making vague claims using vague terms in patent filings.  Although, there have been recent positive developments in the fight against software piracy including the ratification of the Anti-Counterfeiting Trade Agreement (ACTA) by the U.S. and seven other countries.  The treaty represents a step in the right direction for international intellectual property rights enforcement, as it will encourage and empower nations to stop software counterfeiting.  Another recent development is that the U.S. Supreme Court last week refused to hear the Vernor v. Autodesk case.  This case involved a man named Timothy S. Vernor, who wanted to sell unopened software made by Autodesk Inc., on eBay.  In declining to review the case, the High Court upheld 9th Circuit ruling that the first sale doctrine should not apply to Autodesk’s software because the original purchasers of Autodesk were licensees, not owners of the software and thus Vernor could not resell the software.

Patents & Claims Disputes

As the software industry has one of the highest R&D/Sales ratios of any industry, patent filings are an integral part of business for software companies as they protect new software innovations.  Unfortunately for these software companies, filing a patent on software innovations can be very nitpicky and hard to enforce.  Compare for example, the pharmaceutical company, Pfizer, whose multi-billion drug Viagra, is protected through just a single patent and Microsoft, whose software feature, the positioning and/or movement of a cursor, is protected by 14 different patents.  So, rather than producing and patenting more broad innovations like the word processor or spreadsheet, software companies these days are instead choosing to make a race to patenting every trivial extension of already existing software, sending patent filings for the industry through the roof.  With this trend, there is obviously speculation over whether or not these low-value patents present a challenge to innovation and competition by essentially creating a monopoly over a certain software function or feature.  There can also be a lot of claims disputes if similar software emerges at the same time, due to the fact that a software patent does not a universally accepted definition and so software companies must file and register a patent in every country in which the company wishes to have the patent enforced.  In this case, what’s to stop a developer in China from publishing a counterfeit version of the software online when the patent for the software is only filed in the United States and Europe? Lastly, with the race to patent every trivial software extension, developers have run into the emergence of multiple cross-licensing agreements between software companies so that the major players can give each other access to their patented software innovations, and in turn creating barriers to entry for small and medium-sized enterprises.

Open Source & Standards Risks

Open source refers to a computer software that is often developed in a public manner and available in source code form that is accessible to non-copyright holders through a software license that permits users to change and sometimes distribute the software to other users.  The open source community holds quite a bit of animosity towards software patents, drawn from instances when patent owners terminate open source projects by demanding license fees that the project could not or was not willing to pay or offering licenses that conflicted with the free software licenses.  Software standards, on the other hand, refer to a set of terms, concepts, and data formats agreed upon by software creators so that their software can understand the files and data created by a different software program.  In addition, a certain protocol needs to accepted and incorporated by a group of developers who contribute to the definition and maintenance of the standard.  Problems arise, however, when companies join these standards groups since, as a member, the company may be forced to surrender some of its IP rights and essential claims to the standard body.