The loudest argument against software patents is not that software shouldn’t be patented because it is not innovative, but rather that patents are not needed because with software it is all about speed to market and the advantage that the so-called first mover will achieve. As the theory goes, all you need to do is get to market first and a tremendous advantage will be achieved by getting early adopters to use the software and integrate it into their lives, or businesses.
Like so many other promises of lottery like winnings, they myth that all you need to do is get to market first misses the mark. Indeed, so over simplified is the story of the first mover advantage in the software world that if followed start-up companies could be leading themselves to a slaughter from which they may never recover.
While the story of the first mover advantage may have some truth for some social media and consumer Internet companies, much of the so-called “innovation” in that segment of the software industry is not at all innovative. Simply doing something that you have never done before does not make it innovative, and even if you are doing something that has heretofore never been done does not guarantee that it will be deemed innovative either. Innovation is about coming up with a new and non-obvious solution.
Not to put too fine a point on it, but if what you have is something that cannot be patented because it isn’t new or it is obvious then exactly how is that innovative? So much of what is happening in the social media and consumer Internet space could never be patented for a variety of reasons, so taking lessons from companies not engaged in what the law deems innovative and applying that to truly innovative products and services is naïve at best, but is probably more accurately characterized as reckless or grossly indifferent.
Sure, if you have come up with a relatively inexpensive piece of software that you won’t be able to patent and which has a limited shelf life then it makes business sense to rush to market and develop as many loyal users as you can as quickly as you can. But what if your software will take a team of engineers and computer programmers years to develop and build?
Simply put, the first mover advantage makes no sense at all in the case of enterprise software, which is a highly technical area of innovation that is much needed for the security and efficiency of corporations and governments. You simply cannot spend the time, money and energy developing this kind of software innovation – note the proper use of the word innovation here – if the minute you hit the market it can be freely copied by competitors who won’t have to recoup the investment in research and development. Thus, the first mover advantage is wholly inapplicable if you are creating real, innovative and expensive software. Rushing to market without protections in place based on some wild-eyed notion that all you have to do is get to market first is a sure-fire way to lose everything.
The first mover storyline also provides a false narrative because it is flat wrong from the customer perspective as well. Simply stated, the first mover myth ignores the very real concerns facing customers in the marketplace for expensive enterprise solutions.
Business purchasing enterprise software needs to integrate the purchased system into a plethora of different systems and the provider must provide long-term support for the product as the customer expands their ecosystem of enterprise software in the future. The initial purchase and integration is extremely expensive For example, in the 1990s Dell spent $90 million on an enterprise software project and then killed the project at the last minute before it was released. These projects are not cheap, they are not easy, and many never see the light of day for a variety of technical reasons.
If you are a customer are you looking to buy from the company that rushed to market so they could be first?
Once a system is integrated taking it out can be even more costly. A major risk is that the company that provided that enterprise solution will go out of business and then you will be stuck with an integrated, or partially integrated, system with no support and possibly no access to source code. Making the wrong decision will cost the decision maker their job and potentially their career. In some cases, the wrong decision has crippled a company, or even forced a company into bankruptcy. So these decisions are much more weighty than simply choosing which social media platform to create your profile or which consumer Internet company to use to buy your books. With so much at stake speed to market and first mover advantage is completely irrelevant from the customer side of the equation.
An innovative solution provider with a complicated enterprise software product must show an established and growing customer base or big money behind them, or more likely both, in order to pass the first step of a sales process, which itself can take a year or more. Then there may be large upfront costs until the system is integrated and running before it becomes profitable. This all means an enterprise software startup must have substantial funding if they are to have any chance to succeed. This, of course, requires strong patent rights.
Strong patent rights provide a property right that can be collateralized to attract investment, and importantly, the exclusive right keeps big enterprise software companies from simply copying the invention and flooding the market by simply upgrading their already installed systems. Without strong patent rights, there is almost no way to start up a company in the enterprise software sector.
Sadly, this distinction is not well addressed, or even understood, by the judges making decisions on software patent eligibility or those who careless lump all software together as if a tic-tac-toe app on your phone is of equal difficulty to create compared to a new computer operating system or artificial intelligence that is capable of winning on Jeopardy!
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12 comments so far.
nat scientistJanuary 28, 2016 03:59 am
In the instant innovation of making a market in illiquid corporate bonds, the saying was similar but simpler, “The second mouse gets the cheese.”
nat scientistJanuary 26, 2016 11:24 am
Recalling in patent revisionism the nightmare and tragedy of Oedipus Rex makes dreaming with the Founding Fathers a heavenly wake-up call. There was deep thought dispensing with centuries of the art of the deal a/k/a trumpism, making a big bet on the possibility of new dawns for the rare human inspiriations.
Night WriterJanuary 26, 2016 08:15 am
There is also a game going on here by Microsoft and Google. You see they open source stuff, but they do it in a way and to software that they own and will own. Any effort that is put into improving this software will merely be incorporated back into Microsoft’s product. Yet this seems like a big P.R. move. You see the game? It is the same game that Microsoft played with Windows and Office. You innovate all you want and then we take and put in the product. Google is now playing the same way.
We have to face one thing: these monopolist are smart. This new CEO of Microsoft is a smart guy that has the same type of vision as Gates.
Night WriterJanuary 26, 2016 08:04 am
>>But getting pre-revenue investment is next to impossible in the current climate.
What is going on too is that companies are beginning to hide what they are doing and once the new trade secret laws get passed, we will see draconian employment agrees and secrecy instead of openness and patents. Thanks Lemley, Stern, Obama, Google, etc. The anti-patent crowd is either motivated by keeping monopolies or is a psychotic academic that is drunk on its own power.
Ron HiltonJanuary 25, 2016 11:13 pm
As one who is presently launching an enterprise software company, I wholeheartedly agree that patent protection is essential. It’s a necessary but far from sufficient condition for success. Unfortunately the investment community is laboring under a similar myth with regards to software startups. They think that all you have to do is put a minimal beta test version of the software online and customers will download it, test it, and pay for it if they like it. That may work with early adopters of consumer software, but not mission-critical enterprise software. There is no way they would acquire software that way. It takes extensive (and expensive) testing and certification to get something that enterprises will even look at. But getting pre-revenue investment is next to impossible in the current climate.
Paul MorinvilleJanuary 24, 2016 11:41 pm
Step back, that’s the way it’s been since corporations started applying undue influence on governmemt. It may be reality now, but it is worth fighting.
If this is what we’re left with more companies will go out of business than are starting up, and I have to say, that would be a sad day for America.
step backJanuary 24, 2016 06:54 pm
Thank you for taking on the first moving van fantasy story.
Only the most naive of Hillbillies believe that Ma and Pa Kettle’s fully loaded up Model T will outrace the Maserati’s and Lamborghini’s owned by the well heeled once the sprint is on for the gold country.
See also the Tortoise and Bugs Bunny cartoon shown at the below link. Once the sleeping Bugs awakens, the fairy tale is over. Unprotected first movers disappear into history’s dust bucket a minute after they hit the first ditch in the road. They don’t have the resources to recover and keep going. Eight hundred pound guerrillas do.
Night WriterJanuary 24, 2016 05:38 pm
What if Westinghouse said that Tesla was a patent troll that it was all about execution of building the generators?
(I think when you look at the people against patents that they are either the big multinational corporations or they are people that live in a ecosystem where they use other people’s inventions to bring products to market.)
Paul MorinvilleJanuary 24, 2016 02:20 pm
The companies advocating for patent reform are largely phone app companies. They don’t invent much. Instead they build their apps on a mountain of technology built by others.
I think it’s important to note that most also rely on the Google App store for a distribution channel.
Gene QuinnJanuary 24, 2016 02:03 pm
The thing that really amazes me is how many small companies are so willing to believe that Google et al have their best interests in mind when they advocate for patent reform. Exactly when has a large multi-national corporation cared about small tech competitors and advocated polices, regulations and laws that would benefit those small tech competitors to their own disadvantage?
Seriously, all the small tech companies that are against patent reform need to get a grip.
Paul MorinvilleJanuary 24, 2016 01:34 pm
There is a long list of companies crushed. The vast majority are not known by anyone but their founders and investors.
Lotus and Netscape are perfect examples of companies that took the first mover advantage and tried to make it based on strong brand. My bet is that those under 30 don’t even recognize these brands.
Others who died with patentable (but not patented) technology were a dozen or so search engines at the hands of Google. A dozen or so word processing companies died at the hands of Microsoft.
Remember Real networks Real Player? Killed by Microsoft by embedding their version into Internet Explorer and distributing with Wondows. The same thing now happens with phone apps distributed with phones.
Hundreds of companies making financial, HR, engineering, sales, and other enterprise applications also died at the hands of Oracle, SAP and now cloud companies like Salesforce, etc. The list goes on.
It’s little wonder why these companies support patent reform.
Don’t be foolish. Patent your software.
American CowboyJanuary 24, 2016 01:11 pm
First movers lotus 1_2_3 and netscape got crushed.