Software Patent - Licensing

Licensing

Patenting software is widespread in the US. As of 2004, approximately 145,000 patents had issued in the 22 classes of patents covering "computer implemented inventions". (see table to the right).

Many software companies cross license their patents to each other. These agreements allow each party to practice the other party's patented inventions without the threat of being sued for patent infringement. Microsoft, for example, has agreements with IBM, Sun Microsystems, SAP, Hewlett-Packard, Siemens AG, Cisco, Autodesk and recently Novell. Microsoft cross-licensed its patents with Sun, despite being direct competitors, and with Autodesk even though Autodesk has far fewer patents than Microsoft.

The ability to negotiate cross licensing agreements is a major reason that many software companies, including those providing open source software, file patents. As of June 2006, for example, Red Hat has developed a portfolio of 10 issued US patents, 1 issued European patent, 163 pending US patent applications, and 33 pending international PCT (Patent Cooperation Treaty) patent applications. Red Hat uses this portfolio to cross license with proprietary software companies so that they can preserve their freedom to operate.

Other patent holders are in the business of inventing new "computer implemented inventions" and then commercializing the inventions by licensing the patents to other companies that manufacture the inventions. Walker Digital, for example, has generated a large patent portfolio from its research efforts, including the basic patent on the Priceline.com reverse auction technology. US universities also fall into this class of patent owners. They collectively generate about $1.4 billion per year through licensing the inventions they develop to both established and start up companies in all fields of technology, including software.

Still other patent holders focus on obtaining patents from original inventors and licensing them to companies that have introduced commercial products into the marketplace after the patents were filed. Some of these patent holders, such as Intellectual Ventures, are privately held companies financed by large corporations such as Microsoft, Intel, Google, etc. Others, such as Acacia Technologies, are publicly traded companies with institutional investors being the primary shareholders.

The practice of acquiring patents merely to license them is controversial in the software industry. Companies that have this business model are pejoratively referred to as patent trolls. It is an integral part of the business model that patent licensing companies sue infringers that do not take a license. Furthermore, they may take advantage of the fact that many companies will pay a modest license fee (e.g.$100,000 to $1,000,000) for rights to a patent of questionable validity, rather than pay the high legal fees ($2,000,000 or more) to demonstrate in court that the patent is invalid.