Cyber Patent Wars Are on the Horizon

The nature of patent litigation in the cybersecurity industry is likely to change very soon.  Non-practicing entities started some time ago to sue for patent infringement. These suits often take one of two forms: the plaintiff purchases patents from an operating company in the cyber field, or the plaintiff itself as a history of patenting but has stopped developing products. Either way, the purpose of the suit is simple—extract a monetary royalty from the alleged infringer. Suits of this type range from nuisance level to quite costly, but they typically do not threaten the ability of the accused infringer to continue providing its technology.

In contrast, when an operating company files a patent suit against a competitor, the purpose of the suit often extends beyond just seeking royalty payments. These lawsuits can bring to bear the full power of patents—excluding a company from practicing an infringing technology. Certain industries have witnessed large-scale patent wars among competitors (e.g., telecom, jet engines, LED lighting, etc.), perhaps none more memorable than those in the smartphone field beginning in 2009.

What makes an industry prone to competitor versus competitor patent conflicts? Several, as summarized below, are applicable to the cybersecurity market.

Large Funding

According to a recent report by the firm Cybersecurity Ventures, global spending on cyber products and services is forecasted to exceed $1 trillion between 2017-2021. The White House budget for FY2019 is targeting to spend $15 billion across the U.S. government on cyber-related activities, an increase of more than 4% from FY2018. And of course, the U.S. government is not alone.  Governments and private enterprises are investing record amounts of funding in cyber technologies. This can be fuel for the fire in patent litigation for two reasons. It not only provides patent owners with increased means to file such suits, but also raises the stakes if they are able to conquer a competitor.

Many Patents

The number of active cybersecurity patents has never been higher. The two countries with the highest cyber patent grant rates—China and the U.S.—have seen continuous increases in their annual patent grants in the last decade. In the U.S., the period with the most rapid growth in annual cyber patent grants was between 2008-2014, but growth has continued since then. China is currently experiencing its most accelerated period of patent grants for cybersecurity technologies. Given these recent increases in cyber patents, many of the patents are still active (i.e., not yet expired). The result is a larger than ever volume of cyber patents available for assertion. The large and increasing number of cyber patents on the market make patent disputes among competitors more likely. As the smartphone patent wars demonstrate, one cannot assume that large numbers of patents will deter patent suits.

Detectable Infringement

The easier it is to detect infringement of a patent, the more suitable the patent is for assertion in litigation. This is a large reason why patents for secretive processes (e.g., semiconductor fabrication) or hidden functionality (e.g., algorithms in source code) often do not end up in litigation. While many cybersecurity technologies are secretive and (if patented) are unlikely to be the subject of a patent lawsuit, many involve functionality that is visible to users. For patents covering such surface-level cyber features, and even features that are partially visible and partially hidden, assertion in litigation is possible. Accordingly, when cyber patents cover detectable features such as user input, viewable prompts, definable parameters, generated reports, or GUI displays, they are candidates for litigation. Like many other software-based technologies, cyber technologies frequently involve user-facing features. After all, many cyber technologies are designed to be configured and implemented by users.

Many Competing Players

There are many significant, well-funded cybersecurity companies around the world. They range from well-known software giants to startups. Because each company faces competitive pressure—including, often, from others within their specific niche area of cybersecurity—there are great incentives to displace a competitor through the assertion of patents. Companies with no patents are the easiest targets, but they are not the only ones. As companies seek to consolidate or expand into new areas of cyber, they will encounter friction with established companies. Where there is building pressure, there is a likelihood of eruption.

Conclusion

For companies committed to success in the cybersecurity market, strong patent protection is essential. No company in this field can obtain so many patents that it is protected from patent litigation. For most, the best strategy is to obtain carefully drafted, litigation-ready patents covering their core technologies. When patent battles among competitors occur—and many signs point to this happening—the companies who invested in strong patent portfolios will be best positioned to prevail.