Startups May Be Forfeiting Revenue and Market Share by Foregoing Patents

Authored by Jeffrey A. Berkowitz and Elliot C. Cook

After a 2014 decision from the U.S. Supreme Court, a widespread belief emerged that patents were more difficult to obtain. In some technology areas, especially software, the forecasts were bleak—patents were all but declared dead. Fortunately for innovative companies in virtually all fields of technology, especially software, we now know that patents are alive and well in the U.S. Strategically adept companies will take note. They will obtain strong patents that block competitors and protect revenue-generating technologies. Companies unaware of this legal development may be missing opportunities for patent protection, with potentially devastating consequences for their bottom line.

The Supreme Court’s 2014 decision in Alice v. CLS Bank unleashed a new test for patent eligibility—that is, what subject matter is patentable in the U.S. The Court instructed that "abstract ideas," without any corresponding "inventive concept," are not eligible for patenting. Following Alice, many inventions have been declared ineligible by U.S. courts and the U.S. Patent and Trademark Office. The impact was particularly hard felt for so-called "business method" inventions, which became popular in the 1990s with the initial growth of the Internet. As collateral damage, many software patents were also being challenged and ruled invalid.

The skies began to brighten for patent owners in late 2014, with an appeals court decision in DDR v. Hotels.com. In DDR, patents directed to generating a composite web page that combined visual elements of a "host" website with content of a third-party merchant survived scrutiny under the Alice test. More daylight broke through with a recent duo of appeals court cases in mid-2016, Enfish v. Microsoft and Bascom v. AT&TMobility. Enfish held that claims to a database using a "self-referential table" were patent-eligible. Bascom rejected an early motion to dismiss based on a patent with claims to an Internet content-filtering system, and found that a lower court incorrectly declared the claims ineligible. The result in Bascom was all the more significant for patentees because it dealt with a procedural maneuver—an early motion to dismiss, which could nip a patent infringement lawsuit in the bud—that had achieved growing popularity after Alice.

These recent cases demonstrate that patents remain available in the U.S. for innovative companies. Companies can rely on these cases to show that their claims are eligible for patenting. Patent claims, if skillfully drafted, stop competitors in their tracks, protecting investments in research and development, revenue streams, and market positions. Companies that skip the opportunity to secure their innovations with patent protection will be at the mercy of competitors who seize that opportunity based on this recent development in the law.