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THE BEST IP PROTECTION FOR SOFTWARE? COPYRIGHTS ARE THE WAY TO GO FOR SMALL BUSINESSES AND INDIVIDUAL INVENTORS

Updated: May 28


By Manotti L. Jenkins


No other intellectual creation has divided legal scholars and practitioners concerned with the proper protection of intellectual property (IP) more ardently than has software. IP journals and treatises spend considerable page space capturing the debates about whether copyrights or patents are the better form of IP protection for this 20th Century phenomenon. Given the major issues that generally affect small businesses and individual inventors, such as keeping costs relatively low and getting the most “bang for their buck,” I believe copyright protection is generally the best way to go. In undergoing this analysis and reaching this conclusion, I am assuming that many, if not most, small businesses and individual inventors will seek to commercialize their software IP on the open market comprised of substantially sized commercial entities. In any event, as I discuss below, copyright protection has certain limitations vis-à-vis patent protection that the small business and individual inventor would have to be prepared to live with.



But first, a little background. A good, basic definition for software is a computer program having a set of statements and instructions that are used in a computer to accomplish a certain result. And therein lie the seeds of the dispute – copyright law protects “literary works,” i.e., the “set of statements and instructions” portion of the definition, while patent law (utility patents) protects “functional systems, processes, and methods of operation,” i.e., the “used in a computer to accomplish a certain result” portion of the definition.



The distinction is illustrated even further when you consider the three basic elements of software: source code, object code, and documentation. Source code is the original code in program languages, which specialists in the field can read. Object code is the code read by the computer and which can be read by humans only when it is transformed into source code. Copyright law protects the “expression” of an idea, but not the idea itself. In contrast, patent law protects underlying processes and inventive features. Hence, whereas copyrights will protect the precise manner of “expression” of the ideas and inventions within the source code and the object code, patent law will protect the actual “inventions” themselves that are embodied in those codes.


When considering which form of IP protection is most beneficial to small business and individual inventors, the three major factors to consider are costs, time and value. The first two factors are pretty straightforward, while the third factor is a bit more complex.


Regarding the costs factor, expenses related to copyright protection are substantially less than expenses related to patent protection. Depending on the specific circumstances, the U.S. Copyright Office charges between $35 and $55 for registering one work by a single author. The U.S. Patent & Trademark Office (PTO), on the other hand, charges $730 for a “small entity” to file an original (non-provisional) patent application and charges $400 for a “micro entity” to file the same. Copyright attorney fees for pursuing registration of one work by a single author, depending on the precise situation, usually range between $350 and $500 on a flat fee basis. In contrast, patent attorney fees, depending on the precise situation, are often hourly (but are sometimes based on a flat fee), and can range between $4,000 and more than $10,000 for completion of the entire patenting process.


Concerning the second factor – time – issuance of a registered copyright generally takes much less time than issuance of a patent. Copyrights, including software copyrights, presently issue in approximately eight months. Because of major backlog in the PTO, patent applications covering software have an average total pendency time of approximately 37.5 months (a little more than three years).


The third factor is value.


Valuation of software, like valuation of IP generally, can be a somewhat complex undertaking and is subject to various approaches. The major approaches used by valuation experts are: 1) the cost approach (the historical cost to develop an asset); 2) the income approach (calculates the present value of future income streams specifically attributable to the asset); and 3) the market approach (values the asset by comparing it to publicly available transactions involving similar assets with similar uses). Without getting too bogged down in any one of those approaches, I would simply acknowledge that the non-complex factors to consider in the value determination are the amount of upfront expenses that must be incurred to develop and protect the software and the time it takes to obtain IP protection. The goal, of course, is for that number to be lower for both of those factors, which, as addressed above, favors copyright protection.


On the other hand, the scope of the IP protection must be factored into the value analysis. In other words, what facet of the software is being protected by patents as opposed to what facet is being protected by copyright, and how does that query impact the value of the software on the open market. Patents protect the behavior, logic and functioning of the software program. And while a single software copyright registration protects the registered source code, the registered object code, and the user interface from literal copying, patent protection is more robust because it gives the software inventor exclusive rights to the underlying processes and inventive features contained within the codes. Accordingly, copyright protection cannot prevent someone from designing around the idea by rewriting the underlying code differently to achieve the same functionality, while patent protection will prevent such appropriation. Depending on the market and its participants, this difference could make potential purchasers of the software more inclined toward obtaining the software protected by patent than by copyright.


Although the scope of patent protection for software is indisputably greater than that of copyright protection, two additional considerations counsel in favor of copyright protection for software that is being developed and marketed by small companies and individual inventors. First, it is generally understood that software products have a maximum life-cycle of approximately five years. As discussed above, patent applications covering software have an average total pendency time of a little more than three years before a patent will issue by the PTO. Therefore, chances are the software could be outdated before the patent issues, which certainly lessens the value of pending patent protection on the open market.


Second, and most importantly, on June 19, 2014, the U.S. Supreme Court issued a decision, authored by Justice Clarence Thomas, that has put software patents in jeopardy. In the case ofAlice Corp. v. CLS Bank, 134 S. Ct. 2347, 573 US __, 189 L. Ed. 2d 296, the Court imposed substantial obstacles in the path of software developers for obtaining and sustaining patent protection. In the roughly fifteen months since the Alice decision, several software patents have been invalidated by the courts and many patent applications seeking to protect software have been rejected by the Patent & Trademark Office. For the small business and individual inventor, this must be a scary thought given their inability to recoup the expenses that were invested in the patent applications on the front end and during the patenting process.


While the issue is certainly more complicated than this blog post will attempt to explore, suffice it to say, on balance, it is my view that copyright protection for software provides greater benefits to small businesses and individual inventors who desire to commercialize their creations.

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