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!