Seven Years After Alice, 63.2% of the U.S. Patents Issued in 2020 were Software-Related

By Raymond Millien
March 17, 2021

“Looking at the top 15 software-related U.S. granted utility patent assignees, there was a 23% increase in the total number of granted patents in 2020 when compared to 2019.”

https://depositphotos.com/38756235/stock-photo-software-concept.htmlAs an update to my posts from 2017, 2019, and 2020, it has now been more than seven years since the U.S. Supreme Court’s 2014 Alice Corp. v. CLS Bank decision. Yet the debate still rages over when a software (or computer-implemented) claim is patentable versus being simply an abstract idea “free to all men and reserved exclusively to none” (as eloquently phrased over 73 years ago by then-Supreme Court Justice Douglas in Funk Bros. Seed Co. v. Kalo Inoculant Co.). Further, it has been 10 years since famed venture capitalist Marc Andreessen wrote an influential op-ed piece in the Wall Street Journal titled “Why Software Is Eating the World,” where he correctly predicted that:

More and more major businesses and industries are being run on software and delivered as online services—from movies to agriculture to national defense. Many of the winners are Silicon Valley-style entrepreneurial technology companies that are invading and overturning established industry structures. Over the next 10 years, I expect many more industries to be disrupted by software, with new world-beating Silicon Valley companies doing the disruption in more cases than not.

Portions of this op-ed have no doubt been cited in millions of corporate boardroom, B-school, and startup pitch deck PowerPoint® slides! Now, in 2021, we are well into Industry 4.0 – the era of the Internet of Things (IoT). In this era, several industries are experiencing a “digital transformation” that is shifting their business models away from selling only hardware (e.g., household appliances, jet engines, locomotives, turbines, compressors, motors, etc.), to selling solutions — a suite of hardware equipped with sensors and wireless communications generating valuable data, coupled with analytics software solutions that enable users to monitor, control, diagnose and generally operate such hardware more efficiently (e.g., via remote diagnostics and scheduling preventative maintenance).

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The Data

This digital transformation where software is “eating the world” is undeniable and reflected by the following facts and figures:

  • The United States is the largest tech market in the world, representing 33% of the total estimated IT spend for 2021, or approximately USD1.6 trillion [CompTIA].
  • In 2020, the global M&A activity in the software and Internet services space reached USD158 billion, representing over 2,790 deals [IMAA].
  • Software developer is predicted to be the most in-demand job for 2021, with an annual median salary of USD107,510. [Nasdaq]
  • In 2019, there were 88,633 Bachelor’s degrees, 45,667 Master’s degrees, and 2,224 Ph.D.s awarded in the U.S. in computer and information sciences [National Center of Educational Statistics].
  • The IoT market is on pace to grow to over USD 2.4 trillion annually by 2027; and by 2027, there will be more than 41B IoT devices, up from about 8B in 2018 [Business Insider].
  • In Q4 of 2020, U.S.-based Internet and software startups received USD17.9 billion in venture capital funding in 823 deals, representing 53% of total funding and 48% of total deals for the quarter [PwC/CBInsights].

Given these latest facts and figures, I once again sought to determine what percentage of U.S. Patent and Trademark Office (USPTO)-issued utility patents are “software-related”?

To define what patents are “software-related,” I utilized the same methodology employed by the United States Government Accountability Office in a 2013 report to Congress. That report relied on certain United States Patent Classification (USPC) classes and subclasses of applications most likely to include software-related claims as selected by expert advisors to the USPTO. Now, with the assistance of IP services firm Clairvolex (and after converting data from the USPC system to the Cooperative Patent Classification (CPC) system), the data set was updated using the PatSeer Global Patent Database. The results? In 2020, 63.2% of issued U.S utility patents were “software-related” (a slight uptick from 63.0% in 2019)!

Digging deeper into these numbers, I noticed an increased concentration of software patents being issued to several large players. That is, looking at the top 15 software-related U.S. granted utility patent assignees, there was a 23% increase in the total number of granted patents in 2020 when compared to 2019.

Hope for Ending the Section 101 Plague?

Meanwhile, back at the patent bar, the USPTO’s Section 101 guidelines interpreting Alice—and the accompanying 46 examples—have not cleared the confusion, and Alice continues to distract the USPTO, courts and practitioners from properly focusing on Sections 102 (novelty) and 103 (obviousness) that impact patent quality. Not surprisingly, the arrival of a new presidential administration and the start of the 117th Congress has revived the dizzying speculation about “Section 101 reform.” Will this be the year, as outgoing USPTO Director Andrei Iancu stated in his farewell speech at the U.S. Chamber of Commerce on January 19, 2021, that we ”finally resolve this issue that has plagued our [patent] system for the past decade? If the courts cannot do it, then will Congress step in with legislation and finally liberate our country from this quandary?” Well, we can only hope!

Image Source: Deposit Photos
Image ID:38756235
Copyright:72soul 

The Author

Raymond Millien

Raymond Millien , named one of the “World’s 300 Leading IP Strategists” by Intellectual Asset Management (IAM) Magazine and a “Corporate IP STAR” by Managing IP (MIP) Magazine, is Chief IP Officer at Volvo Car Corporation and CEO of Volvo Cars Ventures. He received a B.S. in Computer Science from Columbia University (New York, USA) and a J.D. from The George Washington University Law School (Washington, DC, USA). Previously, he has led the IP function at GE Oil & Gas and the American Express Company, and the software IP function at GE Healthcare. Mr. Millien has also served as General Counsel of merchant bank Ocean Tomo, LLC, and practiced law in the Washington, DC offices of DLA Piper US LLP and Sterne, Kessler, Goldstein & Fox PLLC.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 3 Comments comments. Join the discussion.

  1. Curious March 17, 2021 12:19 pm

    First, “software related” is a broad term. I’m guessing, for example, that it probably includes things such as semiconductors and computer hardware.

    That being said, there is a substantial disconnect between what is allowed at the USPTO and what survives a 12b6 motion at the District Court level (and/or a trip to the Federal Circuit). My guess is that 80-90% of the patents that are directed to operations performed on computers (i.e., computer software) as opposed to software-adjacent technology (again, such as semiconductors, computer hardware, or computer-controlled devices) would be invalidated at the Federal Circuit. This is mostly because a vast majority of these patents are going to encounter panels at the Federal Circuit that are generally hostile to software-related patents.

    These points aside, what your numbers show is just how important computer technology (and all forms, e.g., both hardware and software) is to today’s economy. However, we have a Federal Circuit (and Supreme Court) that would like to take us back to the days of buggy whips and steam engines.

    We live in a digital world with both digital products and digital services. I would wager that even the average family has at least a dozen devices in their home that run software. Personally, in my home, that number might reach triple digits. This isn’t a trend that is going to slow down anytime soon. However, year after year, we see the Federal Circuit make it harder for people to obtain patents on computer-related inventions. It boggles the mind that the one Court charged with overseeing the laws intended to promote innovation is exceptionally hostile to that very goal. Rather, the Federal Circuit seems hellbent on protecting high-tech oligopolies like Facebook and Google.

  2. Vijay March 19, 2021 12:26 am

    Great analysis and thanks for sharing. Some thoughts which do crop up: Are there more rejections in software when compared to total software applications?(I am assuming software applications are growing faster than others); what percentage of these rejections are due to 101 and are they significantly different from other classes? Also how are they getting overcome and whether there is a bias to large tech innovators. Hard to get all this data, but certainly questions to explore.

    Liked your concluding comments, Section 101 is certainly like the plague for the software innovation cycle and hope we get liberated soon!

  3. Night Writer March 21, 2021 5:21 pm

    >>Today it’s more and more difficult — and I think it’s a good development — to distinguish pure mathematics and applied mathematics,” says Lovász, who is at Eötvös Loránd University in Budapest.

    Lovász just won the Abel prize.

    https://www.nature.com/articles/d41586-021-00694-9

    The above is at the core of the issue. Applied math to solve real world problems should not fall under Alice as it does not.

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