October 21, 2014

Why We Shouldn’t Go Soft on Software Protection

By Frank Cullen

What do a multinational retailer, a visual prosthetics start-up, and a durable goods manufacturing company all have in common? They are all software companies.

Software and computer-enabled inventions are indispensable aspects of innovation in every field of technology and sector of the economy because they unlock the potential for a computer to perform new and different tasks. Software-enabled technologies are precisely the ‘new and useful advances in technology’ the patent system is designed to encourage and protect. Lean manufacturing and optimized supply chain routing enabled by software keeps retailers in business, just as it powers a device to allow the blind to see and leads to new and more efficient ways to manufacture and maintain items ranging from thermostats to cars to 747s.

Yet despite the tremendous impact software has on technology and our economy, there is a vocal minority that is calling for ‘open season’ on software patents. Weakening our patent system in this way would imperil America’s ability to compete, and put more than $5 trillion in U.S. economic activity and 40 million jobs at risk.

IP-intensive industries, like software, fuel competitiveness in a global market. The innovations brought by these companies, small start-ups and technology giants alike, provide consumers with the amazing technologies they demand. Capital investment follows this consumer demand, and venture capitalists and smart businesses leaders alike will invest in future innovations when this success is paired with the appropriate legal structures and protections that a patent can provide.

As impressive as they are, these software innovations don’t come easily. They are the products of hard work and billion-dollar investments. In 2008, companies invested approximately $46.9 billion in research and development for software and computer-related services, which accounts for 16% of the total industrial R&D expenditures for the nation. And it didn’t stop there; a few years later in 2013, the R&D spending grew 22.1% from the prior year. Now compare that to just a 5.8% R&D growth for the whole economy.

This virtuous cycle of innovation, incentivized by patent protections, keeps our economy growing. Indeed, it has been the driving force of many business models introduced over the past 25 years. Venture capital firms also recognized the increasing potential in software companies, as evidenced by approximately $18 billion investments from 2007 to 2010.

Patent protections for software in the U.S. have created a strong and growing industry that plays a critical role in maintaining our competitive edge over other countries. According to Forbes, eight of the ten top software companies in the world are based in the United States and contribute approximately $152 billion annually in revenue. Software accounts for approximately $36 billion of U.S. exports, and foreign demand for software outpaces demand for all U.S. exports as a whole. And it is growing – software now accounts for more than 10 percent of the total gains in U.S. exports, up more than a percentage point from the previous decade.

Another significant benefit of software to our economy is the creation of jobs. Software developers are vital to creating an increasingly innovative and knowledge-driven economy. In fact, this industry employs approximately two million U.S. workers with salaries that are roughly 195% of the national average.

Software-implemented innovations create new levels of efficiency, performance, and functionalities which were unthinkable just a few years ago. Software innovations are increasingly critical to technological advancement and our economy – weakening patent protection would weaken our global competitiveness and harm American companies. It is our hope that as Congress and the courts consider these important issues, they will base their decisions on facts, not rhetoric.

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