European startups and US software patents: Threat or Opportunity?

For a long time the intellectual property of computer software could only be protected by the means of copyright laws. This meant that a developer who had an idea and wanted to make it a reality could do so without any fear: As long as he didn’t actually copy from someone else’s code, there was nothing to worry about.

Business sharkThis changed when patents started to be granted for software. With a software patent you are barred from reinventing something that someone else already invented and patented, even if you do it starting from scratch and without knowing anything about that patent. This means that you may be forced to pay to use your own idea, if someone else had it before you and already patented it – that is, if the patent holder even wants to license it to you.

To make a long story short, since 1996, when the patentability of software was officially regulated by the US Patent Office, the trickle of software patents issued in the US has become a deluge – over 16,000 just last year, for an accumulated number well over 100,000. And most of the “inventions” that those patents cover are far from revolutionary or from being something requiring years of research; on the contrary, most of them are very simple if not absolutely obvious. Something that most average programmers could reproduce by chance when solving a problem on their own.

So, if you have an idea and implement it in software today, it is quite possible that you will break at least one of those patents, without knowing it. This has been true for some time, but now there are more and more companies that are trying to profit from their patents by threatening to sue other companies, and even individual programmers, who might be infringing their portfolio – even if there is no competition whatsoever with the infringer.

This is bad news for developers, bad news for entrepreneurs, and bad news for consumers. The only good news is that the situation isn’t as bad everywhere – for example, here in Europe, at least for now, software patents are much more difficult to obtain. They are usually only granted when related to some industrial process, and the patentability of software “as such” is explicitly prohibited.

This means that European startups don’t have to worry so much about software patents in Europe itself, but if they want to get to the US market they fall under the same threat as their American counterparts; and to become a global player in software, success in Europe is not enough: You need to be validated in the US.

As a matter of fact, Europe has been the birthplace of many successful software startups, some of which have become global hits: Rovio and Spotify (which incidentally got sued the moment it landed in the US) just to cite a couple of the most recent ones, Skype and Mysql to talk about the most famous. But that’s nowhere near the number and the level seen in the US.

There are many theories about this difference, and as far as I know they never include a lack of talent as an explanation. The problem lies somewhere else. In my opinion, one of the biggest disadvantages European software startups have to face if compared to US – and especially Silicon Valley – new ventures is one related to visibility and credibility.

Success begets success. The attention of the tech world is focused on the US and even more on Silicon Valley. The simple fact that a startup is based there brings a higher visibility and bigger credibility, easier publicity, more funding. It’s not for nothing if so many foreign startups and entrepreneurs move to the Valley to seek their success.

As the pernicious effects of software patents start weighing in more and more, though, this could change. I’ve got nothing against the Silicon Valley or the US – I even have relatives living there – but this self-inflicted problem could create a big opportunity for European developers and entrepreneurs.

Europe is already the richest market for software in general, but its linguistic fragmentation, more conservative consumers and a tradition of US innovation make it less prominent than the US one. If the European Parliament resists the pressures to relax the European rules on software patents, though, and if the USA doesn’t change the track it put itself on, Europe could become the reference market for innovative software, especially for new web and mobile apps that would be riskier and riskier be bring to the market in the USA because of the threat of patent litigation.

An American market practically closed to innovators that don’t have very deep pockets and/or thousands of protective software patents to answer the threat from lawsuits would mean a poorer global market for everybody. But in that poorer global market European startups would be comparatively much better positioned than today.

And if lots of cool new things will start to happen in Europe,  startups based in Europe could gain the upper hand when it comes to visibility and credibility. There would still be problems of fragmentation and consumer attitude, but if the tipping point is reached that could be superseded by other effects. Even some American entrepreneurs, scared by patent litigation at home, may decide to move here, inverting the traditional trend of European startuppers who move to the US, and this influx of talent would create an even better environment and contribute to the change.

If not Europe, who could bear the baton of software startup innovation if the US were forced to pass it up? China or India could be two candidates, but for now Europe looks much better positioned to me, if anything else because the best software talent in those two giant countries is already soaked up by other booming industries.

In the end, I wish that the US will be able to sort out its growing mess with software patents soon, not just out of disinterested generosity but also because that would be better for the global economy. But if they stay on their current course – and it looks VERY difficult to me that that course will be changed substantially, considering the staggering amount of money that has already been invested in software patents – then we in Europe should try to be as ready as possible to receive the baton.

This should include lobbying to get even stricter rules for software patents, creating stronger ties between innovators and other such systemic measures. But, in my opinion, it could and should start first of all creating an awareness of the chance that European developers and entrepreneurs have in front of themselves.

The baton may be there for grab in a short time – a couple of years. What are we waiting for then? We should already be warming up.

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  • http://blog.serverdensity.com/ David Mytton

    There technically is an advantage in Europe of not having to think about software patents when you’re starting out because they’re not as easy to obtain, particularly in the UK. However, I think that same mindset exists in the US too – it’s very unlikely to be sued as a small startup. As seen with Spotify, you only attract attention once you’re big enough and at that point you usually have the resources to defend yourself.

    Also, being in the EU doesn’t provide immunity. A case could be started in the US and you’d have to attend otherwise risk a decision in your absence and possible injunctions preventing sales, etc.

    • danmaz74

      I’m not implying that there is already such an advantage today, but that it could become a real one if thing go on like this in the US.

      As for immunity, you’re right: There is no such thing. But being from the EU you could start developing EU markets first, and that you could do without that threat hanging over your head.

  • Upintheair7777

    I think also one of the problems with the European entrepreneur ecosystem is the high risk adversity compared to the US. Also I would like to add that in Europe unless you are old and with grey hair you are considered pretty much a worthless idiot that should sit at his desk and be thankful to have a job. In the US it seems to me they have long ago realized that someone young can actually come up with disruptive ideas and use his high energy to deliver on that.
    It’s all about a long European history of different countries, many wars, mistrust, preconceptions between cultures, etc. None of that exists in the US.
    So you are hoping that the fat Euro technocrats busy living the Euro life will even see the opportunity? Haha. Europe is not about working. Europe is about talking, meetings, holidays, strikes, more talking, long lunches, socialism, pushing for an utopian united continent that’s been fighting wars among each other only 70 years ago, etc. etc.
    The fundamental difference why what you say will never happen is to do with root values:
    US values = Success! Be the best! Money! Go for it!
    Euro values = Enjoy life! Love! Food! Everybody is equal!

    • Wolfgang Schreurs

      I can’t say I can fully agree with your comment. I’m from the Netherlands and our country has at one time been the most powerful country in history (VOC / WIC). In that period we became very rich by being open towards other countries / cultures and doing lots of trade with other countries. We valued money more then cultural differences and religion. This was in the period of “The Republiek Van De Zeven Verenigde Nederlanden” (http://en.wikipedia.org/wiki/Dutch_Republic). Due to our Protestant Church background we valued hard work. From what I understand the US constitution was based on the constitution of the Dutch Republic of this period.

      I do feel that many native Dutch people still have these qualities. But you’re correct on one account, our nation has become more and more socialistic and this is dangerous because it prevents people from developing fully. It made our county interesting to lots of economic refugees who often don’t seem to interested in working and in the Netherlands one can make quite a decent living by making use of the social services – there’s often not much economic pressure to search for a job.

      But times are changing. For the whole Euro-rescue operation our political leaders started gambling with our retirement money. Rather sooner than later we will have to cut back on our social services to stay afloat and hopefully this will give people the incentives to start working on their own future and rely less on the state.

      • Jose

        “I’m from the Netherlands and our country has at one time been the most powerful country in history”

        I understand that an English person, French, Spanish, Americans could say that but…. Dutch??!!!!

        You must be kidding, or there is no limit to Nationalism distortion of reality field.

        • introspectif

          No way Jose – he’s serious. And rightfully so.

        • danmaz74

          Actually, there was a period of time when the Netherlands had the biggest colonial empire in the world (between Spain and England, IIRC)

    • danmaz74

      In the EU there are some 500+ million people; many of them are very entrepreneurial. There were already many successful tech startup founded in the EU; all other things staying the same, the rising threat of software patents litigation in the US could change the balance in favor of Europe.

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