When Should a Software or SaaS Company BUY a Patent!

Short answer: a software or SaaS company should consider buying a patent — not just filing one — when its business model is easy to copy and it faces real execution risk. A purchased patent can be a defensive moat against fast-following competitors, and it gets you coverage faster than a filing ever will.

I am not a patent attorney, but I know when to think about patents strategically. And SaaS patent acquisition is a conversation I have more and more with early-stage companies that would not have considered it ten years ago.

The Groupon Example.

You know Groupon. Its model was relatively easy to replicate, and once it took off, copycats flooded in fast — arguably faster than Groupon could open new markets. That is execution risk: the danger is not that the idea fails, but that competitors copy it before you can dominate. Groupon’s answer was clever. It bought a patent (issued back in 2001) that covered some of what it does, then used it defensively against copycats. It did not file the patent and did not invent the underlying idea. It acquired the right and deployed it as a competitive moat.

The Modern Wrinkle: Alice.

In 2014 the Supreme Court decided Alice Corp. v. CLS Bank, 573 U.S. 208, which held that simply implementing an abstract idea on a generic computer is not patent-eligible. That decision made many software and business-method patents harder to acquire and easier to challenge. It does not mean software patents are dead, but quality matters enormously now. A vague “do X on the internet” patent is weak and at high risk of invalidation. A patent tied to a specific, non-obvious technical improvement to a particular system or method is far stronger. Alice is what you are navigating when you evaluate a SaaS patent acquisition — the question is whether the patent would survive an Alice challenge.

When Buying Makes More Sense Than Filing.

Filing a patent takes two to four years on average and costs tens of thousands of dollars before you get anything. A startup that needs defensive coverage now does not have four years. Buying from a patent holder who already went through prosecution gets you an issued patent with a known prosecution history and a defined validity record. Buying is also useful when the technology space you need coverage in was already patented by someone else and licensing is not on the table. Patent brokers and marketplaces facilitate these transactions, and the market has professionalized substantially — you can get a sense of what comparable patents have sold for before you make an offer.

The IP Stack for SaaS Companies.

Patents are one of four IP pillars a SaaS company can use: copyright, trade secret, trademark, and patents. Most SaaS companies rely primarily on copyright (which protects the code automatically from the moment of creation) and trade secret (protecting algorithms, customer lists, pricing, and processes kept confidential). Intellectual Property Basics for Software Companies covers this stack in full detail. For most SaaS vendors, copyright and trade secret do more of the day-to-day work — but in the right competitive situation, a patent is the tool that fits. See also Copyright Issues in SaaS Software and our analysis of 358 trade secret cases for how the other pillars hold up in practice.

Common Questions on SaaS Patent Acquisition.

Q: How do I know if a patent actually covers what I do?
A: A patent attorney reviews the claims — the numbered paragraphs at the end of the patent that define its legal scope. Claims can be broad or narrow, and you need a claim that actually covers your product, not just one that sounds related.

Q: What does a software patent cost to acquire?
A: Wide range. Weak or narrow patents sometimes trade for under $50,000. Strategically valuable patents with broad claims and clean prosecution history can cost hundreds of thousands or more. Expect significant variability and budget for a freedom-to-operate analysis.

Q: Does every software patent need to survive Alice?
A: Yes, in the sense that a patent that would not survive an Alice challenge is not worth much as a defensive asset. Before you buy, have a patent attorney assess the claims for Alice exposure. That analysis is not expensive and can save you from a worthless acquisition.

If your business model has execution risk and is easy to replicate, talk to a patent broker about buying a patent that covers your technology, even if you have no patent of your own and are not sure you invented anything novel. A well-chosen patent can slow competitors and provide leverage in licensing conversations. Just go in clear-eyed about cost, post-Alice quality, and the need for a specialist evaluation.

Resources:

• Intellectual Property Basics for Software Companies
• Copyright Issues: SaaS Software
• Survey of 358 Trade Secret Cases
• Alice Corp. v. CLS Bank International, 573 U.S. 208 (2014)

Disclaimer:

This post is for informational and educational purposes only, and is not legal advice. You should hire an attorney if you need legal advice, which should be provided only after review of all relevant facts and applicable law.