Joff Wild

We hear plenty of claims about how patents are stifling innovation in the US software industry and making it so much harder for companies in that space to thrive – especially smaller ones and start-ups. Without patents, so the story goes, everything would be brilliant, companies would be thriving, investors would be falling over themselves to back winner after winner. Reading and hearing about all this anyone would be forgiven for thinking that the software industry in the US is on the verge of collapse, with no hope of bouncing back until something is done about those pesky patents.

Imagine my surprise then to come across a press release issued by PricewaterhouseCoopers LLP and the National Venture Capital Association which under the headline “Dollars invested by venture capitalists rise 12 percent in Q3 2013” tells me that “Dollars invested in software companies exceeds $3 billion for the first time in 12 years”. It goes on:

The Software industry received the highest level of funding in the third quarter of 2013, exceeding the $3 billion mark for the first time in 12 years with $3.6 billion flowing into the sector during the quarter.  The Software industry also counted the most deals in Q3 at 420, a 23 percent increase from the 342 rounds completed in the second quarter of 2013.  Nine of the 11 largest investments in Q3 went into Software companies.

Describing it as “an exciting time to be an entrepreneur with a software company”, Mark McCaffrey, the global technology partner and software leader at PwC US, can hardly contain himself:

More venture capital dollars are going into more software deals than we’ve seen in the past decade.  The continued increase in valuations for innovative and disruptive technologies in software-related companies, coupled with the increase in exit activity, is driving venture capitalists to make more investments in this space.  And, at the current pace of investing, we should see total venture capital investments in 2013 exceed the annual total from 2012.

John Taylor, head of research at the NVCA, is equally as excited. “With more than half of this quarter’s deals coming from early and seed stage deals, there’s credible reason to be optimistic about the future of innovation and the vibrancy of the startup ecosystem.  Software is a natural increased area of focus given that many tech deals are less capital intensive to get to proof of concept,” he says.

Now maybe I am reading things wrong here, but if patents were the brake on innovation in the US software sector that their detractors claim them to be, would so many VCs be rushing to be putting so much money into early stage software companies right now? For that matter, would companies such as Twitter, Facebook, Google, Microsoft, Amazon and all the rest be so successful? Wouldn’t we, in fact, expect to find much larger software industries and many more global software players in, say, Europe, where software patents are much harder to secure?

As I say, I could be barking up completely the wrong tree, but it seems to me that the US has the world’s most vibrant, competitive, innovative and successful software industry. It also awards more software-related patents to more entities than anywhere else. The two may not be directly connected, but surely what we can say with a fair degree of confidence is that at a minimum the numerous scare stories there are about the destructiveness inherent in software patents just do not ring true when you look at real life.

Given all of that, if their claims are to be taken seriously surely we need a lot more from opponents of software patents than we are getting right now. It is possible that they have a point and that without patents the US software industry would be even more vibrant, exciting and innovative, but the evidence suggests that they have not even begun to demonstrate that. Anecdote really is not enough – software is booming in the US within the current patent system. Look to other parts of the world which do have regimes that are much more to the liking of the opponents of software patents and see the difference.