How the software industry's litigation explosion is devastating small startups.

This article arises from Future Tense, a collaboration among Arizona State University, the New America Foundation, and Slate. On Feb. 29, Future Tense will host an event on the Make movement and do-it-yourself innovation in Washington, D.C. For more information and to sign up for the event, please visit the NAF website.

Last May, James Thompson, the maker of a popular calculator app for the iPhone, got a nasty surprise. "Just got hit by very worrying threat of patent infringement lawsuit," he tweeted.

The letter came from a Texas company called Lodsys LLC. The firm, widely described as a "patent troll," doesn't produce any useful products. Rather, its primary business is suing other companies that accidentally infringe its portfolio of patents, including one on the concept of buying content from within a mobile application.

Lodsys' letters, which went out to numerous small software entrepreneurs last year, place their targets in a bind. Merely asking a patent lawyer to evaluate the case and advise a company on whether it was guilty of infringement could cost a firm tens of thousands of dollars. And a full-blown patent lawsuit could easily carry a price tag in the millions of dollars, with no guarantee of recovering attorney's fees even if the defendant prevailed. The Lodsys litigation campaign is a particularly egregious example of a much broader problem. Patents are supposed to reward innovation, but in the software industry, they are having the opposite effect. The patent system has become a minefield that punishes innovators who accidentally infringe the patents of others. There are now so many software patents in force that it is practically impossible to avoid infringing them all.

The result has been an explosion of litigation. Large firms like Apple, Microsoft, Motorola, and Samsung are suing one another over mobile phone patents. And as a recent episode of This American Life documented, there are entire office buildings full of "patent trolls" that produce no useful products but sue other companies that do. What has gone largely overlooked in the coverage of the “patent wars,” however, has been the disproportionate burden placed on small firms—which has enormous consequences for the movement toward DIY innovation.

Software is unusual because it is effectively eligible for both copyright and patent protection. Patents traditionally protect physical machines or processes, like the light bulb, the vulcanization of rubber, or the transistor. Copyrights protect written and audiovisual works, like novels, music, or movies. Computer programs straddle this boundary. They are written works, but when executed by computers, they affect the real world. Since the 1990s, courts have allowed software creators to seek both copyright and patent protections.

While copyright law has served the software industry well, the same is not true of patents. Copyright protection is granted automatically when a work is created. In contrast, obtaining a patent is an elaborate, expensive process. Copyright infringement occurs only when someone deliberately copies someone else's work. But a programmer can infringe someone else's patent by accident, simply by creating a product with similar features.

The patent system doesn't even offer software developers an efficient way of figuring out which patents they are in danger of infringing upon. It’s a matter of arithmetic: There are hundreds of thousands of active software patents, and a typical software product contains thousands of lines of code. Given that a handful of lines of code can lead to patent infringement, the amount of legal research required to compare every line of a computer program against every active software patent is astronomical.

Little wonder, then, that most software firms don't even try to avoid infringement. Defending against patent litigation is simply seen as a cost of doing business in the software industry. Startups hope that by the time the inevitable lawsuits arrive, they will have grown large enough to hire good lawyers to defend themselves. But as the number of software patents—and with it, the volume of litigation—has soared, smaller companies have become targets.

These startup firms face legal threats from two directions: patent trolls and large incumbents like Microsoft and IBM that demand small firms pay them licensing fees.