Hussein Kanji, Hoxton Ventures co-founder, on predicting & patenting lucrative software innovation

Lego Computer Software

If there’s one person who knows about software innovation and the patenting of such innovation, it’s Hussein Kanji.

As well as being an early-stage VC at Hoxton Ventures—which means he needs to be impeccable at sighting game-changing technology unusually early—one of his portfolio companies, Yieldify, was involved in a high-profile software patent-related court case.

And as recently as 25 May 2017, we heard the latest rumble from the courtroom mortal combat between Uber and Waymo—also involving software.

So, I reached out to Hussein to ask if I could discuss pertinent issues relating to this murky area of innovation and intellectual property. During my chat with Hussein, we covered:

  1. How VCs predict which software innovations are likely to catch on
  2. Patentability of software
  3. How to handle software litigation (should you be unfortunate enough to become embroiled)
  4. Strategies for protecting software innovations

Below are audio snippets from our chat and some of my thoughts on our discussion. 

Predicting the success of software innovation

I got the brainwave to contact Hussein after watching him do what he does best in an interview with London Real, from back in 2013.

This interview shows Hussein correctly predict that Supercell would upend the longer-standing Zynga as the major software player in the world of social media and mobile gaming.

To give some context, Zynga was founded in 2007 and was already generating hundreds of millions of dollars in revenue by 2010—the year Supercell was founded. 

Zynga has a total of 358 granted patents and was granted 54 in 2013 alone—the year of Hussein’s interview. Supercell has a total of 7 granted patents and was granted 1 patent in 2013.

Today, Supercell has indeed become as dominant as Hussein predicted. To me, Hussein’s astuteness is impressive and it tallies with my views about patents and patenting. 

Patents are not predictive—they’re instructive. The data they hold is essential… but they are not the only essential thing.

So, I asked Hussein to explain some of the other thought-processes which instruct his decision-making.

Among other things, Hussein mentions that “market shifts” are pivotal—moments in an industry where the emergence of foundational technology makes possible previously unthinkable feats. The earlier you clock on to these shifts, the better.

The book, “How Innovation Really Works”, notes that innovation productivity drops within industries over time—but not across them. This is because as certain areas become saturated, new technology eventually blows open entirely new markets—and opportunities to get higher returns from new innovation.

Patentability of software

Hussein and I also discussed how over half of all utility patents issued in the US are now software-related.

To that point, Hussein explained the value of patents as a business hygiene activity—he likens them to proper bookkeeping and documentation. These activities on their own won’t make a company successful… but they can be invaluable as a defensive tool.

What are you going to do when you get accused of wrongdoing, if there’s no evidence trail proving your upstanding position? Also, as Hussein explains, parties considering an acquisition may be turned off by a company neglecting to protect its technology. 

Patents can be especially invaluable for truly innovative software companies—once others catch on to your isolation in a lucrative technology area, they will swarm. 

In Hussein’s words, “Not filing is a negative—but filing isn’t necessarily going to guarantee success”. 

How should you handle software litigation?

 “Quickly,” is the answer, according to Hussein. He says only the lawyers win in protracted courtroom battles—I agree.

Hussein illustrates this using the case of Yieldify, one of Hoxton Venture’s most successful investments—it was trapped in legal wrangling with Bounce Exchange, a bigger, US-based competitor. 

Bounce Exchange's patent is shown as a black dot on the eCommerce and online advertising technology landscape—click image to enlarge.

Bounce Exchange's patent is shown as a black dot in the context of well-known players in the eCommerce and online advertising technology landscape—click image to enlarge.

Hussein explains that UK-based Yieldify was growing so fast that it began expanding into Bounce Exchange’s US market. Bounce Exchange did not like this, so it filed a patent lawsuit. According to Hussein, it wasn’t until Yieldify counter-sued based on its own patent that the whole ordeal ended.

For that reason, Hussein explains that understanding the patent landscape and protecting oneself is particularly important for small companies.

Small companies are often seen as pioneers of “disruptive” innovation—even though most “disruptive” innovation is birthed in large companies. This is because many founders of start-ups are former employees of large companies—they usually leave after becoming attached to a project and deciding to see it through alone.

If you’re such a company, it’s critical that you understand the technology landscape in which you’re operating—the promising whitespaces and the dangerously crowded mountain peaks.

Strategies for protecting software innovations

As far as protecting your software innovation projects, Hussein advises to hire an IP law firm and, as much as possible, to operate in the whitespaces of your technology area.

He explains that you don’t want to clash head-on with the big dogs—you want to go into an area of opportunity before they even realise it’s there.

You want them playing catch-up, not whack-a-mole, with your business.

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