With Amazon looming, Shopify's patent filings gather momentum
As Amazon reportedly considers a move to compete directly against Shopify, the Ottawa-based e-commerce company continues to build its intellectual property portfolio, seeking to patent innovations including the ability to price in multiple currencies in its core e-commerce platform as well as features like product returns in emerging business lines like shipping and fulfilment.
Shopify holds few patents, and IP lawyers say it could have moved sooner to protect its intellectual property. But analysts expect it to hold off the competition, and say the company's recent patent push naturally follows the development of its technology. “They've invested a lot of time and money into diversifying the platform and offering many different types of services,” said Richard Tse, managing director at National Bank Financial. “That has created a significant moat.”
Founded in September 2004, Shopify waited more than a decade to start patenting. The risks section of the firm's 2019 annual report warns that it holds “a small number of issued patents,” limiting its ability to stop competitors from using its proprietary technology. Rivals are also able to “dedicate substantially greater resources to developing and protecting their technology or intellectual property rights.” In February of last year, The Logic reported the company seemed to be changing its IP strategy, beginning to acquire and file patents.
According to data from Google Patents, Shopify now has at least 41 pending applications. The first of these was filed in August 2018, for a user interface feature related to the checkout on the e-commerce sites merchants use its technology to build and maintain, developed by employees on its Montreal-based financial solutions team. The public database also shows the company now owns 14 granted utility-patent families, all but one of which Dallas-headquartered AT&T reassigned to the Ottawa-based firm in late 2019. Shopify may have more filed, but thus far unpublished, applications.
A company can use patents to try to prevent competitors from implementing the same or similar features, said Matthew Zischka, managing partner at Ip-focused law firm Smart & Biggar. They can also generate royalty revenue through licensing or be used as bargaining chips if the holder is sued for infringement by another organization.
Amazon is one of the world's largest tech holders and filers of patents. The Seattle-based firm and its subsidiaries hold 11,060 families, according to the IFI 250 ranking, with 2,244 new U.S. patents granted in 2020 alone.
Shopify and Amazon are integrated to allow the former's million-plus merchants to sell on the latter's marketplace. But the two e-commerce giants could become more direct competitors. In December 2020, The Wall Street Journal reported Amazon had set up a team called Project Santos “dedicated to studying the Canadian company and copying parts of it.”
Analysts say the U.S. firm's traditional business model and reputation will hinder any such attempt. Shopify is “largely a platform … enabling merchants to set up their own stores,” said Tse, noting that Amazon has “been primarily a marketplace,” a single online shop where the firm and third-party vendors sell to consumers. By offering store-builder technology, the company would effectively be creating more competition for its own sites, said Ygal Arounian, vice-president of equity research at Wedbush Securities.