The Private Value of Software Patents

We investigate the value creation or destruction associated with the introduction of software patents in the United States in two ways. The first looks at the cumulative abnormal returns to Information and Communication Technology (ICT) firms around the time of important court decisions that impacted software patents, and the second analyzes the relationship between firms’ stock market value, the sector in which they operate, and their holdings of software patents. We conclude that the market evaluated software patents as a negative development ex ante. Ex post, a greater number of firms in all ICT sectors invested in these patents, and these firms had slightly higher market values than those with no software patents. However, while we obtain clear evidence that the technological importance or quality of patented innovation mattered for the market value of hardware firms both before and after the legal changes, it is less clear that the marginal patent right per se was associated with increases in market value, and there are no significant valuation effects associated with patents for pure software firms after the change.

An empirical look at software patents

U.S. legal changes have made it easier to obtain patents on inventions that use software. Software patents have grown rapidly and now comprise 15 percent of all patents. They are acquired primarily by large manufacturing firms in industries known for strategic patenting; only 5 percent belong to software publishers. The very large increase in software patent propensity over time is not adequately explained by changes in R&D investments, employment of computer programmers, or productivity growth. The residual increase in patent propensity is consistent with a sizeable rise in the cost effectiveness of software patents during the 1990s. We find evidence that software patents substitute for R&D at the firm level; they are associated with lower R&D intensity. This result occurs primarily in industries known for strategic patenting and is difficult to reconcile with the traditional incentive theory of patentsPatents

A New Paradigm for Intellectual Property Rights in Software

A Winter 2004 article by Bradford L. Smith and Susan O. Mann of Microsoft published in The University of Chicago Law Review suggests that the development and growth of the software industry in the U.S. is a direct outgrowth of the implementation of intellectual property regimes, specifically copyright and patent, with respect to software in the late 1970s and early 1980s. This paper suggests that such patents were neither the sole nor the principal factor for the development of the software industry, that concerns about patents manifested prior to or soon after their application to software have proven true, and that patents are, in fact, not serving the interests of either the U.S. software industry or the consuming public. To that end, this paper advances recommendations for reforming the U.S. patent system as well as consideration of a new schema for protecting software

Patent Scope and Innovation in the Software Industry

Software patents have received a great deal of attention in the academic literature. Unfortunately, most of that attention has been devoted to the problem of whether software is or should be patentable subject matter. With roughly eighty thousand software patents already issued, and the Federal Circuit endorsing patentability without qualification, those questions are for the history books. The more pressing questions now concern the scope to be accorded software patents. In this Article, we examine the implications of some traditional patent law doctrines for innovation in the software industry. We argue that patent law needs some refinement if it is to promote rather than impede the growth of this new market, which is characterized by rapid sequential innovation, reuse and re-combination of components, and strong network effects that privilege interoperable components and products

A Comment on “Do Patents Facilitate Financing in the Software Industry?”

“Do Patents Facilitate Financing in the Software Industry?” by Ronald J. Mann contributes empirical evidence to our understanding of how software startups use patents. However, a close examination of the actual empirical findings in this paper points to rather different conclusions than those that Mann draws, namely: few software startups benefits from software patents and patents are not widely used by software firms to obtain venture financing. Indeed, among other things, the paper reports that 80% of venture-financed software startups had not acquired any patents within four years of receiving financing.

Patents, Thickets, and the Financing of Early-Stage Firms: Evidence from the Software Industry

The impact of stronger intellectual property rights in the software industry is controversial. One means by which patents can affect technical change, industry dynamics, and ultimately welfare, is through their role in stimulating or stifling entry by new ventures. Patents can block entry, or raise entrants' costs in variety of ways, while at the same time they may stimulate entry by improving the bargaining position of entrants vis-à-vis incumbents, and supporting a "market for technology" which enables new ventures to license their way into the market, or realize value through trade in their intangible assets. One important impact of patents may be their influence on capital markets, and here we find evidence that the extraordinary growth in patenting of software during the 1990s is associated with significant effects on the financing of software companies. Start-up software companies operating in markets characterized by denser patent thickets see their initial acquisition of VC funding delayed relative to firms in markets less affected by patents. The relationship between patents and the probability of IPO or acquisition is more complex, but there is some evidence that firms without patents are less likely to go public if they operate in a market characterized by patent thickets.

Biomedical Patents at the Supreme Court: A Path Forward

Although most would argue that software patents pose a bigger challenge, the U.S. Supreme Court has recently focused on biomedical patents. Two of the Court\u27s recent decisions scaling back such patents, Mayo v. Prometheus and AMP v. Myriad, have provoked justifiable anxiety for those concerned about biomedical innovation, particularly in the area of personalized medicine. While acknowledging significant limitations in the Court\u27s reasoning in both cases, this Essay sketches a reading that is consistent with the results and innovation-friendly

Post-Issue Patent "Quality Control": A Comparative Study of US Patent Re-examinations and European Patent Oppositions

We report the results of the first comparative study of the determinants and effects of patent oppositions in Europe and of re- examinations on corresponding patents issued in the United States. The analysis is based on a dataset consisting of matched EPO and US patents. Our analysis focuses on two broad technology categories - biotechnology and pharmaceuticals, and semiconductors and computer software. Within these fields, we collect data on all EPO patents for which oppositions were filed at the EPO. We also construct a random sample of EPO patents with no opposition in these technologies. We match these EPO patents with the “equivalent” US patents covering the same invention in the United States. Using the matched sample of USPTO and EPO patents, we compare the determinants of opposition and of reexamination. Our results indicate that valuable patents are more likely to be challenged in both jurisdictions. But the rate of opposition at the EPO is more than thirty times higher than the rate of reexamination at the USPTO.