Private Value of Software Patents, The

Intellectual Property and Patents

Article Snapshot

Author(s)

Bronwyn Hall and Megan MacGarvie

Source

Research Policy, Vol. 39, No. 7, pp. 994-1009, September 2010

Summary

This paper looks at how software patents have affected firms that make software.

Policy Relevance

Software patents seem to have had a negative effect on the software sector at first, and their benefits are uncertain.

Main Points

  • In the United States, software became patentable in the 1990’s. Critics have argued that this change was harmful.

     

  • This paper looks at how the advent of software patents affected returns to established hardware and software firms.
    • Firms that are “downstream,” relying on software supplied by other firms, are likely to be more harmed by software patents than firms that supply software themselves, because the downstream firms need to get patent licenses.
    • Software patents can be difficult to identify.
    • The study does not measure the effect of software patents on startups.

     

  • In sectors where software patents are prevalent, the early market impact of the advent of software patents was initially negative for firms in the software industry.
    • The most significant negative impact was for firms that produced software applications, firms with no patent experience, and firms that provided software-related services.

     

  • Court decisions affecting software patents tended to affect the value of software firms, but not hardware firms.

     

  • Hardware firms’ patents are more valuable to the firm if the patent includes many citations to other patents held by the firm.

     

  • Patents on high-quality, often-cited patents increase firms’ market value, but filing additional patents that do not result in more citations tends to reduce market value.

     

  • The results of the study suggests that growth in software patents is largely driven by manufacturing firms trying to acquire large patent portfolios, rather than by software firms’ need to protect their innovations.

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