DP5701 Strategic Patenting and Software Innovation

Author(s): Michael D. Noel, Mark Schankerman
Publication Date: May 2006
Keyword(s): anti-commons, market value, patent thickets, patents, R&D spillovers
JEL(s): L43, L86, O31, O33, O34, O38
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5701

Strategic patenting is widely believed to raise the costs of innovating, especially in industries characterised by cumulative innovation. This paper studies the effects of strategic patenting on R&D, patenting and market value in the computer software industry. We focus on two key aspects: patent portfolio size which affects bargaining power in patent disputes, and the fragmentation of patent rights ('patent thickets') which increases the transaction costs of enforcement. We develop a model that incorporates both effects, together with R&D spillovers. Using panel data for the period 1980-99, we find evidence that both strategic patenting and R&D spillovers strongly affect innovation and market value of software firms.