Strategic Patenting and Software Innovation
48 Pages Posted: 11 Jul 2008
Date Written: June 2006
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.
JEL Classification: L43, L86, O31, O32, O33, O34, O38
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