Do Patents Facilitate Financing in the Software Industry?

Posted: 17 Nov 2009

See all articles by Ronald J. Mann

Ronald J. Mann

Columbia University - Law School

Multiple version iconThere are 2 versions of this paper

Date Written: 2005


The role of intellectual property is examinedand, specifically, patents in the software industry. Especially considered arethe advantages and disadvantages of patents depending on firm size. Findingsare based on interviews with about 60 professionals in the software industry.The interviews elicited information about the motivations, practices, andinstitutional environment of the software industry. The study begins by emphasizing the difficulties that startups haveextracting value from patents. As the firm gets larger, potential benefits frompatents appear. Some startups do have patents strong enough to excludecompetitors, which are often larger firms. Hence, patents are more beneficialto small firms than to large ones. Next is considered the indirect effects dueto the use of patents in cross-licensing transactions for signaling informationabout a firm. The claims that enforcement of software patents has created a patent"thicket" that limits innovation is rejected. Young firm development isnot significantly hindered by large patent portfolios of established firms. Therelatively weak protections that copyright and trade secrets afford areconsidered. Neither usefully allows small firms to obtain value from theirinventions. Conclusions of the study provide skeptical evaluations of severalproposals that would limit patent rights but not completely abolish them.(TNM)

Keywords: Patent thicket, Protection of investments, Value, Software industry, Trade secrets, Commercialization, Costs, Cross licenses, Innovation process, Intellectual property, Inventions, Patents

Suggested Citation

Mann, Ronald J., Do Patents Facilitate Financing in the Software Industry? (2005). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN:

Ronald J. Mann (Contact Author)

Columbia University - Law School ( email )

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