How Does Digital Piracy Affect Innovation? Evidence From Software Firms

74 Pages Posted: 28 Aug 2021 Last revised: 13 Dec 2022

See all articles by Wendy A. Bradley

Wendy A. Bradley

Southern Methodist University (SMU) - Strategy & Entrepreneurship Department

Julian Kolev

United States Patent and Trademark Office

Date Written: November 2022

Abstract

Despite digital piracy’s well-documented impact on firm revenue, the relationship between piracy
and firm innovation, including the creation of new intellectual property (IP) rights, is not well understood. To fill this gap, this paper estimates the impact of piracy on innovation through a
quasi-experimental design and explores the mechanisms driving this relationship using data on
software firms. Leveraging a 2001 technological shock that suddenly enabled rising software
piracy, we find increases in subsequent R&D spending, copyrights, trademarks, and patents for large, incumbent software firms. Furthermore, firms with large patent portfolios appear to disproportionately increase copyrights and trademarks following the piracy shock. After considering alternatives, our analysis suggests that impacted firms perceive piracy as a form of product-market competition that causes them to increase innovation and balance their IP portfolios.

Keywords: piracy, software, innovation, intellectual property

JEL Classification: O32, O34, D22, M21, L86

Suggested Citation

Bradley, Wendy and Kolev, Julian, How Does Digital Piracy Affect Innovation? Evidence From Software Firms (November 2022). USPTO Economic Working Paper No. 2021-3, SMU Cox School of Business Research Paper No. 21-11, Available at SSRN: https://ssrn.com/abstract=3912074 or http://dx.doi.org/10.2139/ssrn.3912074

Wendy Bradley

Southern Methodist University (SMU) - Strategy & Entrepreneurship Department ( email )

6212 Bishop Blvd.
Dallas, TX 75205
United States

HOME PAGE: http://https://www.smu.edu/cox/Our-People-and-Community/Faculty/Wendy-Bradley

Julian Kolev (Contact Author)

United States Patent and Trademark Office ( email )

Alexandria
VA 22313-1451
United States

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