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The Private Value of Software Patents

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  • Bronwyn H. Hall
  • Megan MacGarvie

Abstract

We investigate the value creation or destruction associated with the introduction of software patents in the United States in two ways. The first looks at the cumulative abnormal returns to Information and Communication Technology (ICT) firms around the time of important court decisions that impacted software patents, and the second analyzes the relationship between firms’ stock market value, the sector in which they operate, and their holdings of software patents. We conclude that the market evaluated software patents as a negative development ex ante. Ex post, a greater number of firms in all ICT sectors invested in these patents, and these firms had slightly higher market values than those with no software patents. However, while we obtain clear evidence that the technological importance or quality of patented innovation mattered for the market value of hardware firms both before and after the legal changes, it is less clear that the marginal patent right per se was associated with increases in market value, and there are no significant valuation effects associated with patents for pure software firms after the change.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12195.

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Date of creation: May 2006
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Publication status: published as Hall, Bronwyn H. & MacGarvie, Megan, 2010. "The private value of software patents," Research Policy, Elsevier, vol. 39(7), pages 994-1009, September.
Handle: RePEc:nbr:nberwo:12195

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  1. Iain M. Cockburn & Megan J. MacGarvie, 2006. "Entry and Patenting in the Software Industry," NBER Working Papers 12563, National Bureau of Economic Research, Inc.
  2. Hall, Bronwyn H. & Graham, Stuart J. H. & Harhoff, Dietmar & Mowery, David C., 2003. "Prospects for Improving U.S. Patent Quality via Post-grant Opposition," Competition Policy Center, Working Paper Series qt4wq4g70r, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  3. repec:cup:cbooks:9780521684156 is not listed on IDEAS
  4. Bronwyn H. Hall, 2004. "Business Method Patents, Innovation, and Policy," Law and Economics 0401001, EconWPA.
  5. Michael Noel & Mark Schankerman, 2006. "Strategic Patenting and Software Innovation," STICERD - Economics of Industry Papers 43, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  6. Michael Noel & Mark Schankerman, 2006. "Strategic Patenting and Software Innovation," CEP Discussion Papers dp0740, Centre for Economic Performance, LSE.
  7. Bronwyn H. Hall, 2005. "Exploring the Patent Explosion," The Journal of Technology Transfer, Springer, vol. 30(2_2), pages 35-48, 01.
  8. James Bessen & Robert M. Hunt, 2007. "An Empirical Look at Software Patents," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(1), pages 157-189, 03.
  9. Robert M. Hunt, 2001. "You can patent that? Are patents on computer programs and business methods good for the new economy?," Business Review, Federal Reserve Bank of Philadelphia, issue Q1, pages 5-15.
  10. Noel, Michael D. & Schankerman, Mark, 2006. "Strategic Patenting and Software Innovation," CEPR Discussion Papers 5701, C.E.P.R. Discussion Papers.
  11. Layne-Farrar, Anne, 2005. "Defining Software Patents: A Research Field Guide," Working paper 143, Regulation2point0.
  12. Bronwyn H. Hall & Adam Jaffe & Manuel Trajtenberg, 2005. "Market Value and Patent Citations," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 16-38, Spring.
  13. Suzanne Scotchmer, 1991. "Standing on the Shoulders of Giants: Cumulative Research and the Patent Law," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 29-41, Winter.
  14. Austin, David H, 1993. "An Event-Study Approach to Measuring Innovative Output: The Case of Biotechnology," American Economic Review, American Economic Association, vol. 83(2), pages 253-58, May.
  15. Salinger, Michael, 1992. "Standard Errors in Event Studies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(01), pages 39-53, March.
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