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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.

Suggested Citation

  • Bronwyn H. Hall & Megan MacGarvie, 2006. "The Private Value of Software Patents," NBER Working Papers 12195, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:12195
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    References listed on IDEAS

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    1. Noel, Michael D. & Schankerman, Mark, 2006. "Strategic Patenting and Software Innovation," CEPR Discussion Papers 5701, C.E.P.R. Discussion Papers.
    2. Hall, Bronwyn H., 2003. "Business Method Patents, Innovation, and Policy," Department of Economics, Working Paper Series qt2n24f63d, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    3. 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.
    4. Zvi Griliches, 1984. "Market Value, R&D, and Patents," NBER Chapters,in: R&D, Patents, and Productivity, pages 249-252 National Bureau of Economic Research, Inc.
    5. Bronwyn H. Hall, 2005. "Exploring the Patent Explosion," The Journal of Technology Transfer, Springer, vol. 30(2_2), pages 35-48, January.
    6. 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.
    7. Salinger, Michael, 1992. "Standard Errors in Event Studies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(01), pages 39-53, March.
    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, March.
    9. Bronwyn H. Hall & Stuart Graham & Dietmar Harhoff & David C. Mowery, 2004. "Prospects for Improving U.S. Patent Quality via Postgrant Opposition," NBER Chapters,in: Innovation Policy and the Economy, Volume 4, pages 115-144 National Bureau of Economic Research, Inc.
    10. Michael Noel & Mark Schankerman, 2006. "Strategic Patenting and Software Innovation," CEP Discussion Papers dp0740, Centre for Economic Performance, LSE.
    11. Nagaoka, Sadao & Motohashi, Kazuyuki & Goto, Akira, 2010. "Patent Statistics as an Innovation Indicator," Handbook of the Economics of Innovation, Elsevier.
    12. 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 253-258, May.
    13. Iain M. Cockburn & Megan J. MacGarvie, 2011. "Entry and Patenting in the Software Industry," Management Science, INFORMS, vol. 57(5), pages 915-933, May.
    14. 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.
    15. 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.
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    More about this item

    JEL classification:

    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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