Patent Protection and Software Innovation: Evidence from Alice

Abstract

Software innovations make up a cornerstone of the digital economy. The scope of their patent protection and the social and private value of software patenting are central to recent policy debates in the United States. The landmark 2014 U.S. Supreme Court ruling in Alice v. CLS Bank had a profound impact on software patenting, drastically narrowing the scope of patent protection on software innovations. Using Alice as a natural experiment, we found that narrowing the scope of software patents had no detectable downside for the value of software firms. Instead, it was associated with improved sales, a greater degree of open-source engagement, and a narrower scope of individual patents. Findings from this research note add to the software patent literature and offer renewed evidence of the roles of patents for software innovations in the digital economy. They also have compelling implications for patent policies on software and software-related inventions, such as artificial intelligence, big data, cloud computing, and other emerging digital innovations.