Software Patents as a Currency, Not Tax, On Innovation

Abstract

Software innovation is transforming the US economy. Yet our understanding of how patents and patent transactions support this innovation is limited, in part because of a lack of public information about patent licenses and sales. Claims about the patent marketplace, for example, extolling the virtues of intermediaries like non-practicing entities, or questioning the social utility of ex post patent licenses, tend not to be grounded in empirical evidence. This article brings much-needed data to the policy debate by analyzing transactional data from several proprietary databases of patent licenses and transfers, and reporting several novel findings. First I find that, despite recent legal developments that have reduced the enforceability of software patents, the market for software patents is remarkably robust and actually grew, not declined, from 2012 to 2015. I speculate that the strength of this demand is driven by the defensive, not only offensive, value of software patents, the importance of software business models, and bargain shopping in the acquisition of patents. Second, I explore the extent to which software patent transfers support the transfer of technology as opposed to supporting just the transfer of liability, or freedom from suit, with mixed results. I find that the majority of material software licenses reported by public companies to the SEC from 2000-2015 (N=245), which are non- representative of licenses in general, to support true technology transfer. However, I also find evidence that in recent years, large numbers of software patents apparently been sold to avoid litigation or provide general operating freedom, rather than to access specific technologies. Software patents transferred between public companies between 2012 and 2015 were two to three times more likely to go from an older company to a younger company, and from a higher revenue to a lower revenue public company. This finding lends some support to the perception that software patents are a tax on innovation that younger, lower revenue companies must pay to older firms with higher revenue.