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Economics of Industry Paper
Strategic Patenting and Software Innovation
Michael Noel and Mark Schankerman
June 2006
Paper No' EI 43:
Full Paper (pdf)

JEL Classification: L43; L86; O31; O32; O33; O34; O38

Tags: patents; anti-commons; patent thickets; r&d spillovers; market value

Strategic patenting is widely believed to raise the costs of innovating, especially in industries characterised by cumulative innovation. This paper studies the effects of strategic patenting on R&D, patenting and market value in the computer software industry. We focus on two key aspects: patent portfolio size which affects bargaining power in patent disputes, and the fragmentation of patent rights (.patent thickets.) which increases the transaction costs of enforcement. We develop a model that incorporates both effects, together with R&D spillovers. Using panel data for the period 1980- 99, we find evidence that both strategic patenting and R&D spillovers strongly affect innovation and market value of software firms.