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Archived updates for Wednesday, September 20, 2006

Patents Not Killing Software Industry

According to "Patents, Entry and Growth in the Software Industry," by `
Professor Robert P. Merges, new firm entry into the software industry remains robust, despite the presence of patents and, in some cases, perhaps because of them. According to Professor Merges:

On the basis of overall industry concentration figures, which are quite low by comparison to other industries, and evidence of continued entry of new startups, it is safe to say that the predictions of the software patent doubters in the early 1990s have been effectively refuted so far. To the extent that some
also argue that software firms may have an incentive to cynically stockpile patents, with no real concern for the effort that goes in or the quality that results from those patents, we have seen evidence that this too is wrong. At least some proxies of effort level correlate well with measures of firm success
– implying that successful software firms take their patents seriously. This, along with evidence that innovative software firms in other countries make use of the patent system more than non-innovative firms, suggests a simple overall conclusion: patents are not killing the software industry, and successful firms are paying attention to patent quality, at least according to some measures.
As discussed in more detail at Peter Zura's Two-Seventy-One Patent Blog,

The conventional measure of concentration, the Herfindahl-Hirschman index (HHI) ranges from 0 to 10,000. However, the HHI for the software industry as a whole is less than 244 for software, compared to an average of 334 for U.S. manufacturing industries. What this means is that the top 20 sellers of pre-packaged software generate 61% of total industry revenues. Of the top ten software companies in 1990, five did not make the
list in 2000, either because they went out of business or were acquired. This is remarkable turnover compared to some industries, such as pharmaceuticals, where similar comparisons from 1990 and 2000 show that eight of ten firms made both
lists (and the ones that did not were acquired by others that did).
Other studies on software patents are linked by Zura, here.

"Of course, this does not imply the patent system has no costs; or that the costs are exceeded by the benefits of the system," comments Stephan Kinsella. "Studies have not conclusively established that the benefits of the patent system outweigh its costs," he concludes in "There's No Such Thing as a Free Patent," citing these articles.

More links to recent patent law scholarship from Google Scholar, here.
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