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I'm sure you're all aware of Professor Robert Merges from Berkeley, a figure originally skeptical of software patents, yet has contributed to patent scholarship as the contributions to innovation from these patents became apparent over time.
In a new working paper, Professor Merges address major criticisms of software patents. Patents, Entry and Growth in the Software Industry" (August 1, 2006). Available at SSRN. By citing sources of arguments dating back to the early 1990s from parties like the League for Programming Freedom and others, Merges demonstrates that some software patent criticisms have been around for awhile, yet the glim forcasts they hypothesized for the software industry never materialized, while the industry has experienced healthy competition and innovation. … in software and other network industries, there is competition for markets rather than competition in markets. .. the 1990s underestimated how real and effective this competition was...
On the basis of overall industry concentration… 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...
… some … argue that software firms may have an incentive to cynically stockpile patents … we have seen evidence that this too is wrong… successful software firms take … patents seriously.
…patents are not killing the software industry, and successful firms are paying attention to patent quality, at least according to some measures.
Perhaps the most important point of Merges’ paper is his focus on small software firms, and how competition from these firms lead to high turn-over of leading software companies. These suggest that after years of software patents, barrier to entry is at a healthy level with incumbants struggling to stay at the top as smaller firms vie for market share. Professor Merges continues that patents have not drastically changed the industry’s structure, nor have large incumbants competed at the cost of small firms. ...early patent-era predictions ... forecast(s) an industry where … entrench established companies, slowing the pace of change and ultimately putting a damper on firm entry. .. entry continues to be robust, and therefore … predictions … have turned out to be wrong.
(while)… a serious decline in the volume of startup activity would not … necessarily represent evidence of industry stagnation, a steady flow of new entrants would be in keeping with the industry’s traditional pattern of innovation. How specifically do patents benefit the software industry then? Merges answers: …successful software firms are doing more than simply cynically stockpiling patents; they are putting real effort into seeking and obtaining high-quality patents, patents that demonstrate significant earmarks of quality.
… solid evidence that changes in the industry were driven by innovation… in 1986, R&D by publicly traded software firms was 1% of total domestic R&D; by 2000, that had grown to 10%. .. transition in the industry … was fueled by this massive R&D spending. Framing his paper in today’s controversies over open source and patent trolls, Merges addresses “the importance of public domain sources” as anticipation for the rise of something like “open source software.” Further, he talks about the existence of many paptents, often with broadly drafted and vaguely worded claims, can pose a real threat to complex software products.” Professor Merges concludes: … neither of these trends lead to the conclusion that patents have damaged the software industry. Open source software is a quite reasonable response on the part of some firms to the negative consequences of proprietary “backbones”… patent trolls can be solved through far less drastic measures than a complete rollback of patent rights. Addressing a major issue today, that which calls software patents nothing less than defense mechanisms, essentially as tools to deter patent suits more than as tokens of innovating activity. Merges compiled a database of venture back software companies, with their USPTO information and financial info. Regression analysis gave him these results: ...a positive relationship between firm revenues and patent effort... it appears that successful, high revenue firms put significant effort into their patents … there is a positive relationship between the quality of the prior art search that goes into preparing a patent application; the number of foreign patents cited; the number of total patents cited… and the number of patents held ... the size of a firm’s patent portfolio does have an effect on the firm’s success, one that increases in magnitude nonlinearly with the size of the portfolio. This is an excellent paper by a prominent scholar that touches on many core controversies in today's patent discourse. Merges shows us that when these controversies are looked at closely, patents and industry innovation are more clearly understood.
posted by Noel Le @ 7:40 PM | Patents
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