Earlier I wrote on work by Professor Iain Cockburn from the Natl Bureau of Econ Research and Boston Univ, where he finds that patenting firms are more likely to overcome entry barriers to compete in markets where other firms hold patents. A complementary article by Cockburn and Professor Stefan Wagner from the Munich School of Mgmt looks at how patents increased survival prospects of dot.com boom era firms, focusing on public and Internet related companies. Patents and the Survival of Internet-related IPOs. Draft Paper, February 2006. The importance of the time period for studying patents arises from the formation of many firms due to market confidence in capital intensive risk ventures, the rapid demise of many of those firms, in concurrence with surge in software patenting.

The issue of firm survival stands alongside market entry in patent policy. Healthy levels of new firms entering markets is important for competition, technical progress and consumers. Survival tells us of the viability of these entrants. Thus, the benefits of market entry appears heavily reliant on new firms' survival.

...we gathered data on 356 firms that made an IPO ...on the NASDAQ stock exchange between February 1998 and August 2001. ..firms were characterized by IPO.com... as operating in the Internet Services, Internet Software and Computer Software Segments. We were able to obtain comprehensive information on these firms including ...measures (of) their patent holdings... obtained from ...Delphion, USPTO, Compustat...

The findings are positive for software patents and their role in helping dot.coms survive the bubble burst.

...1198 US patent applications... generated by ...42% of the firms in the sample. Our results suggest that the firms that were unable or unwilling to seek patent protection were much less likely to survive the collapse of the dot.com bubble after 2001. After controlling for age of the enterprise, sales, assets, pro tability, as well as stock market valuations and venture capital backing prior to their IPO, we find that firms with no patent applications had a much higher hazard of exiting the sample...

...these estimated effects may not just represent the value of patents as a competitive asset in these markets. The estimated positive association between patenting and firm survival may also reflect a correlation between patenting and the underlying quality of the firm's products, business model, management, and other intangible assets. But it suggests a significant role for patents in driving industry dynamics in these technologies, especially within Internet Software.

With the set of patent articles on market entry and firm survival from Cockburn, we get a broad perspective of how patents market dynamics in the software industry. Critics of software patents too often ignore such law and economic research on firms' patenting, entry and survival, even when these issues are critically relevant to any position on software patents.