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At a recent software intellectual property conference, Professors John Allison, Abe Dunn and Ronald Mann from the University of Texas-Austin presented their new research, titled: Software Patents, Incumbents, and Entry. The paper adds insight that patenting commensurates with a firm’s stage of maturity and emphasizes how firms can concurrently integrate into their revenue streams practices that, on the surface, suggest countering views on patents.
The authors argue that patents benefit small firms, which comprise the majority of innovating activity in the software industry: "there is every reason to believe that increased patent protection has contributed to the ability of independent inventors and smaller firms to compete." Several reasons are also given on why young firms find support from patents.
...as the firm matures and begins to develop revenue streams, patents become increasingly important. This can be because the firm needs... patents to prevent larger firms from copying its products... patents will be important to investors as the firm’s financing needs increase. Or... the patent(s) signals ...the firm’s sophistication or management acumen... interviews with investors and entrepreneurs strongly suggest that patents can be important for venture-backed …startups.
...Although only about 25% of venture-backed firms obtain patents, there is a close relation between the acquisition of patents and the progress of firms through the venture-capital cycle... firms with patents are likely to obtain more financing and they are more likely to succeed... Allison, Dunn and Mann dispel the argument that there is some “natural state” of the software industry that flourished before the advent of software patents, and that more innovation-competition will result if patents are eliminated from the industry. A good history lesson shows how IBM once thought about software patenting:...(in the 1960s) IBM recognized the difficulty of obtaining IP protection for software, though its market position gave it a somewhat different perspective. It opposed unbundling its software because of "our present inability to protect the proprietary use of our programming systems.”We must settle on whether or not, and to what degree, we can protect programs before we can deal adequately with the question of selling them." As long as its software was bundled, IBM regularly took the position that patent protection for software was inappropriate. The scholars describe heterogeneous business models and firm maturity affecting the value of patents. Firms often tap different parts of the value-chain that in themselves might suggest contrasting views on patents. The example of commercially supported open source software shows how firms can concurrently integrate differentiated treatment of patents into their business practices:...commercially successful open-source programs share the salient characteristic that they benefit from extensive financial support from large incumbent firms … those investments (are) part of a "value-chain" strategy, in which the firms seek to commoditize a part of a value chain in which they are unlikely to dominate (like the operating system), hoping to extract value at some other part of a value chain ...
...although IBM has participated generously in the development of Linux and Apache, and has given the community ready access to the patents relevant to those projects, it has not abandoned the IP strategy that protects its investment in its server lines or software products like Websphere. Allison, Dunn and Mann do not anticipate technology's industrial structure making patents easier to understand: "Many industries consolidate as they mature into a small group of relatively homogeneous firms. If that ever happens in the software industry, it will not happen soon." The distinction between business models and how they rely (or don't rely) on patents may not be a fine line, however, as long as small and young firms benefit from software patents, they may be worth keeping around.
posted by Noel Le @ 10:19 AM | Academia, Markets: Business, Investment & Innovation, Patents
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