IPcentral AAC member, Professor Ronald Mann, and co-authors, has released a publication on how patents affect different industry segments, business models and stages of commercial activity: John Allison, Abe Dunn and Ronald Mann, Software Patents, Incumbents, and Entry, Texas Law Review, Vol. 85, No. 7, (2007). Of particular interest is their focus on independent inventors and patent licensing firms.

Allison-Dunn-Mann argue that patent licensing firms “exhibit a variety of different strategies that respond to the various shortcomings that will hinder independent inventors attempting to exploit their software-related inventions.” The diversity of business and development models in the technology sector raises the value of intermediate market players who specialize in innovation processes and transactions. Not all inventors have the resources, expertise and bargaining power of big-money firms like IBM and Microsoft. Thus, intermediate market patent licensing firms can help independent inventors fill these gaps.

Although the business models of the intermediaries are diverse, they generally describe themselves as patent acquisition or management firms and have been labeled pejoratively as “trolls.” Generally, those firms exhibit a variety of different strategies that respond to the various shortcomings that will hinder independent inventors attempting to exploit their software-related inventions.

The scholars explain not only the value of patent licensing firms to independent inventors, but also their value to innovation in the sector, to which independent inventors contribute a substantial amount.

In a world of perfect markets, the conditions… would summon into existence intermediaries specializing in the particular competencies that independent inventors are likely to lack: the ability to enforce patents aggressively against incumbent firms, the ability to raise funds to support the continuing development and exploitation of the technology, and the ability to facilitate the deployment of the technology by licensing it to the firms best placed to use it.

… if there is anything odd about the situation, it is not that some firms have arisen to fulfill those functions but that they have taken so long to appear...

Allison-Dunn-Mann are not alone in their view that intermediate market players are important in the technology sector. Chesbrough has argued along similar lines:

As innovation becomes a more open process, intermediate markets have now arisen in which parties can transact at stages which previously were conducted entirely within the firm... specialist firms now provide information, access, and even financing to enable transactions to occur.

Allison-Dunn-Mann help us understand one mechanism with which independent inventors, a crucial part of technology sector innovation, survive in an industry with many more powerful players. Patent policy discourse should be directed to benefit such inventors as they face substantial risk in commercializing their work.

Update: I previously wrote some comments on the working draft of the paper here.