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:''"Start-up software companies operating in markets characterized by denser patent thickets see their initial acquisition of VC or corporate funding delayed relative to firms in markets less affected by patents."'' :''"We also find a statistically significant association between our measures of patent-related uncertainty and the number of IPOs in a market in a given year. Investors in public securities appear to be more willing to invest in software companies operating in markets in which there are fewer “problem patents” and in which patents cite more non-patent prior art."'' :''"[There is]...a significant positive effect of the number of patents in the market on the probabiily probability of exiting via IPO, although the interaction effect with the legal regime change is negative...[so] patent thickets tend to protect incumbents, but only up to a point. ...[However, for] the subset of firms that did not obtain any patents of their own...are much less likely to exit via IPO, relative either to liquidation/censoring or to acquisition, in markets with a large patent thicket. This finding is striking in light of the fact that only a minority of the firms in our sample ( 22%) hold patents by the time of exit."''
Result magnitudeMost important patent thicket measures:
*Initial Funding: :''"Patent-intensive markets saw a reduction in number of firms receiving initial investment by external parties in early-stage firms relative to low-patent markets following the expansion of the software patentability in the 1990s"''
*Firm exits from the entreprenuerial phase by going public or being acquired are positively related to the number of patents in the market, but the reverse effect is found for IPOs among the 78% of firms that hold no patents.
Cockburn MacGarvie (2009) - Patents Thickets And The Financing Of Early Stage Firms (view source)
Revision as of 18:18, 25 March 2013
, 18:18, 25 March 2013no edit summary
The key measures of patent thickets identified in the paper are:
*The cumulative number of patents in a market, which the authors characterize as the :''" 'main effect' of patent thickets"''.**Patents Patent classes in NBER Patent Database are mapped to product market considered through text search and review of the Manual of Patent Classification to identify patents "relevant" to each market.
*Indicators of patent regimes periods for each market (with regime changes in 1996 or 1998 depending on product market).
Other measures of patent thickets in a market include:;
*A Herfindahl index for the concentration of citations among patent assignees in a market;
*The number of assignees cited in patents in a market;
===Results===
*In general, the patent thicket measure, number of patents in the market, and the indicators of regime changes strengthening that strengthened patent protection were the measures found to affect the dependent variables analyzed.
**The Herfindahl index of assignee concentration was also found significant for one dependent variable.
**Other patent thicket measures related to uncertainty over patent validity were not found to be significantly related to dependent variables analyzed.
The number of market entrants:
*The number of market entrants is significantly reduced by patent thicket measures:
**The number of patents in the market (with an elasticity of -0.438);
**The average claimes per cite in the market (with an elasticity of -0.371);
**There is a net reduction in entry after regime changes that strengthened patents (based on median impact between regime and number of patents interaction term).
*Funding levels are significantly increased by the number of patents in a market (with an elasticity near 1), which authors attribute to selection effect reflecting higher entry costs in markets with patent thickets.
The number of IPOs:
:''"We also find a statistically significant association between our measures of patent-related uncertainty and the number of IPOs in a market in a given year. Investors in public securities appear to be more willing to invest in software companies operating in markets in which there are fewer “problem patents” and in which patents cite more non-patent prior art."''
*The number of IPOs is significantly positively increased by number of pattents, but also has a large offsetting negative effect associated with the strengthening of patenting rights, which authors view as having made such markets less attractive.
Obtaining initial funding:
:''"Start-up software companies operating in markets characterized by denser patent thickets see their initial acquisition of VC or corporate funding delayed relative to firms in markets less affected by patents."''
*Firm exits from the entreprenuerial phase by going public or being acquired are positively related to the number of patents in the market, but the reverse effect is found for IPOs among the 78% of firms that hold no patents.
*Software ventures in the most thicketed markets have a very small probability of obtaining outside funding:
**After 1996 strengthening of patents, chances of funding fall by :''"0.4 for a one standard deviation increase in the patent stock in the market. Given that the mean probability of obtaining funding in a given year is 0.085 overall and 0.102 after 1996, this effect appears to be of considerable importance."''
**The Herfindahl index of patent citations over assignees in each market has a positive effect on reciept of funding, which authors attribute to higher bargaining costs.
Social Welfare Consequences:
*While the analysis finds that the key patent thicket measure, number of patents in a market, is positively related to initial funding, legal regimes strengthening patent rights reduce this correlation: relationship.
:''"...patents confer private benefits to software companies. These benefits appear to have been substantial, and are reflected in the extraordinary surge in patenting in this industry. However, these incentives to obtain patents may ultimately become collectively self-destructive. Our differences-in-differences estimates of the relative impact of strengthening patent rights show a generally negative effect on entry and financing of software firms in the most heavily thicketed markets. Continued accumulation of patents may therefore result in the “stifling” effects identified here swamping the offsetting “stimulating” effect on innovation."''
