Software Patents as a Currency, Not Tax, on Innovation

Software innovation is transforming the U.S. economy. Yet our understanding of how patents and patent transactions support this innovation is limited by a lack of public information about patent licenses and sales. Claims about the patent marketplace, for example, extolling the virtues of intermediaries like non–practicing entities, or characterizing software patent licenses as a tax on innovation tend not to be grounded in empirical evidence. This Article brings much–needed data to the debate by analyzing transactional patent data from multiple sources and reporting several novel findings. First, this study finds that, despite reductions in the enforceability of software parents and levels of patent litigation, the market for software patents has remained remarkably robust, and actually grown in the number of transacted assets. The strength of this demand appears to be driven by the defensive—not only offensive—value of software patents, the importance of software–driven business models, and bargain shopping in the acquisition of patents. Second, this Article explores the extent to which software patent transfers support the transfer of technology as opposed to supporting just the transfer of liability, or freedom from suit, with mixed results. This study finds that the majority of material software licenses reported by public companies to the SEC from 2000–2015 (N=245) support true technology transfer. However, in recent years, large numbers of software patents apparently have also been sold to avoid litigation or to provide general operating freedom, rather than to access specific technologies. Software patents transferred between public companies from 2012 and 2015 were two to three times more likely to go from an older company to a younger company, and from a higher revenue to a lower revenue public company. These findings underscore the enduring importance of software patents in supporting both technology transfer and freedom to operate. Despite the prevalence of NPEs, most patents are not bought for assertion, but to support these critical innovation functions. As such, the data support the characterization of software patents as a currency of—rather than a tax on—innovation