Ease of inventing around the innovation and satisfaction with secrecy also influenced software startup decisions not to seek patents, although only rarely were these factors considered the most important.

Intriguingly, more than 40% of the software respondents cited the unpatentability of the invention as a factor in decisions to forego patenting. Almost a quarter of them rated this as the most important factor. Indeed, unpatentability ranked just behind costs of obtaining patents as the most frequently cited “most important factor” for not seeking patents.

It is difficult to know what to make of the unpatentability finding. One explanation may be that the software respondents believed that patent standards of novelty, non-obviousness, and the like are so rigorous that their innovation might not have satisfied patent requirements. Yet, because the patentability of software innovations has been contentious for decades, it may also be that a significant number of these entrepreneurs have philosophical or practical objections to patents in their field.

how important are Patents to
competitive advantage?

One of the most striking findings of our study is that software firms ranked patents dead last among seven strategies for attaining competitive advantage, as the accompanying figure shows. (The relative unimportance of patents for competitive advantage in the software field contrasts sharply with the perceived importance of patents in the bio-tech industry, where patents are ranked the most important means of attaining such advantage.)

As shown in the figure on page 30, software startups regard first-mover advantage as the single most important strategy for attaining competitive advantage. The next most important strategy was complementary assets (for example, providing services for licensed software or offering a proprietary complement to an open source program).

Among IPRs, copyrights and trademarks—closely followed by secrecy and difficulties of reverse engineering—outranked patents as means of attaining competitive advantage among software respondents by a statistically significant margin.

What incentive effects
Do Patents have?

The Berkeley Patent survey asked start-up executives to rate the incentive effects of patents on a scale, where 0 = no incentive, 1 = weak incentive, 2 = moderate incentive, and 3 = strong incentive, for engaging in four types of innovation: ( 1) inventing new products, processes, or services, ( 2) conducting initial R&D, ( 3) creating internal tools or processes, and ( 4) undertaking the risks and costs of commercializing the innovation.

We were surprised to discover the software respondents reported that patents provide only weak incentives for engaging in core activities, such as invention of new products (0.96) and commercialization (0.93). By contrast, bio-tech and medical device firms reported just above 2 (moderate incentives) for these same questions.

Interestingly, the results did not change significantly when considering only responses from software entrepreneurs whose firms hold at least one patent or application. Even patent-holding software entrepreneurs reported that patents provide just above a weak incentive for engaging in these innovation-re-lated activities.

 

Resolving a Paradox If patents provide only weak incentives for investing in innovation among software startups, why did two-thirds of the VX respondents and at least one-quarter of the D&B respondents seeking patents? The answer may lie in the perception among software entrepreneurs that patents may be important to potential funders, such as VCs, angel investors, other firms, commercial banks, and friends and family. Sixty percent of software startup respondents who had negotiated with VCs reported that they perceived VC decisions about whether to make the investments to be affected by patents. Between 40% and 50% of the software respondents reported that patents were important to other types of investors, such as angels, investment banks, and other companies.

controversy over survey findings
It is an article of faith among many IP
lawyers that patents provide significant
incentives for firms to engage in R&D
and develop new products. Most would
also expect, as we did, that high-tech
startup companies would regard pat-
ents as more important as an induce-
ment to innovation than large firms,
given that the latter have lots of other
assets for achieving and maintaining
success in the marketplace.

future Research

Over the next several years, the co-authors of the Berkeley Patent Survey article expect to analyze further data from this survey and to report new findings. We will look more closely, for example, at differences in patenting rates among those in different sectors of the software industry and differences between patent holders and non-patent holders. We know already that product innovators seek patents more often than process innovators.

The findings reported here suggest that software entrepreneurs do not find persuasive the canonical story that patents provide strong incentives to engage in technology innovation. These executives regard first-mover advantage and complementary assets as more important than IPRs in conferring competitive advantage upon their firms. Moreover, among IPRs, copyrights and trademarks are perceived to be more important than patents. Still, about one-third of the software entrepreneur respondents reported having or seeking patents, and their perception that their investors care about patents seems to be a key factor in decisions to obtain patents.

 

Reference

1. graham, s.J.H., merges, r.p., samuelson, p., and sichelman, t. High technology entrepreneurs and the patent system: results of the 2008 Berkeley patent survey. Berkeley Technology Law Journal 25, 4 (2010), 1255–1327; http://papers.ssrn.com/sol3/papers. cfm?abstract_id=1429049.

Pamela Samuelson ( [e-mail]) is the richard m. sherman Distinguished professor of Law and Information at the university of california, Berkeley.

copyright held by author.