Defending Innovation: Intellectual Property in the 21st Century
Looking at the Numbers
Megan MacGarvie, assistant professor of finance and economics in the School of Management, is one of the scholars at Boston University looking at technology issues. Since the creation of the United States Patent and Trademark Office in 1790, patents have historically been the avenue for innovation. Inscribed above the entrance to the Patent Office's original headquarters is Abraham Lincoln's famous quote, “The patent system adds the fuel of interest to the fire of genius.” But as technology has evolved, so have patents, and some fear not for the best. MacGarvie hopes her research will inform the debate over the validity of software patents by providing a needed dose of empiricism to serve as a foundation for already circulating theories.
MacGarvie notes that although the Patent Office has been issuing patents since the 18th century, only in the last decade or so has software been part of this office. In 1996 new guidelines for software patenting went into effect, resulting in an increase of software patents at a rate much higher than that of any other field. Controversial “bad patents” such as the Amazon One-Click case have been the subject of much media debate, but MacGarvie is researching a more subtle controversy—the “anticommons” phenomenon resulting from the cumulative nature of software innovation.
She has looked at broad patterns in software patent data to evaluate the effect of patents on entry by software firms into new markets and the effect on the market value of companies. MacGarvie's research reveals that patent effect is not black-and-white.
A chart compiled by Megan MacGarvie displays the number of patents granted over time by the U.S. Patent and Trademark Office in selected software-related classes. The issuance of new guidelines on the patentability of software in the late 1990s led to a marked increase in the number of software patents granted.
In joint work with BU School of Management professor Iain Cockburn, MacGarvie discovered that after accounting for a variety of factors affecting the rate of entry into a market, markets with more software patents have lower rates of entry. However, firms holding software patents related to a market are more likely to enter, possibly because holding patents helps in intercompany negotiation. Therefore, predictions of the ultimate net effect of increased patents depend on assumptions about the distribution of patent ownership among small and large firms. Based on these assumptions, increased patents will either decrease the rate of entry or have no effect.
MacGarvie noticed, in work with Bronwyn Hall of the University of California-Berkeley, when looking at stock prices in an event study, that the market perceived that firms without patents or firms in downstream sectors would not benefit from software patents, while middleware firms were expected to benefit. Her research is informing the debate over intellectual property by picking out the subtleties and the paradoxes of the patent system's relationship to software.
For more information, see http://people.bu.edu/mmacgarv.
