Software Patents, Incumbents, and Entry

Intellectual Property and Patents

Article Snapshot


John R. Allison, Abe Dunn and Ronald J. Mann


Texas Law Review, Vol. 85, 2007; UT Law and Economics Research Paper No. 105


This paper asks whether software firms need patents.

Policy Relevance

Policymakers should take care in relying on arguments that software patents are harmful, because this point of view is associated with just one software business model. Firms that sell software, not services, find patents more helpful.

Main Points

  • Early on, software was not patentable, and some argue that software does not need to be patentable today.


  • Some software businesses sell software (Microsoft); others sell related services, not software (IBM), and some offer a hybrid.


  • Data over five years from leading software firms shows those that rely and obtain more revenues from selling software also patent more software.
    • A new software firm with higher patent rates is more likely to succeed in getting venture capital and later commercializing a product.


  • Patents allow individual inventors to enjoy returns by enabling them to sell their patents to firms who license or litigate patents.


  • Open source software firms generally sell services, not software, so they use patents less.

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