Strategic patenting and software innovation

Michael Noel*, Mark Schankerman

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

79 Scopus citations


Strategic patenting is widely believed to raise the costs of innovating, especially in industries characterised by cumulative innovation. This paper studies the effects of strategic patenting on R&D, patenting and market value in the computer software industry. We focus on two key aspects: patent portfolio size, which affects bargaining power in patent disputes, and the fragmentation of patent rights ('patent thickets') which increases the transaction costs of enforcement. We develop a model that incorporates both effects, as well as knowledge spillovers. Using panel data for 121 firms covering the period 1980-99, we show that strategic patenting and spillovers affect innovation and market value of software firms, that there is a patent premium accounting for 20 per cent of the returns to R&D, and that software firms do not appear to be trapped in a prisoners' dilemma of 'excessive patenting.

Original languageEnglish
Pages (from-to)481-520
Number of pages40
JournalJournal of Industrial Economics
Issue number3
StatePublished - Sep 2013
Externally publishedYes


FundersFunder number
Economic and Social Research CouncilES/H02123X/1


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