Software Patents and Open Source: The Battle Over Intellectual Property Rights

David S. Evans, Law and Economics Consulting Group (LECG), LLC - Cambridge, MA Office; University College, London, and Anne Layne-Farrar, Law and Economics Consulting Group (LECG), LLC - Chicago, IL Office

9/19/2008
(Original Publish Date: 1/8/2006)

In the wake of a series of court cases extending patents to software, open-source software proponents have proposed a number of arguments for limiting or even eliminating software patents. In particular, they claim that the U.S. Patent and Trademark Office has done a poor job of reviewing software patent applications, resulting in obvious, trivial patents. They also maintain that software patents hinder the standards setting process so important for high-technology industries and that patents will to lead to intellectual property rights "thickets" that slow down or stop the innovative process in the software industry. We evaluate these claims, examining relevant empirical evidence where available. While it is clear that problems exist with the patent-granting process, they do not rise to the level of justifying a ban on software patents. Instead, other reasonable - and far less drastic - measures are available. The USPTO has already begun reforms that should improve its software patent review process. As for patent thickets, theory suggests they could form in the software industry, but empirical evidence suggests that in fact they have not formed. Moreover, tools such as patent pools and cross-licensing that increase innovation sharing are available to limit the development of thickets. While the academic literature is still debating the link between patents and innovation, patents have been show to have some positive effects, including increased venture capital funding for small firms. In the end, reform is far more attractive than abolition because it retains the good while minimizing the bad.