The Private Value of Software Patents

Bronwyn Hall, MERIT and Department of Economics, University of California at Berkeley

We investigate the value creation or destruction associated with software patents in two ways. The first looks at the cumulative abnormal returns to ICT firms around the time of important court decisions impacting software patents, and the second analyzes the relationship between firms’ stock market value and their holdings of software patents cross-sectionally. We find that software patents are in fact positively and significantly associated with Tobin’s Q, and that the market’s valuation of software patents increased following changes in the USPTO’s treatment of software patents in 1995. We also find important differences across industries in valuation and valuation changes.

Date: 28 March 2006