Patents, Thickets and the Financing of Early-Stage Firms: Evidence from the Software Industry

By Iain M. Cockburn, Megan J. MacGarvie. 2009

204 citations recorded by the source corpus.

The impact of stronger intellectual property rights in the software industry is controversial. One means by which patents can affect technical change, industry dynamics, and ultimately welfare, is through their role in stimulating or stifling entry by new ventures. Patents can block entry, or raise entrants' costs in variety of ways, while at the same time they may stimulate entry by improving the bargaining position of entrants vis-a-vis incumbents, and supporting a "market for technology" which enables new ventures to license their way into the market, or realize value through trade in their intangible assets. One important impact of patents may be their influence on capital markets, and here we find evidence that the extraordinary growth in patenting of software during the 1990s is associated with significant effects on the financing of software companies. Start-up software companies operating in markets characterized by denser patent thickets see their initial acquisition of VC funding delayed relative to firms in markets less affected by patents. The relationship between patents and the probability of IPO or acquisition is more complex, but there is some evidence that firms without patents are less likely to go public if they operate in a market characterized by patent thickets.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/58f793f1e8b22591da52c9d5e269574e7d53812a

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Citations in the corpus

How patenting informs VC investors - The case of biotechnology (2014, background): “Furthermore, Cockburn and MacGarvie (2009) report that companies operating in markets with denser patent thickets experience a delay in receiving their first funding from external investors.”
Let a Thousand Flowers Bloom? An Early Look at Large Numbers of Software App Developers and Patterns of Innovation (2012, background): “For pioneering systematic empirical work, see Cockburn and MacGarvie (2006, 2009), Hall and MacGarvie (2006).”
Knowledge sources of entrepreneurship: Firm formation by academic, user and employee innovators☆ (2014, background): “Comparing across markets with high and low thickets of patents, Cockburn and MacGarvie (2009) show that innovators in the former experience delays in venture capital funding.”
To Be Financed or Not : The Role of Patents for Venture Capital Financing (2009, unknown): “For example, Cockburn and MacGarvie (2007) find a lower entry activity in markets more affected by patent thickets.”
Cocreation of Value in a Platform Ecosystem: The Case of Enterprise Software (2012, background): “We analyze the latter because it is both a measure of the future sales prospect for the firm and a common measure of small firm performance (Cockburn and MacGarvie 2009; Shane and Stuart 2002).”
Signaling by early stage startups: US government research grants and venture capital funding (2018, background): “Previous research has demonstrated that startups with higher numbers of patents are more likely to obtain VC funding (Kortum and Lerner, 2000; Engel and Keilbach, 2007; Cockburn and MacGarvie, 2009).”
Patent Thickets, Licensing and Innovative Performance (2010, background): “Previous work has shown that firms facing more fragmented IP landscapes have lower market values (Noel and Schankerman (2006)) and that start-up companies entering markets in which there are larger numbers of patents and assignees see the initial round of funding delayed (Cockburn and MacGarvie (200”