DO PATENTS DRIVE INVESTMENT IN SOFTWARE?

—In the wake of a quartet of Supreme Court decisions which disrupted decades of settled law, the doctrine of patentable subject matter is in turmoil. Scholars, commentators, and jurists continue to disagree sharply over which kinds of invention should be patentable. In this debate, no technology has been more controversial than software. Advocates of software patents contend that denying protection would stymie innovation in a vital industry; skeptics argue that patents are a poor fit for software, and that the social costs of patents outweigh any plausible benefits. At the core of this disagreement is a basic problem: the debate is predicated on various claims about how and whether patents incentivize innovation, but like much of patent law, these claims rest on meager empirical foundations. This Article bolsters these foundations by testing one important claim: that patents serve to attract investment in new inventions. Using a novel quasi-experimental approach and an original dataset, I investigate whether the grant of a patent makes a business-methods software startup more likely to attract early-stage venture capital investment. In contrast to prior scholarship, I find no evidence that patents play a role in channeling investment to these startups, nor that they lead to more successful downstream outcomes such as acquisitions and initial public offerings. These findings have important implications for both patent policy and scholarship. First, this Article provides new evidence on the perennial controversy over whether business-methods software should be patenteligible. As Congress continues to contemplate new legislation to clarify the law of patentable subject matter, the results call into question a leading justification for granting patents in this area. Second, in light of previous scholarship which finds a relationship between patents and investment in other areas of technology, I demonstrate the importance of developing industry-specific evidence on the role that patents play in stimulating innovation.