Reject claims without evidence – they’re citing IP lawyers who have an incentive to exaggerate to enrich their clients. Empirical evidence matters in patent debates

//DH

The problem at the heart of this indeterminacy is a lack of evidence. We simply do not know enough about how the patent system actually works.20 The dominant justification for intellectual property is its “incentive” function, by which a temporary grant of legal exclusivity is intended to encourage the creation of valuable new expressive and technological innovation.21 But pinning down the incentive effect of any particular intellectual property regime has long been a difficult—verging on intractable—empirical task.22

In this Article, I introduce new evidence on whether patents affect innovation in this controversial area of software. I focus on one particularly important mechanism: whether patents play a role in directing investment to new companies.23 For innovative young startups, attracting early-stage venture capital funding is a crucial step in their development,24 and it’s widely argued that patents are an important tool for startup companies seeking such investment.25 The empirical reality, however, is less clear.

There are certainly plausible theoretical reasons to think that patents might play a role in directing investment, including as a signal of quality and as a promise of market exclusivity.26 But the evidence is murky. Despite a growing number of empirical studies in this area, it has proved very difficult to isolate the distinctive impact of intellectual property on financing. Surveys of both venture capitalists and entrepreneurs suggest that patents do help companies attract investment, with variation across industries.27 This finding is reinforced by quantitative studies, which generally find a correlation between patenting activity and the receipt of venture capital investment.28 But these latter studies are bedeviled by a common problem: there are typically many factors which drive both the likelihood of patenting and the chance of investment (for example, the underlying quality of the invention or team). Without a way to hold these other hard-to-observe factors constant, it is impossible to assess whether patents play a distinctive role in mediating investors’ choices or whether money simply flows to the best ideas regardless of intellectual property. The question remains: do patents matter for investment?