Patent Protection and Innovative Entrepreneurship

Abstract

Does patent protection promote business creation and technological progress? The effect is theoretically ambiguous. We use a unique empirical setup created by Alice Corp. vs. CLS Bank International US Supreme Court ruling, which reduced the strength of software patents, on US startups. Post-decision, software startups faced difficulties securing venture funding and acquisitions, but a decreased rate of non-monetized exits and an increased probability of IPO. This resilience can be attributed to the newfound ability to counter lawsuits. We document a surge in cases seeking patent invalidation specific to software, whereas claims of non-infringement remained constant.