A simulative approach to determining the economic efficiency of software patents

Abstract

Traditionally, only technical inventions such as light bulbs or pharmaceuticals were protected by patents. Nowadays software patents are a widely discussed topic in the U.S. and in Europe because of their supposed impact on national innovation rates. Based on an analysis of the determinants of successful software development, we use a bipartite probability model to compare a deregulated market without patents to a market using a patent system. Applying computer-based simulations, we analyze different scenarios to test the impact of different patent duration and width on the innovation behavior of the software market. We show that strong patent protection is globally efficient only in markets with a relatively low profit potential.