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HIGH TECHNOLOGY ENTREPRENEURS AND THE PATENT SYSTEM RESULTS OF THE 2008 BERKELEY PATENT SURVEY August 15 2009 Stuart J H Graham Robert P Merges Pam Samuelson and Ted Sichelman Assistant Professor Georgia Institute of Technology College of Management Affiliated Scholar Berkeley Center for Law and Technology BCLT University of California Berkeley School of Law Wilson Sonsini Goodrich Rosati Professor of Law and Technology University of California Berkeley School of Law Richard M Sherman Distinguished Professor of Law University of California Berkeley School of Law Assistant Professor University of San Diego School of Law We thank Robert Barr Executive Director of the Berkeley Center for Law and Technology for his consistently helpful comments and unflagging support in making this survey project a success We received beneficial insights from our project s Advisory Board Hank Barry John Barton James Bessen Tom Ciotti Wesley Cohen John Duffy Rebecca Eisenberg Brad Feld John Freeman Richard Gilbert Michael Goldberg Bob Gunderson Bronwyn Hall Mitchell Kapor Peter Menell Mark Myers James Pooley Walter Powell Arti Rai AnnaLee Saxenian Carl Shapiro Robert Strom Lee Van Pelt and David Yoffie and also from Peter Ang Brian Broughman Colleen Chien Jesse Fried Dietmar Harhoff Bob Litan Gladys Monroe Bob O Connor Sheridan Paulker E J Reedy Alicia Robb F M Scherer and John Walsh We also thank participants at the 2008 Berkeley Technology Law Journal Symposium on Patenting and Entrepreneurship the 2008 Kauffman Foundation Symposium on Entrepreneurship and Innovation Data the 2008 OECD DIME Patent Statistics for Managers Conference the 2009 OECD Kauffman Workshop on Entrepreneurship and Innovation the National Bureau of Economic Research s Summer Institute 2009 and faculty workshop participants at the Georgia Tech College of Management Harvard Business School Stanford University Economics Department and UC Berkeley Haas School of Business We thank Galen Hancock for working closely with us as our chief research assistant since the inception of the project and David Grady and Louise Lee for administrative support We acknowledge helpful advice from Bob Lee and UC Berkeley s Survey Research Center and research assistance from Peter Dimitrov Andrew Harris Deepak Hegde Christine Rhyu Erin Trimble Stephen Ullmer and Brian Weissenberg This research was funded by the Ewing Marion Kauffman Foundation The contents of this article are solely the responsibility of the grantees authors All errors and omissions are our own HIGH TECHNOLOGY ENTREPRENEURS AND THE PATENT SYSTEM ABSTRACT We offer description and analysis of the 2008 Berkeley Patent Survey the first comprehensive survey of patents and entrepreneurship in the United States summarizing the responses of 1 332 U S based technology startups in the biotechnology medical device IT hardware software and Internet sectors We find that holding patents is more widespread among technology startups than has been previously reported but that the patterns and drivers of holding patents are industry and context specific Surprisingly startup executives generally report that patents provide relatively weak incentives for core activities in the innovation process Our analysis uncovers that the drivers of startup patenting are often associated with capturing competitive advantage and the associated goals of preventing technology copying securing financing and enhancing reputation although again these and other motives depend on firm and industry factors We also find substantial differences between the biotechnology and medical device sectors in which patents are more commonly used and considered important and the software and Internet fields in which they are reported to be less useful Interestingly venture backed IT hardware startups tend to resemble those in health related fields in terms of their use of and motives for patenting We generally find a wide disparity between the patenting behavior of venture backed and other technology startups We also discover that when choosing not to patent major innovations startups often cite to cost considerations Checking the patent literature and licensing patents from others is reported as reasonably common although there too results differ according to the context Other findings are discussed 2 HIGH TECHNOLOGY ENTREPRENEURS AND THE PATENT SYSTEM TABLE OF CONTENTS I Introduction Why Investigate How Entrepreneurs Use and are Affected by the Patent System 4 II Surveying High Technology Entrepreneurs About Their Use of IP 8 A Our Focus Is on Technology Startups 10 1 Targeting Entrepreneurial Companies and Their Top Executives 10 2 Selecting High Technology Sectors 12 3 Choosing Companies to Survey 12 B Profiling Our Respondent Companies 14 III Patent and Application Holding in Technology Startups 15 A Patent Holding Among Startups is Widespread but Not Ubiquitous 15 1 Startups Patents Come from Several Different Sources 16 2 Startups Hold Numerous Patents but Explanations Are Nuanced 17 3 Technology Entrepreneurs Suggest the Patenting Story is Complex 18 B In Patenting Not All Startups are Created Equal 19 1 Industry Influences the Incidence of Startups Holding Patents 19 2 Venture backed Companies Are More Likely to Hold Patents 20 C Patents May Offer Only Limited Incentives to Engage in Innovation 23 1 The Reported Relatively Weak Incentive Value of Patents 24 2 The Multiple Meanings of Startup Patenting 26 IV First Finding Patents Aid Startups in Competing with Their Technologies 26 A Patents Can Serve to Promote Startups Competitive Advantage 26 1 Industry Influences Patents Role in Competitive Advantage 28 2 Patents Role in Technology Competition Differs by Innovation Focus 30 B Startups Use Multiple Methods to Compete with Technology Innovations 31 V Second Finding Startups Have Differing Motives for Patenting 33 A Startups File Patents to Prevent Copying Secure Their Financial Goals and Enhance Reputation 34 B Startups Motivations to Seek Patents Differ by Industry 38 C Patents Serve an Important Function in Startups Securing Capital 39 1 Investors and Entrepreneurs Highlight the Role of Patents in Startup Financing 40 2 The Role of Patents in Attracting Entrepreneurial Capital 41 a Startups Report That Patents Are Important to Their Investors 41 b Patents Reported Importance to Investors Differs by Industry 42 VI Third Finding Technology Entrepreneurs Have Various Reasons Not to Seek Patents 43 A Cost Considerations Loom


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