Abstract Patents and Innovation : Evidence from Alice v. CLS Bank

Alice v. CLS Bank (“Alice”) set new software and business method patent eligibility guidelines for patent examiners and judges. In response, examiners increased their scrutiny of software applications claiming abstract ideas, creating a 75 percent decrease in grants in affected technology areas. Patents in these areas are 60 percent less likely to be purchased by patent assertion entities (PAEs), but PAEs continue to purchase pre-Alice software patents at similar rates. Litigation rates exhibit similar responses. Despite the large decrease in grants, venture capital funding increased in Alice-affected industries. We provide evidence that startups in these industries were not reliant on favorable patent rights for funding even before Alice. Overall, Alice reduced inefficiencies in the system without reducing innovation incentives