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Abstract
Patents on software innovations have seen rapid growth in the last twenty years. Recent scholarship has clarified the value of software patent stocks to firms owning them, and the effect of firms' innovation orientation, market environment and use of software patent stocks for strategic purposes. However, we know little about the role of knowledge disclosure about the patent innovation and of patent enforcement on patent value appropriation. These can be used as levers by a firm to enhance patent value appropriation. First, we investigate the influence of knowledge disclosure, as software patents have been criticized for not having an impact on a firm's profits because they have unclear boundaries. The boundaries of patent protection are set by the knowledge disclosed about the software innovation which defines the patent scope. This is an important aspect because the firm has discretion on how to disclose the knowledge of its software innovation in the patent. We assess the separate effects of two distinct dimensions of patent scope, the technological scope of the core software innovation and the diversity of the innovation’s applications across other domains, on the value of software patents. We argue that a larger technological scope is necessary for realizing better value from the software patent stock. This is because precise and detailed documentation of the technological scope in terms of requirements and design specifications is important to define proper boundaries of protection for the disclosed software innovation. Diversity of applications, however, exposes the patent to more potential competition and criticisms of being too broad in scope and therefore increases the risk of invalidation. Second, we study the effect of patent enforcement on the value of software patents. Patents as exclusion rights, require enforcement action by the patent owner. Patent enforcement through litigation, as a costly and visible signal of the firm’s intentions, creates a reputation for aggressive defense of intellectual property and we suggest that such a reputation is beneficial for the value of a firm's software patent stock.