How does digital piracy affect innovation? Evidence from software firms |
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| Institution: | 1. Cox School of Business, Southern Methodist University. 6214 Bishop Blvd, Dallas, TX 75275, USA;2. United States Patent and Trademark Office, 600 Dulany St, Alexandria, VA 22314, USA;1. Cox School of Business, Southern Methodist University. 6214 Bishop Blvd, Dallas, TX 75275, USA;2. United States Patent and Trademark Office, 600 Dulany St, Alexandria, VA 22314, USA;1. Foundation Professor of Public Policy and Management, School of Public Affairs, Global Center for Technology Transfer, Arizona State University, United States of America;2. Professor of Open & Collaborative Innovation, Eindhoven University of Technology, Netherlands;3. Innovation & Entrepreneurship, University of Copenhagen, Denmark;4. University of California, Berkeley, United States of America;5. Graham Professor of Strategy and Organization, Alberta School of Business, University of Alberta, Canada;6. Distinguished Chair Professor, School of Public Policy and Management, Schwarzman College, Tsinghua University, China;1. National Scientific and Technical Research Council/Centro de Investigaciones para la Transformación (CENIT), National University of San Martin (UNSAM), Av. Presidente Roque Saenz Peña 832, Buenos Aires, Argentina;2. Science and Technology Policy Research Unit (SPRU), University of Sussex, United Kingdom;3. Institute of Development Studies (IDS), University of Sussex, Library Rd, Falmer, Brighton BN1 9RE, United Kingdom;1. National University of Ireland Galway and Whitaker Institute for Innovation and Societal Change, Galway, Ireland;2. Department of Health Services Research and Policy, London School of Hygiene & Tropical Medicine, London, UK;1. ETH Zürich, Weinbergstrasse 56/58 WEV H-311, CH-8092 Zürich, Switzerland;2. Ghent University, Department of Marketing, Innovation, and Organisation, Hoveniersberg 2, B-9000 Gent, Belgium |
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| Abstract: | Despite digital piracy's well-documented impact on firm revenue, the relationship between piracy and firm innovation, including the creation of new intellectual property (IP) rights, is not well-understood. To fill this gap, this paper estimates the impact of piracy on innovation through a quasi-experimental design and explores the mechanisms driving this relationship using data on software firms. Leveraging a 2001 technological shock that suddenly enabled rising software piracy, we find increases in subsequent R&D spending, copyrights, trademarks, and patents for large, incumbent software firms. Furthermore, firms with large patent portfolios appear to disproportionately increase copyrights and trademarks following the piracy shock. After considering alternatives, our analysis suggests that impacted firms perceive piracy as a form of product-market competition that causes them to increase innovation and balance their IP portfolios. |
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