The Scope of Software Patent Protection in the Digital Age: Evidence from Alice

Software is the foundation of the digital economy. The scope of software patent protection and the social and private value of software patenting are hence central to recent policy debates. The landmark 2014 U.S. Supreme Court ruling in Alice Corp v. CLS Bank had a profound impact on software patenting, drastically narrowing the scope of patent protection on software innovation. We theorize and provide empirical evidence that a narrower scope of software patent protection is associated with a greater degree of open source activities and improved sales in software firms. We also evaluate how individual firm's ex ante software patent stock may moderate the proposed relationships. These findings offer insights into the roles of patent scope for software innovation in the digital economy and have important implications for the software patent and digital innovation literatures. They also have compelling implications for patent policies on software and software-related inventions, such as artificial intelligence, blockchains, cloud computing, and other emerging digital innovations.