Bradley, Kolev (2023)

Source Details

Bradley, Kolev (2023)
Title:	How does digital piracy affect innovation? Evidence from software firms
Author(s):	Wendy A. Bradley, Julian Kolev
Year:	2023
Citation:	Wendy A. Bradley, Julian Kolev, How does digital piracy affect innovation? Evidence from software firms. (2023). Research Policy, Volume 52, Issue 3, 2023, 104701, ISSN 0048-7333, https://doi.org/10.1016/j.respol.2022.104701.
Link(s):	Definitive , Open Access
Key Related Studies:
Discipline:	L86: Information and Internet Services • Computer Software O32: Management of Technological Innovation and R&D O34: Intellectual Property and Intellectual Capital
Linked by:

About the Data
Data Description:	Numeric Data; Financial data from COMPUSTAT’s Fundamental Annuals; US Copyright Office; US Patent and Trademark Office; BitTorrent protocol of all torrents between 2004 and 2013; Companies’ SEC annual report filings
Data Type:	Secondary data
Secondary Data Sources:	Financial data from COMPUSTAT’s Fundamental Annuals US Copyright Office US Patent and Trademark Office BitTorrent protocol of all torrents between 2004 and 2013 Companies’ SEC annual report filings
Data Collection Methods:	Experimental (Field) Quantitative data/text mining Longitudinal Study
Data Analysis Methods:	Descriptive statistics (counting; means reporting; cross-tabulation) Quantitative content analysis (e.g. text or data mining) Regression Analysis
Industry(ies):	Software publishing
Country(ies):	United States
Cross Country Study?:	No
Comparative Study?:	No
Literature review?:	Yes
Government or policy study?:	No
Time Period(s) of Collection:	1991-2007
Funder(s):

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.

Keywords: Piracy; Software; Innovation; Intellectual property"

Main Results of the Study

The study analyses the impact of piracy on the innovation drive of software companies. The results of the authors’ regression analysis suggest that 1) software firms perceive piracy as a ‘product-market competition’ indicated by an increase in R&D expenditures, granted copyright, trademark, and patent applications data following the IP infringement. Firms with a high number of patents at the time of the breach were found to respond with a significant increase in trademark and copyright applications as a means of mutual reinforcement. In addition, a higher increase in R&D expenditures may suggest a shift towards IP protection as trade secret or open innovation. Thirdly, piracy is found to be broadly responded with a ‘combination of appropriation mechanisms for innovation, both in terms of high-level strategy and even for individual inventions’.

Policy Implications as Stated By Author

The authors propose that anti-piracy policies have widely proven to be ineffective and that piracy has instead acted as a driving force for innovation. Therefore, an emphasis on strategies incentivising new product development and innovation as well as an encouragement of competition is proposed.

Coverage of Study

Coverage of Fundamental Issues

Issue	Included within Study
Relationship between protection (subject matter/term/scope) and supply/economic development/growth/welfare
Relationship between creative process and protection - what motivates creators (e.g. attribution; control; remuneration; time allocation)?
Harmony of interest assumption between authors and publishers (creators and producers/investors)
Effects of protection on industry structure (e.g. oligopolies; competition; economics of superstars; business models; technology adoption)
Understanding consumption/use (e.g. determinants of unlawful behaviour; user-generated content; social media)

Coverage of Evidence Based Policies

Issue	Included within Study
Nature and Scope of exclusive rights (hyperlinking/browsing; reproduction right)
Exceptions (distinguish innovation and public policy purposes; open-ended/closed list; commercial/non-commercial distinction)
Mass digitisation/orphan works (non-use; extended collective licensing)
Licensing and Business models (collecting societies; meta data; exchanges/hubs; windowing; crossborder availability)
Fair remuneration (levies; copyright contracts)
Enforcement (quantifying infringement; criminal sanctions; intermediary liability; graduated response; litigation and court data; commercial/non-commercial distinction; education and awareness)

Datasets

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