So, do copy that floppy?
Software piracy, long a source of anxiety among app makers and large software companies, may have some beneficial effects. Wendy Bradley, assistant professor of strategy, entrepreneurship, and business economics at Southern Methodist University’s Cox School of Business, and Julian Kolev, an economist at the United States Patent and Trademark Office, recently examined the impact of software piracy in a paper [ PDF] titled “Software Piracy and IP Management Practices: Strategic Responses to Product-Market Imitation.” The economists looked at mentions of piracy in the SEC-mandated annual 10-K filings of 106 publicly traded companies that generated 40 per cent of their revenue between 1991 and 2000, based on the belief that software firms, so dependent upon patent, copyright, and trademark protection, “benefit disproportionately from cumulative innovation.” They compared the intellectual property (IP) strategies of these firms, alongside a control group of companies not facing significant IP risk, before (1991-2000) and after (2001-2007) a major “piracy shock” – the debut of BitTorrent in July,2001. The authors consider the arrival of BitTorrent in July,2001, to be an ideal dividing line because the decentralized file sharing protocol can handle large files in a way that Napster could not, and because IP rights holders were unable to shut it down. What they found was “piracy shock” pushed affected firms to innovate, as measured by an uptick in research and development spending and in patent, copyright, and trademark applications. This increase does not appear to be driven by efforts to directly prevent software piracy. Instead, it may be the result of companies innovating and changing strategies to, at least in part, overcome any effects of piracy. “When comparing the IP strategies of software firms at risk of piracy (the treatment group) against those of not-at-risk firms (the control group), we find that our treatment group significantly increases its innovative activity after the piracy shock in terms of R&D expenditures and granted copyright, trademark, and patent applications,” their paper says. “Our analysis also reveals a dynamic response: firms tend to increase their R&D expenditures and copyright filings sharply in the first two years following the piracy shock, while the impact on patents is most significant over longer horizons of three to seven years.
