US legal changes have made it easier to obtain patents on inventions that use software. Software patents now comprise 15% of all patents, mostly acquired by manufacturing firms and large firms. Only 6% belong to software publishers. Our regression analysis finds that these patents differ from others: they are “cheap” patents. We explore whether these patents have increased R&D incentives. We find, instead, that software patents substitute for firm R&D; they are associated with substantially lower R&D intensity. Overall, the predominant use of software ...