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Patents and Cumulative Innovation: Causal Evidence from the Courts

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  • Alberto Galasso
  • Mark Schankerman
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    Abstract

    Cumulative innovation is central to economic growth. Do patent rights facilitate or impede such follow-on innovation? This paper studies the causal effect of removing patent protection through court invalidation on subsequent research related to the focal patent, as measured by later citations. We exploit random allocation of judges at the U.S. Court of Appeal for the Federal Circuit to control for the endogeneity of patent invalidation. We find that patent invalidation leads to a 50 percent increase in subsequent citations to the focal patent, on average, but the impact is highly heterogeneous. Patent rights appear to block follow-on innovation only in the technology fields of computers, electronics and medical instruments. The effect is entirely driven by invalidation of patents owned by large patentees that triggers more follow-on innovation by small firms.

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    Bibliographic Info

    Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1205.

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    Date of creation: Apr 2013
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    Handle: RePEc:cep:cepdps:dp1205

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    Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

    Related research

    Keywords: patent rights; cumulative innovation; economics of innovation;

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    1. Comino, Stefano & Manenti, Fabio M. & Nicolò, Antonio, 2011. "Ex-ante licensing in sequential innovations," Games and Economic Behavior, Elsevier, vol. 73(2), pages 388-401.
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    3. Kaplan, Sarah & Tripsas, Mary, 2008. "Thinking about technology: Applying a cognitive lens to technical change," Research Policy, Elsevier, vol. 37(5), pages 790-805, June.
    4. Gerard Llobet & Hugo Hopenhayn & Matthew F. Mitchell, 2000. "Rewarding sequential innovators: prizes, patents and buyouts," Staff Report 273, Federal Reserve Bank of Minneapolis.
    5. Alberto Galasso & Mark Schankerman & Carlos J. Serrano, 2011. "Trading and Enforcing Patent Rights," CEP Discussion Papers dp1072, Centre for Economic Performance, LSE.
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    14. Kitch, Edmund W, 1977. "The Nature and Function of the Patent System," Journal of Law and Economics, University of Chicago Press, vol. 20(2), pages 265-90, October.
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    16. Pierre Azoulay & Joshua S. Graff Zivin & Jialan Wang, 2008. "Superstar Extinction," NBER Working Papers 14577, National Bureau of Economic Research, Inc.
    17. Bessen, James, 2004. "Holdup and licensing of cumulative innovations with private information," Economics Letters, Elsevier, vol. 82(3), pages 321-326, March.
    18. George L. Priest & Benjamin Klein, 1984. "The Selection of Disputes for Litigation," The Journal of Legal Studies, University of Chicago Press, vol. 13(1), pages 1-56, January.
    19. Alberto Galasso, 2012. "Broad Cross-License Negotiations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(4), pages 873-911, December.
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    21. Schneider, Cédric, 2007. "The Determinants of Patent Applications Outcomes - Does Experience Matter?," MPRA Paper 3359, University Library of Munich, Germany.
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