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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 follow-on innovation? We study the causal effect of removing patent rights by 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 Appeals for the Federal Circuit to control for endogeneity of patent invalidation. Patent invalidation leads to a 50 percent increase in citations to the focal patent, on average, but the impact is heterogeneous and depends on characteristics of the bargaining environment. Patent rights block downstream innovation in computers, electronics and medical instruments, but not in drugs, chemicals or mechanical technologies. Moreover, 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

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

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    1. Alberto Galasso, 2012. "Broad Cross-License Negotiations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(4), pages 873-911, December.
    2. Bronwyn H. Hall & Adam B. Jaffe & Manuel Trajtenberg, 2001. "The NBER Patent Citation Data File: Lessons, Insights and Methodological Tools," NBER Working Papers 8498, National Bureau of Economic Research, Inc.
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    7. Alberto Galasso & Mark Schankerman, 2010. "Patent thickets, courts, and the market for innovation," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 472-503.
    8. Llobet, G. & Hopenhayn, H. & Mitchell, M., 2000. "Rewarding Sequential Innovators: Prizes, Patents and Buyouts," Papers 0012, Centro de Estudios Monetarios Y Financieros-.
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    Cited by:
    1. Guido Cozzi & Silvia Galli, 2014. "Sequential R&D and blocking patents in the dynamics of growth," Journal of Economic Growth, Springer, vol. 19(2), pages 183-219, June.

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