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Patent rights, innovation, and firm exit

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  • Alberto Galasso
  • Mark Schankerman

Abstract

We study the causal impact of patent invalidation on subsequent innovation and exit by patent holders. The analysis uses patent litigation data from the US Federal Circuit Court and exploits random allocation of judges to control for endogeneity of the decision. Invalidation causes patent holders to reduce patenting over a five†year window by 50% on average, but the effect is heterogeneous. The impact is large for small†and medium†sized firms, particularly where they face many large competitors, and for patents central to their research portfolio. We find no significant effect for large firms. Invalidation also increases exit from patenting by small firms.

Suggested Citation

  • Alberto Galasso & Mark Schankerman, 2018. "Patent rights, innovation, and firm exit," RAND Journal of Economics, RAND Corporation, vol. 49(1), pages 64-86, March.
    • Handle: RePEc:bla:randje:v:49:y:2018:i:1:p:64-86
    DOI: 10.1111/1756-2171.12219
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    Cited by:

    1. Nagler, Markus & Sorg, Stefan, 2020. "The disciplinary effect of post-grant review – Causal evidence from European patent opposition," Research Policy, Elsevier, vol. 49(3).
    2. Yoonkyo Cho, 2020. "The Effects of Knowledge Assets and Path Dependence in Innovations on Firm Value in the Korean Semiconductor Industry," Sustainability, MDPI, vol. 12(6), pages 1-13, March.
    3. Nagler, Markus & Sorg, Stefan, 2019. "The Disciplinary Effect of Post-Grant Review," Rationality and Competition Discussion Paper Series 155, CRC TRR 190 Rationality and Competition.
    4. Kleine, Marco & Heite, Jonas & Huber, Laura Rosendahl, 2022. "Subsidized R&D collaboration: The causal effect of innovation vouchers on innovation outcomes," Research Policy, Elsevier, vol. 51(6).
    5. Arianna Martinelli & Julia Mazzei & Daniele Moschella, 2022. "Patent disputes as emerging barriers to technology entry? Empirical evidence from patent opposition," LEM Papers Series 2022/12, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    6. Gaessler, Fabian & Harhoff, Dietmar & Sorg, Stefan, 2019. "Bargaining Failure and Freedom to Operate: Re-evaluating the Effect of Patents on Cumulative Innovation," Rationality and Competition Discussion Paper Series 220, CRC TRR 190 Rationality and Competition.
    7. Fabian Gaessler & Stefan Wagner, 2022. "Patents, Data Exclusivity, and the Development of New Drugs," The Review of Economics and Statistics, MIT Press, vol. 104(3), pages 571-586, May.
    8. Youming Liu, 2023. "Competition for Exclusivity and Customer Lock-in: Evidence from Copyright Enforcement in China," Staff Working Papers 23-43, Bank of Canada.
    9. Ashish Arora & Sharon Belenzon & Jungkyu Suh, 2022. "Science and the Market for Technology," Management Science, INFORMS, vol. 68(10), pages 7176-7201, October.
    10. Comin, Diego & Licht, Georg & Pellens, Maikel & Schubert, Torben, 2018. "Do Companies Benefit from Public Research Organizations? The Impact of the Fraunhofer Society in Germany," Papers in Innovation Studies 2018/7, Lund University, CIRCLE - Centre for Innovation Research.

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