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Patents and Cumulative Innovation: Causal Evidence from the Courts

Author

Listed:
  • Alberto Galasso
  • Mark Schankerman

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% 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. JEL Codes: K41, L24, O31, O33, O34.

Suggested Citation

  • Alberto Galasso & Mark Schankerman, 2015. "Patents and Cumulative Innovation: Causal Evidence from the Courts," The Quarterly Journal of Economics, Oxford University Press, vol. 130(1), pages 317-369.
  • Handle: RePEc:oup:qjecon:v:130:y:2015:i:1:p:317-369
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    File URL: http://hdl.handle.net/10.1093/qje/qju029
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    Citations

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    Cited by:

    1. Iain M. Cockburn & Jean O. Lanjouw & Mark Schankerman, 2016. "Patents and the Global Diffusion of New Drugs," American Economic Review, American Economic Association, vol. 106(1), pages 136-164, January.
    2. repec:eee:eecrev:v:94:y:2017:i:c:p:221-239 is not listed on IDEAS
    3. Patrick Gaule, 2015. "Patents and the Success of Venture-Capital Backed Startups: Using Examiner Assignment to Estimate Causal Effects," CERGE-EI Working Papers wp546, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    4. Joan Farre-Mensa & Deepak Hegde & Alexander Ljungqvist, 2017. "What is a Patent Worth? Evidence from the U.S. Patent “Lottery”," NBER Working Papers 23268, National Bureau of Economic Research, Inc.
    5. López, Ángel Luis & Vives, Xavier, 2016. "Cross-ownership, R&D Spillovers, and Antitrust Policy," CEPR Discussion Papers 11315, C.E.P.R. Discussion Papers.
    6. Mark Schankerman, 2015. "Patents Rights and Innovation by Small and Large Firms," STICERD - Economics of Industry Papers 54, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    7. Antonelli, Cristiano, 2017. "Digital Knowledge Generation and the Appropriability Trade-Off," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 201705, University of Turin.
    8. Talia Bar & Brendan Costello, 2017. "Patent Validity Challenges and The America Invents Act," Working papers 2017-21, University of Connecticut, Department of Economics.
    9. Philippe Aghion & Peter Howitt & Susanne Prantl, 2015. "Patent rights, product market reforms, and innovation," Journal of Economic Growth, Springer, vol. 20(3), pages 223-262, September.
    10. Baron, Justus & Pohlmann, Tim & Blind, Knut, 2016. "Essential patents and standard dynamics," Research Policy, Elsevier, vol. 45(9), pages 1762-1773.
    11. repec:eee:wdevel:v:99:y:2017:i:c:p:15-27 is not listed on IDEAS
    12. Stefano Comino & Fabio M. Manenti & NIkolaus Thumm, 2017. "The Role of Patents in Information and Communication Technologies (ICTs). A survey of the Literature," "Marco Fanno" Working Papers 0212, Dipartimento di Scienze Economiche "Marco Fanno".
    13. Shai Bernstein & Emanuele Colonnelli & Xavier Giroud & Benjamin Iverson, 2017. "Bankruptcy Spillovers," NBER Working Papers 23162, National Bureau of Economic Research, Inc.
    14. Farre-Mensa, Joan & Hegde, Deepak & Ljungqvist, Alexander P., 2016. "The Bright Side of Patents," CEPR Discussion Papers 11091, C.E.P.R. Discussion Papers.
    15. Gamba, Simona, 2017. "The Effect of Intellectual Property Rights on Domestic Innovation in the Pharmaceutical Sector," World Development, Elsevier, vol. 99(C), pages 15-27.
    16. repec:eee:respol:v:47:y:2018:i:2:p:343-362 is not listed on IDEAS
    17. Heng GENG & Harald HAU & Sandy LAI, 2015. "Technological Progress and Ownership Structure," Swiss Finance Institute Research Paper Series 15-39, Swiss Finance Institute.
    18. Michael D. Frakes & Melissa F. Wasserman, 2017. "Knowledge Spillovers and Learning in the Workplace: Evidence from the U.S. Patent Office," NBER Working Papers 24159, National Bureau of Economic Research, Inc.
    19. Chen, Daniel L. & Yeh, Susan, 2016. "How Do Rights Revolutions Occur? Free Speech and the First Amendment," IAST Working Papers 16-51, Institute for Advanced Study in Toulouse (IAST).
    20. repec:eee:jeborg:v:137:y:2017:i:c:p:282-303 is not listed on IDEAS
    21. Shai Bernstein & Emanuele Colonnelli & Xavier Giroud & Benjamin Iverson, 2017. "Bankruptcy Spillovers," Working Papers 17-16, Center for Economic Studies, U.S. Census Bureau.

    More about this item

    JEL classification:

    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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