The impact of language translation quality on commerce: The example of patents

Language matters, and it is an overwhelming stylized fact that language translation is an unavoidable part of global business. In this paper, we quantify the impact of translation difficulty reflected by the presence of multiple-meaning words in the original text. We focus on international patent applications because patent prosecution is nation-based. An inventor who seeks patent protection in a foreign jurisdiction with a different official language will need to file a translated version of the same document. Our estimates show that applications with more ambiguous original (English) text, are up to 25 percentage points less likely to receive a grant in the non-English jurisdictions (China, Japan, and South Korea). The results suggest that language translation difficulty can serve as a potential source of distortion in the global patent system. Ultimately, such translation difficulty may reduce the level of investment in global innovation activities, potentially leading to significant welfare loss. These findings serve to illustrate why international businesses should have adequate language translation strategy to address any translation difficulty arising from the presence of ambiguous words even when the deal involves the cross-border transfer of highly codified knowledge such as patents.