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Trading and Enforcing Patent Rights

  • Alberto Galasso
  • Mark Schankerman
  • Carlos J. Serrano

We study how the market for innovation affects enforcement of patent rights. Conventional wisdom associates the gains from trade with comparative advantage in manufacturing or marketing. We show that these gains imply that patent transactions should increase litigation risk. We identify a new source of gains from trade, comparative advantage in patent enforcement, and show that transactions driven by this motive should reduce litigation. Using data on trade and litigation of individually-owned patents in the U.S., we exploit variation in capital gains tax rates as an instrument to identify the causal effect of trade on litigation. We find that taxes strongly affect patent transactions, and that reallocation of patent rights reduces litigation risk, on average. The impact of trade on litigation is heterogeneous, however. Patents with larger potential gains from trade are more likely to change ownership, suggesting that the market for innovation is efficient. We also show that the impact of trade on litigation depends on characteristics of the transactions.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1072.

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Date of creation: Aug 2011
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Handle: RePEc:cep:cepdps:dp1072
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  1. 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.
  2. Carlos J. Serrano, 2008. "The Dynamics of the Transfer and Renewal of Patents," NBER Working Papers 13938, National Bureau of Economic Research, Inc.
  3. Ashish Arora & Marco Ceccagnoli, 2006. "Patent Protection, Complementary Assets, and Firms' Incentives for Technology Licensing," Management Science, INFORMS, vol. 52(2), pages 293-308, February.
  4. Lanjouw, Jean O & Schankerman, Mark, 2001. "Characteristics of Patent Litigation: A Window on Competition," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 129-51, Spring.
  5. Imbens, Guido W, 2001. "Estimations of Limited Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice: Comment," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 17-20, January.
  6. Mihir A. Desai & William M. Gentry, 2004. "The Character and Determinants of Corporate Capital Gains," NBER Chapters, in: Tax Policy and the Economy, Volume 18, pages 1-36 National Bureau of Economic Research, Inc.
  7. Alla Lileeva & Daniel Trefler, 2010. "Improved Access to Foreign Markets Raises Plant-Level Productivity... for Some Plants," The Quarterly Journal of Economics, MIT Press, vol. 125(3), pages 1051-1099, August.
  8. Joshua S. Gans & David H. Hsu & Scott Stern, 2000. "When Does Start-Up Innovation Spur the Gale of Creative Destruction?," NBER Working Papers 7851, National Bureau of Economic Research, Inc.
  9. V. V. Chari & Mikhail Golosov & Aleh Tsyvinski, 2005. "Business Start-ups, The Lock-in Effect, and Capital Gains Taxation," Levine's Bibliography 784828000000000439, UCLA Department of Economics.
  10. Ashish Arora & Andrea Fosfuri & Alfonso Gambardella, 2004. "Markets for Technology: The Economics of Innovation and Corporate Strategy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262511819, June.
  11. Pedro Carneiro & James J. Heckman & Edward Vytlacil, 2010. "Evaluating Marginal Policy Changes and the Average Effect of Treatment for Individuals at the Margin," Econometrica, Econometric Society, vol. 78(1), pages 377-394, 01.
  12. Lanjouw, Jean O & Schankerman, Mark, 2004. "Protecting Intellectual Property Rights: Are Small Firms Handicapped?," Journal of Law and Economics, University of Chicago Press, vol. 47(1), pages 45-74, April.
  13. 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.
  14. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
  15. Angrist, Joshua D, 2001. "Estimations of Limited Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 27-28, January.
  16. Moffitt, Robert A, 2001. "Estimations of Limited Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice: Comment," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 20-23, January.
  17. Angrist, Joshua D, 2001. "Estimations of Limited Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 2-16, January.
  18. Mullahy, John, 2001. "Estimations of Limited Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice: Comment," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 23-25, January.
  19. Todd, Petra, 2001. "Estimations of Limited Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice: Comment," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 25-27, January.
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