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Trading and Enforcing Patent Rights

Author

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  • Alberto Galasso
  • Mark Schankerman
  • Carlos J. Serrano

Abstract

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.

Suggested Citation

  • Alberto Galasso & Mark Schankerman & Carlos J. Serrano, 2011. "Trading and Enforcing Patent Rights," CEP Discussion Papers dp1072, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp1072
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    References listed on IDEAS

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    More about this item

    Keywords

    patents; litigation; market for innovation; capital gains taxation;

    JEL classification:

    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • 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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