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Patents and Cumulative Innovation: Causal Evidence from the Courts

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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 percent 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.

Suggested Citation

  • Alberto Galasso & Mark Schankerman, 2014. "Patents and Cumulative Innovation: Causal Evidence from the Courts," NBER Working Papers 20269, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:20269
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    Cited by:

    1. Philippe Aghion & Stefan Bechtold & Lea Cassar & Holger Herz, 2018. "The Causal Effects of Competition on Innovation: Experimental Evidence," Journal of Law, Economics, and Organization, Oxford University Press, vol. 34(2), pages 162-195.
    2. Patrick Gaulé, 2018. "Patents and the Success of Venture‐Capital Backed Startups: Using Examiner Assignment to Estimate Causal Effects," Journal of Industrial Economics, Wiley Blackwell, vol. 66(2), pages 350-376, June.
    3. Michael Noel & Mark Schankerman, 2013. "Strategic Patenting and Software Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 61(3), pages 481-520, September.
    4. 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.
    5. 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.
    6. Guido Cozzi & Silvia Galli, 2014. "Sequential R&D and blocking patents in the dynamics of growth," Journal of Economic Growth, Springer, vol. 19(2), pages 183-219, June.
    7. Ben Dachis & Robbie Brydon & Nicholas Chesterley, 2014. "Measuring Innovation in Canada: The Tale Told by Patent Applications," e-briefs 191, C.D. Howe Institute.
    8. Galasso, Alberto & Schankerman, Mark, 2015. "Patents Rights and Innovation by Small and Large Firms," CEPR Discussion Papers 10968, C.E.P.R. Discussion Papers.
    9. Sijie Feng, 2020. "The proximity of ideas: An analysis of patent text using machine learning," PLOS ONE, Public Library of Science, vol. 15(7), pages 1-19, July.
    10. FUKUGAWA Nobuya, 2016. "Knowledge Creation and Dissemination by Local Public Technology Centers in Regional and Sectoral Innovation Systems: Insights from patent data," Discussion papers 16061, Research Institute of Economy, Trade and Industry (RIETI).
    11. Bhaven Sampat & Heidi L. Williams, 2019. "How Do Patents Affect Follow-On Innovation? Evidence from the Human Genome," American Economic Review, American Economic Association, vol. 109(1), pages 203-236, January.
    12. FUKUGAWA Nobuya, 2019. "Determinants and Impacts of Incorporation of Local Public Technology Transfer Organizations: Evidence from Japan's Kohsetsushi," Discussion papers 19095, Research Institute of Economy, Trade and Industry (RIETI).
    13. Bhaven N. Sampat, 2018. "A Survey of Empirical Evidence on Patents and Innovation," NBER Working Papers 25383, National Bureau of Economic Research, Inc.
    14. 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 - Center for Innovation, Research and Competences in the Learning Economy.
    15. Joy Buchanan & Bart Wilson, 2014. "An experiment on protecting intellectual property," Experimental Economics, Springer;Economic Science Association, vol. 17(4), pages 691-716, December.
    16. Heidi L. Williams, 2016. "Intellectual Property Rights and Innovation: Evidence from Health Care Markets," Innovation Policy and the Economy, University of Chicago Press, vol. 16(1), pages 53-87.
    17. Joel Blit & Mauricio Zelaya, 2015. "Do Firms Respond to Stronger Patent Protection by Doing More R&D?," Working Papers 1501, University of Waterloo, Department of Economics, revised Aug 2015.
    18. Christian Dippel & Dustin Frye & Bryan Leonard, 2020. "Property Rights without Transfer Rights: A Study of Indian Land Allotment," NBER Working Papers 27479, National Bureau of Economic Research, Inc.
    19. Nobuya Fukugawa, 2016. "Knowledge creation and dissemination by Kosetsushi in sectoral innovation systems: insights from patent data," Scientometrics, Springer;Akadémiai Kiadó, vol. 109(3), pages 2303-2327, December.
    20. Piermartini, Roberta & Rubínová, Stela, 2014. "Knowledge spillovers through international supply chains," WTO Staff Working Papers ERSD-2014-11, World Trade Organization (WTO), Economic Research and Statistics Division.
    21. Jung Kwan Kim & Ram Mudambi, 2020. "An ecosystem-based analysis of design innovation infringements: South Korea and China in the global tire industry," Journal of International Business Policy, Palgrave Macmillan, vol. 3(1), pages 38-57, March.
    22. Alberto Galasso & Mark Schankerman, 2015. "Patent Rights, Innovation and Firm Exit," NBER Working Papers 21769, National Bureau of Economic Research, Inc.
    23. Lampert, Hodaya & Wettstein, David, 2020. "Patents and pools in pyramidal innovation structures," International Journal of Industrial Organization, Elsevier, vol. 69(C).
    24. Joel Blit & Mauricio Zelaya, "undated". "The impact of patent protection on R&D. Evidence using export markets," Working Papers 17010, University of Waterloo, Department of Economics.

    More about this item

    JEL classification:

    • 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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