Patents Rights and Innovation by Sm all and Large Firms (with Mark Schankerman)
Abstract:
This paper studies the causal impact of patent
s on subsequent innovation by the patent holder. The analysis is based on c
ourt invalidation of patents by the U.S. Court of Appeals for the Federal C
ircuit, and exploits the random allocation of judges to control for the end
ogeneity of the judicial decision. Patent invalidation leads to a 50 percen
t decrease in patenting by the patent holder, on average, but the impact de
pends critically on characteristics of the patentee and the competitive env
ironment. The effect is entirely driven by small innovative firms in techno
logy fields where they face many large incumbents. Invalidation of patents
held by large firms does not change the intensity of their innovation but s
hifts the technological direction of their subsequent patenting.