When Does Patent Protection Spur Cumulative Research Within Firms?

Journal of Law, Economics and Organization, 40(3): 694-728

Abstract

We estimate the effect of patent protection on follow-on investments in corporate scientific research. We exploit a new method for identifying an exogenous reduction in the protection a granted patent provides. Using data on public, research-active firms between 1990 and 2015, we find that firms respond to a decrease in patent protection by reducing follow-on research, as measured by a drop in internal citations to an associated scientific article. We study this effect across firms with varying commercialization capabilities and across varying thickness levels of markets for technology. We find that the effect is stronger in technologies where patents are traded less frequently. Our findings are consistent with a stylized model whereby patent protection is a strategic substitute for commercialization capability. Our results imply that stronger patents encourage follow-on research, but also shift the locus of research from big firms toward smaller firms and startups. As patent protection has strengthened since the mid-1980s, our results help explain why the American innovation ecosystem has undergone a growing division of innovative labor, where startups become important sources of new ideas.

Journal of Law, Economics and Organization (doi: 10.1093/jleo/ewad006)

Publication

Citation

@article{AroraEtAl2023Patent,
    author = {Arora, Ashish and Belenzon, Sharon and Marx, Matt and Shvadron, Dror},
    title = {When does patent protection spur cumulative research within firms?},
    journal = {The Journal of Law, Economics, and Organization},
    volume = {40},
    number = {3},
    pages = {694-728},
    year = {2023},
    month = {06},
    issn = {8756-6222},
    doi = {10.1093/jleo/ewad006},
    url = {https://doi.org/10.1093/jleo/ewad006},
    eprint = {https://academic.oup.com/jleo/article-pdf/40/3/694/60699137/ewad006.pdf},
}