Working Paper: NBER ID: w17367
Authors: 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, but the impact is heterogeneous. We show that patents with larger potential gains from trade are more likely to change ownership, suggesting that the market for innovation is efficient, and the impact of trade on litigation depends on characteristics of the transactions.
Keywords: patent rights; innovation market; litigation risk; capital gains tax
JEL Codes: H24; K41; O32; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital gains tax rates (H24) | patent trading decisions (D45) |
| patent trading decisions (D45) | litigation risk (K41) |
| capital gains tax rates (H24) | litigation risk (K41) |
| patent ownership changes (O34) | litigation risk (K41) |
| patent trading decisions (D45) | patent assertion entities influence (L49) |
| sales to firms with larger patent portfolios (L14) | litigation risk (K41) |
| sales between individuals or small firms (L81) | litigation risk (K41) |