Working Paper: NBER ID: w20269
Authors: 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.
Keywords: patents; cumulative innovation; court invalidation; follow-on innovation; knowledge spillovers
JEL Codes: O33; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Patent Invalidation (L49) | Increase in Citations to Focal Patent (O34) |
| Patent Invalidation (L49) | Increase in Citations to Focal Patent (Delayed Effect) (O34) |
| Patent Invalidation (L49) | Increase in Citations to Focal Patent (Heterogeneous Effect) (O36) |
| Patent Invalidation (Strong Patents) (O34) | Increase in Citations to Focal Patent (O34) |
| Patent Invalidation (L49) | Increase in Citations to Focal Patent (Technology Specific) (O34) |
| Patent Invalidation (Large Firms) (L49) | Increase in Citations by Small Innovators (O36) |