Working Paper: NBER ID: w21959
Authors: Joan Farre-Mensa; Deepak Hegde; Alexander Ljungqvist
Abstract: Motivated by concerns that the patent system is hindering innovation, particularly for small inventors, this study investigates the bright side of patents. We examine whether patents help startups grow and succeed using detailed micro data on all patent applications filed by startups at the U.S. Patent and Trademark Office (USPTO) since 2001 and approved or rejected before 2014. We leverage the fact that patent applications are assigned quasi-randomly to USPTO examiners and instrument for the probability that an application is approved with individual examiners’ historical approval rates. We find that patent approvals help startups create jobs, grow their sales, innovate, and reward their investors. Exogenous delays in the patent examination process significantly reduce firm growth, job creation, and innovation, even when a firm’s patent application is eventually approved. Our results suggest that patents act as a catalyst that sets startups on a growth path by facilitating their access to capital. Proposals for patent reform should consider these benefits of patents alongside their potential costs.
Keywords: patents; startups; innovation; economic growth
JEL Codes: D23; G24; L26; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Approval of a startup's first patent application (O38) | Employment growth (J23) |
| Approval of a startup's first patent application (O38) | Sales growth (O49) |
| Approval of a startup's first patent application (O38) | Number of subsequent patents filed (O34) |
| Approval of a startup's first patent application (O38) | Quality of patents (citations per patent) (L15) |
| Approval of a startup's first patent application (O38) | Probability of going public (G24) |
| Delays in the patent examination process (O34) | Employment growth (J23) |
| Delays in the patent examination process (O34) | Sales growth (O49) |