Patents and Cumulative Innovation: Causal Evidence from the Courts

Abstract

Cumulative innovation is central to economic growth. Do patent rights facilitate or impede such follow-on innovation? This paper studies the causal effect of removing patent protection through 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 Appeal for the Federal Circuit to control for the endogeneity of patent invalidation. We find that patent invalidation leads to a 50 percent increase in subsequent citations to the focal patent, on average, but the impact is highly heterogeneous. Patent rights appear to block follow-on innovation only in the technology fields of computers, electronics and medical instruments. The effect is entirely driven by invalidation of patents owned by large patentees that triggers more follow-on innovation by small firms.

Keywords: patent rights, cumulative innovation, economics of innovation

JEL Classification: O33, O34, K41