Effects of Patent Rights on Acquisitions and Small Firm R&D

Abstract

I investigate how patent rights affect small firm R&D incentives through the acquisition channel. For this purpose, I hand-collect detailed data on patent lawsuits filed in the Court of Appeals for the Federal Circuit (CAFC). Using historical decisions of randomly assigned judges as an instrument for lawsuit outcomes and a Supreme Court decision as an exogenous variation for the strength of patent rights, I find that infringers increase acquisitions to obtain substitute patents in a strong patent rights regime. The increase in acquisition market liquidity leads to more innovation, venture capital (VC) financing, and successful outcomes for small firms.

Keywords: Patents, Mergers and Acquisitions (M&A), Innovation, Research and Development (R&D), Patent Law

JEL Classification: G34, O32, K10