65 Pages Posted: 20 Aug 2011 Last revised: 28 Oct 2014
Date Written: August 18, 2011
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. The impact of trade on litigation is heterogeneous, however. Patents with larger potential gains from trade are more likely to change ownership, suggesting that the market for innovation is efficient. We also show that the impact of trade on litigation depends on characteristics of the transactions.
Suggested Citation: Suggested Citation
Galasso, Alberto and Schankerman, Mark A. and Serrano, Carlos J., Trading and Enforcing Patent Rights (August 18, 2011). Available at SSRN: https://ssrn.com/abstract=1912253 or http://dx.doi.org/10.2139/ssrn.1912253