Trading and Enforcing Patent Rights
University of Toronto - Rotman School of Management; University of Toronto - Strategic Management
Mark A. Schankerman
London School of Economics and Political Science; Centre for Economic Policy Research (CEPR)
Carlos J. Serrano
Universitat Pompeu Fabra, Barcelona GSE; Bank of Spain - Research Department; University of Toronto - Rotman School of Management, RIIB; National Bureau of Economic Research (NBER)
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.
Number of Pages in PDF File: 65
Date posted: August 20, 2011 ; Last revised: October 28, 2014