Patents and Cumulative Innovation: Causal Evidence from the Courts

63 Pages Posted: 9 Apr 2013 Last revised: 16 Dec 2014

See all articles by Alberto Galasso

Alberto Galasso

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)

Date Written: August 18, 2013

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

Suggested Citation

Galasso, Alberto and Schankerman, Mark A., Patents and Cumulative Innovation: Causal Evidence from the Courts (August 18, 2013). Rotman School of Management Working Paper No. 2247011. Available at SSRN: https://ssrn.com/abstract=2247011 or http://dx.doi.org/10.2139/ssrn.2247011

Alberto Galasso (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/facbios/viewFac.asp?facultyID=alberto.galasso

University of Toronto - Strategic Management ( email )

105 St George Street
Toronto, ON M5S 1L2
Canada

Mark A. Schankerman

London School of Economics and Political Science ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 7518 (Phone)
+44 20 7831 1840 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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