Patents and Cumulative Innovation: Causal Evidence from the Courts

77 Pages Posted: 8 Jul 2014 Last revised: 11 Mar 2015

See all articles by Alberto Galasso

Alberto Galasso

University of Toronto - Strategic Management

Mark A. Schankerman

London School of Economics and Political Science; Centre for Economic Policy Research (CEPR)

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Date Written: July 2014

Abstract

Cumulative innovation is central to economic growth. Do patent rights facilitate or impede follow-on innovation? We study the causal effect of removing patent rights by 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 Appeals for the Federal Circuit to control for endogeneity of patent invalidation. Patent invalidation leads to a 50 percent increase in citations to the focal patent, on average, but the impact is heterogeneous and depends on characteristics of the bargaining environment. Patent rights block downstream innovation in computers, electronics and medical instruments, but not in drugs, chemicals or mechanical technologies. Moreover, the effect is entirely driven by invalidation of patents owned by large patentees that triggers more follow-on innovation by small firms.

Suggested Citation

Galasso, Alberto and Schankerman, Mark A., Patents and Cumulative Innovation: Causal Evidence from the Courts (July 2014). NBER Working Paper No. w20269. Available at SSRN: https://ssrn.com/abstract=2463384

Alberto Galasso (Contact Author)

University of Toronto - Strategic Management ( email )

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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