Patent Rights, Innovation and Firm Exit

52 Pages Posted: 7 Dec 2015 Last revised: 26 Jun 2022

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)

Date Written: December 2015

Abstract

We study the causal impact of patent invalidation on subsequent innovation and exit by the patent holder. The analysis is based on patent litigation at the U.S. Court of Appeals for the Federal Circuit, and exploits the random allocation of judges to control for endogeneity of the judicial decision. Invalidation causes the patent holder to reduce subsequent patenting over a five-year window by 50 percent on average, but the effect is heterogeneous. The impact is large for small and medium-sized firms, particularly in technology fields where they face many large competitors, and for patents central to their technology portfolio. We find no significant effect for large firms. Invalidation also significantly increases the likelihood that small firms exit from patenting entirely.

Suggested Citation

Galasso, Alberto and Schankerman, Mark A., Patent Rights, Innovation and Firm Exit (December 2015). NBER Working Paper No. w21769, Available at SSRN: https://ssrn.com/abstract=2699998

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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