Do Weaker Patents Induce Greater Research Investments?

46 Pages Posted: 12 Jun 2018 Last revised: 25 Dec 2018

Date Written: December 22, 2018

Abstract

Can weakening patent protection incentivize innovation? I investigate the effects of weakened patent protection on innovation at public firms by exploiting differential exposure to the Supreme Court decision Alice v. CLS bank. I employ a difference-in-differences design to measure the impact of the Supreme Court decision on firms exposed to the Alice decision relative to control firms that are less exposed. I provide causal evidence that innovation, measured by R&D, responds positively to weakened patent protection. Going further, I compare the impact of the Supreme Court decision on R&D investment and patent applications across the cross section of differentially exposed firms to further support my hypothesis. My estimates suggest that overly broad intellectual property rights play a significant role in deterring innovation through the accumulation of patents as weapons in legal arms races amongst productive firms.

Keywords: Patent, Innovation, Alice

JEL Classification: O34, O32

Suggested Citation

Srinivasan, Sridhar, Do Weaker Patents Induce Greater Research Investments? (December 22, 2018). Available at SSRN: https://ssrn.com/abstract=3185148 or http://dx.doi.org/10.2139/ssrn.3185148

Sridhar Srinivasan (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2211 Campus Drive
Department of Finance
Evanston, IL 60208
United States

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