Patent Inequality

43 Pages Posted: 2 Apr 2019

See all articles by Gregory Day

Gregory Day

University of Georgia - C. Herman and Mary Virginia Terry College of Business

W. Michael Schuster

Oklahoma State University

Date Written: March 9, 2019

Abstract

Using an original dataset of over 1,000,000 patents and empirical methods, we find that the patent system perpetuates inequalities between powerful and upstart firms. When faced with growing numbers of patents in a field, upstart inventors reduce research and development expenditures, while those already holding many patents increase their innovation efforts. This phenomenon affords entrenched firms disproportionate opportunities to innovate as well as utilize the resulting patents to create barriers to entry (e.g., licensing costs or potential litigation).

A hallmark of this type of behavior is securing large patent holdings to create competitive advantages associated with the size of the portfolio, regardless of the value of the underlying patents. Indeed, this strategy relies on quantity, not quality. Using a variety of models, we first find evidence that this strategy is commonplace in innovative markets. Our analysis then determines that innovation suffers when firms amass many low-value patents to exclude upstart inventors. From these results, we not only provide answers to a contentious debate about the effects of strategic patenting, but also suggest remedial policies to foster competition and innovation.

Suggested Citation

Day, Gregory and Schuster, W. Michael, Patent Inequality (March 9, 2019). Alabama Law Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3349846

Gregory Day (Contact Author)

University of Georgia - C. Herman and Mary Virginia Terry College of Business ( email )

Brooks Hall
Athens, GA 30602-6254
United States

W. Michael Schuster

Oklahoma State University ( email )

201 Business Building
Stillwater, OK 74078-0555
United States

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