Bargaining Failure and Freedom to Operate: Re-Evaluating the Effect of Patents on Cumulative Innovation

68 Pages Posted: 4 Sep 2019

See all articles by Fabian Gaessler

Fabian Gaessler

Max Planck Institute for Innovation and Competition

Dietmar Harhoff

Max Planck Institute for Innovation and Competition; Ludwig-Maximilians-Universität München; Centre for Economic Policy Research (CEPR)

Stefan Sorg

Max Planck Institute for Innovation and Competition

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Date Written: August 26, 2019

Abstract

We investigate the causal effect of patent rights on cumulative innovation, using large-scale data that approximate the patent universe in its technological and economic variety. We introduce a novel instrumental variable for patent invalidation that exploits personnel scarcity in post-grant opposition at the European Patent Office. We find that patent invalidation leads to a highly significant and sizeable increase of follow-on inventions. The effect is driven by cases where the removal of the individual exclusion right creates substantial freedom to operate for third parties. Importantly, our results suggest that bargaining failure between original and follow-on innovators is not limited to environments commonly associated with high transaction costs.

Keywords: cumulative innovation, patents, bargaining failure, freedom to operate, opposition

JEL Classification: K41, L24, O31, O32, O33, O34

Suggested Citation

Gaessler, Fabian and Harhoff, Dietmar and Sorg, Stefan, Bargaining Failure and Freedom to Operate: Re-Evaluating the Effect of Patents on Cumulative Innovation (August 26, 2019). Max Planck Institute for Innovation & Competition Research Paper No. 19-11, August 2019. Available at SSRN: https://ssrn.com/abstract=3444203 or http://dx.doi.org/10.2139/ssrn.3444203

Fabian Gaessler (Contact Author)

Max Planck Institute for Innovation and Competition ( email )

Marstallplatz 1
Munich, 80539
Germany

Dietmar Harhoff

Max Planck Institute for Innovation and Competition ( email )

Marstallplatz 1
Munich, Bayern 80539
Germany
+49 89 24246 550 (Phone)
+49 89 24246 599 (Fax)

HOME PAGE: http://www.ip.mpg.de

Ludwig-Maximilians-Universität München ( email )

Munich, 80539
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Stefan Sorg

Max Planck Institute for Innovation and Competition ( email )

Marstallplatz 1
Munich, Bayern 80539
Germany

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