The Consequences of Radical Patent-Regime Change

Abstract

We analyze the effect of patent-regime change on innovation by exploiting a quasi-natural experiment: the forced adoption of the Prussian patent system in territories annexed after the Austro-Prussian War of 1866. Compared to other German states, Prussia granted fewer patents because of a more rigorous technical examination and stricter novelty requirements. We use novel hand-collected data on patents and world's fair exhibits to test how the forced adoption of the more restrictive Prussian patent law affected innovation. More precisely, we use world’s fair exhibits as a proxy for non-patented innovation. First, we find that the forced adoption of the Prussian patent law caused a massive decline in patenting. Second, we find an increase in world’s fair exhibits per capita after the patent-regime change, suggesting that adopting the Prussian patent system was conducive to non-patented innovation. Finally, we show that increased technology diffusion is a plausible channel for the positive effect of patent-regime change on innovation.

Keywords: Innovation, Intellectual Property, Patents, Patent Law, Technological Change

JEL Classification: N13, N43, O14, O33, O34