IP Protection, Innovation Incentives, and Patenting Strategies

Abstract

We study how intellectual property (IP) protection impacts local firms' innovation incentives and patenting strategies. Exploiting the staggered establishment of specialized IP courts across Chinese regions, we show that strengthening IP protection leads to higher R&D investments but lower patenting activities. Higher litigation risk from disclosing inventions seems to dominate the benefit of stronger protections gained from patenting. Consistent with this explanation, we find that firms reduce patenting mainly in technology fields where their industry rivals have previously patented. Overall, our findings suggest that enhancing IP protection encourages more innovation efforts, possibly in uncharted technology areas.

Keywords: IP rights, IP protection, IP courts, innovation, patents, R&D investments

JEL Classification: G38, O30, O31, O32, O34, O38