Does a Stronger Patent System Stimulate More R&D? Yes, in Firms That Rely on Patents as an Appropriation Mechanism

Abstract

We propose a novel empirical strategy for detecting the potential effects of patent reforms on R&D investments. Our strategy builds on the insight that there is great variation in the extent to which firms rely on patents as an appropriation mechanism. Increases in patent protection should benefit those firms that rely on patents disproportionately more. We apply such insight by combining measures of industry reliance on patent protection (IRPP) from seminal innovation surveys with the establishment of the U.S. Court of Appeals for the Federal Circuit (CAFC) in 1982, the focal pro-patent reform of interest. Using a difference-in-differences approach, we find a positive effect of stronger patent protection on the R&D investments of firms with greater reliance on patent protection. Such effect is economically significant and only arises in the post-CAFC period for firms located in regional circuits that experienced high increases in patent protection.

Keywords: R&D, Patents, Enforcement, Patent Law, Innovation

JEL Classification: O31, O34