When stronger patent law reduces patenting: Empirical evidence
56 Pages Posted: 13 Oct 2020 Last revised: 3 Oct 2022
Date Written: April 22, 2022
Abstract
How should businesses adjust to stronger legal protection of patents? Theoretically, stronger legal protection affects strategic portfolios (for use in negotiations and blocking competition) in two ways. One is the infra-marginal effect: as each patent becomes more effective, the gain from having multiple patents would be less, hence reducing the number of patents. The other is the marginal effect: with the effective price of patent protection being lower, the incumbent would demand more protection and more patents. The net effect is more likely to be negative in complex technology industries, and more pronounced among businesses that face larger holdup costs in negotiations (fragmented patent ownership, more manufacturing assets), benefit more from blocking competitors (more intense local competition), and larger in size. Between 1982-85, the U.S. Court of Appeals for the Federal Circuit shifted patent law in favor of owners, to degrees that varied geographically by judicial circuit. Empirically, on average, post-CAFC, businesses reduced strategic patenting by 23.3 percent, and the contingent effects accorded with the hypotheses.
Keywords: strategic patents, entry, patent law
JEL Classification: O30, O34
Suggested Citation: Suggested Citation