Citation

Discussion Paper Details

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

Author(s): Fabian Gaessler, Dietmar Harhoff and Stefan Sorg

Publication Date: August 2019

Keyword(s): bargaining failure, Cumulative innovation, freedom to operate, opposition and patents

Programme Area(s): Industrial Organization

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 Of�ce. We �nd that patent invalidation leads to a highly signi�cant 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.

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Bibliographic Reference

Gaessler, F, Harhoff, D and Sorg, S. 2019. 'Bargaining Failure and Freedom to Operate: Re-evaluating the Effect of Patents on Cumulative Innovation'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13969