DP16320 Quick or Broad Patents? Evidence from U.S. Startups

Author(s): Deepak Hegde, Alexander P. Ljungqvist, Manav Raj
Publication Date: July 2021
Keyword(s): entrepreneurship, Innovation, patents, Scope, venture capital
JEL(s): D23, G24, L26, O34
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16320

We study the effects of patent scope and review times on startups and externalities on their rivals. We leverage the quasi-random assignment of U.S. patent applications to examiners and find that grant delays reduce a startup's employment and sales growth, chances of survival, access to external capital, and future innovation. Delays also harm the growth, access to external capital, and follow-on innovation of the patentee's rivals, suggesting that quick patents enhance both inventor rewards and generate positive externalities. Broader scope increases a startup's future growth (conditional on survival) and innovation but imposes negative externalities on its rivals' growth.