Discussion paper

DP19116 Does a Stronger Patent System Stimulate More R&D? Yes, in Firms That Rely on Patents as an Appropriation Mechanism

This study proposes a diff-in-diff empirical setting for detecting firm-level responses to patent law changes. The design builds on the insight that there is great variation in the effectiveness of patents as an appropriation mechanism across firms. We account for such differences with a new firm-level measure that results from interacting average industry patent effectiveness rates from the Carnegie Mellon Survey with firm characteristics. Leveraging the establishment of the U.S. Court of Appeals for the Federal Circuit (CAFC) in 1982, we find that stronger patent protection did encourage research investments and patenting. This empirical design allows us to study the relationship between patents and alternative protection mechanisms. Results point to substitutability between patents and complementary sales, which implies that firms lacking the capacity to independently commercialize their innovations benefit more from patenting. We also analyze whether the intensity of firm responses depend on their primary motivations for patenting, finding that the excludability function is indeed important, along with other reasons such as gaining access to other technologies and measuring performance.

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Citation

Arque-Castells, P and C Fons-Rosen (2024), ‘DP19116 Does a Stronger Patent System Stimulate More R&D? Yes, in Firms That Rely on Patents as an Appropriation Mechanism‘, CEPR Discussion Paper No. 19116. CEPR Press, Paris & London. https://cepr.org/publications/dp19116