Authors: Fabian Gaessler, Dietmar Harhoff and Stefan Sorg
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 Office. We find that patent invalidation leads to a highly significant 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.
Citation: Gaessler, Fabian and Harhoff, Dietmar and Sorg, Stefan, Bargaining Failure and Freedom to Operate: Re-Evaluating the Effect of Patents on Cumulative Innovation (August 26, 2019). Max Planck Institute for Innovation & Competition Research Paper No. 19-11, August 2019. Available at SSRN: https://ssrn.com/abstract=3444203
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